Real Exchange Rate and Economic Growth: An Empirical Assessment for Vietnam

Abstract

In theory, exchange rates and economic growth are regarded as having an indirect link via trade and capital investment. However, empirical investigation of this link in the context of one specific country has not hitherto been seriously considered, and Vietnam is no exception. It is essential that policy makers have insight into the extent to which exchange rates impact on their country's rate of economic growth. This paper aims to do so for Vietnam. By conducting a Vector autoregression (VaR) estimation, the Granger Causality test, and impulse response, the article aims to analyze empirically the effects of real exchange rates on economic growth in Vietnam from 2007 to 2017 using quarterly data. The results show a positive relationship between real exchange rates and economic growth. A one percentage point real depreciation in Vietnamese dong rates (VND) may lead to a 1.61923 percent growth in real gross domestic product (GDP) in this country, but this takes effect only during the first four periods (or lag 1). Moreover, The variance decomposition of forecast errors (FEVD) outcome also reveals that the real effective exchange rate (REER) made only a small contribution to GDP growth over the decade to 2017 compared to earlier periods. Contribution/ Originality: This is one of very few studies that investigate the link between exchange rates and economic growth in Vietnam using real exchange rates in a VaR model.

Effectiveness of Monetary Policy in Indonesia

“…The negative relationship between exchange rate and economic growth is in line with Barguellil et al on 45 developing countries from 1985-2015 period where the IDR against the dollar negatively affected economic growth (Barguellil, Ben-Salha, and Zmami, 2018). Furthermore, in Vietnam, a positive relationship was found between the two variables from 2007-2017 (Do, 2019) as well as in Indonesia (Ismanto, 2019).…”

Influence of COVID-19's active cases on Malaysia's key economic performance indicators

“…It shows that the pandemic is intimidating foreign exchange rate movement as well. Also, the foreign exchange rate is not affected because domestic credit plays a significant role in improving economic growth rather than merely focusing on the exchange rate (Huong, 2019). Thus, the fourth hypothesis is as follows: 4 = COVID-19 has significant influenced on Foreign exchange rate…”