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Optimum Exchange rate and Economic Growth in Sudan

Arabi, Khalafalla (2020): Optimum Exchange rate and Economic Growth in Sudan.

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Abstract This paper targets the Sudanese pound's optimum exchange rate value against the US dollar. Threshold regression is the key method for evaluating a sample duration over the period 1960-2017 for four variables, which are the real GDP (Y), the exchange rate (X) as threshold variable, two non-threshold variables labor force, and investment, which serves as a proxy for capital stock. Results point to a positive sign of the threshold variable up to the value of 2456, then a negative one above that value. This means that the exchange rate can have a beneficial impact on economic growth up to that value. As postulated, the signs of the non-threshold variables are positive. Compared with investment, the influence of the labor force is greater, indicating the superiority of the labor-intensive principle. The threshold value is in the 2005 year, which corresponds to the best shape of Kaldor square with a growth rate of 6 percent, inflation rate of 8 percent, a budget deficit to GDP ratio of (-2) percent, and a balance of payment to GDP ratio of (-1). Human capital and technology modernization must have priority. Government initiatives should strive and make every effort to lift the value of the Sudanese pound (SDG) to the threshold, that can be fostered by the accumulation of gold reserves. Particular focus on the growth rate, inflation rate, budget deficit, and balance of payments ratios to GDP. It is important to revise the foreign policy to comply with economic policies.

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