Optimum Exchange rate and Economic Growth in Sudan

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

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Key Words: economic growth, exchange rate, optimum value, threshold.
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development

References

Arabi, K. A. M. & Abdalla S. Z. S. (2014) Is there evidence of a J-curve for the Sudanese trade data?. International Journal of Social Sciences and Entrepreneurship, 1 (10),154-167. https://www.academia.edu/37781861/IS_THERE_EVIDENCE_OF_A_J_CURVE_FOR_THE_SUDANESE_TRADE_DATA

Arabi K.A. M (2015) Exchange Rate Pass-through, Empirical Evidence from Sudan Economy, Journal of Applied Economics and Business Volume (3), Issue (3) PP. 5 -24. http://www.aebjournal.org/articles/0801/080101.pdf

Arabi K.A. M (2020) Does the DSGE Model fit the Sudan Economic Data? Journal of Applied Economics and Business March 2020 http://www.aebjournal.org/articles/0801/080101.pdf

Bańbuła, Piotr, Koziński, Witold, and Rubaszek Michał (2009) The Role of the Exchange Rate In Monetary Policy in Poland https://www.bis.org/publ/bppdf/bispap57t.pdf

Calvo, Guillermo A., and Mishkin, Frederic S. (2003) The Mirage of Exchange Rate Regimes for Emerging Market Countries NBER Working Paper 9808 http://www.nber.org/papers/w9808

Chapter 12 The Balance of Payment and the Exchange Rate http://faculty.washington.edu/mturn/ch12UP.pdf

Chetwin, Willy and Munro, Anella (2013) Contemporary exchange rate regimes: floating, fixed and hybrid Version for New Zealand Association of Economists Annual Conference, Wellington, 3-5 https://www.nzae.org.nz/wp-content/uploads/2014/05/Chetwin.pdf

Chong, Terence Tai Leung, and Yan, Isabel K. (2014) Estimating and Testing Threshold Regression Models with Multiple Threshold Variables https://mpra.ub.uni-muenchen.de/54732/

Cottrell Allin (2019) Cobb-Douglas Production Function, Economics 207 http://users.wfu.edu/cottrell/ecn207/cobb-douglas.pdf

Dagenais Marcel, G (1969) A Threshold Regression Model Econometrica Volume (37), Issue (2) https://www.econometricsociety.org/ publications/ econometrica/1969/04/01/threshold- regression-model Daly,

Safi Mohamed (2007) The Choice of Exchange Rate Regimes in the MENA Countries: a Probit Analysis University of Michigan https://core.ac.uk/download/pdf/7051328.pdf

Dao Thi-Thieu Ha and Nga Thi Hoang (2019) Exchange Rate Regime and Economic Growth in Asia: Convergence or Divergence https://ideas.repec.org/a/gam/jjrfmx/v13y2020i1p9-d304962.html

Dictionary of Finance and Banking 4 ed. https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100005833

Floyd J.E.(2010) Interest Rates, Exchange Rates, and World Monetary Policy https://www.springer.com/gp/book/9783642102790

Ghosh Atish R. (2003) Exchange Rates Regimes Choices and Consequences Massachusetts Institute of Technology https://www.amazon.com/Exchange-Rate-Regimes-Choices-Consequences/dp/0262

Hassan Tawakul (2016) The Impact of Monetary and Fiscal Policy in Stabilizing the Exchange Rate in Sudan 1980-2014 Northern Border University Journal of the North for Basic & Applied Sciences (JNBAS) http://ejournal.nbu.edu.sa

Horvath, Roman, and Komarek, Lubos (2002) Optimum Currency Area Theory: An Approach for Thinking about Monetary Integration University of Warwick https://wrap.warwick.ac.uk/1539/1/WRAP_Horvath_twerp647.pdf

Hurlin Christophe (2018). Chapter 3. Panel Threshold Regression Models, School of Economics and Management - University of Geneva https://www.univ-rleans.fr/deg/masters/ESA/CH/Geneve_Chapitre3.pdf

Ismael Mohamed Ismael (2017) The Impact of Exchange Rate on Inflation Rate during the period 2005 – 2015 Unpublished M.Sc. SUST http://repository.neelain.edu.sd:8080/jspui/bitstream/123456789/7925/1/%D8%A7%D8%B3%D9%85%D8%A7%D8%B9%D9%8A%D9%84.pdf

Korkmaz, Suna (2013) Effect of Exchange Rate on Economic Growth Conference Paper https://www.researchgate.net/publication/311588566 Leon

Taylor† and Altay Mussurov (2019) Real Theories of the J-Curve https://www.researchgate.net/publication/330106554_Latest_real_theories_of_the_J_curve_Jan_3_2019

Lioudis, Nick (2019) How the Balance of Trade Affects Currency Exchange Rates https://www.investopedia.com/ask/answers/041515/how-does-balance-trade-impact-currency-exchange-rates.asp

Mann, C. L. (2002). Perspectives on the U.S. Current Account Deficit and Sustainability. Journal of Economic Perspectives, 16(3), 131-152. http://www.mit.edu/~14.54/handouts/mann.pdf

Michele Cavallo and Fabio Ghironi (2004) Net foreign assets and exchange rate dynamics The monetary model revisited. Journal of Monetary Economics 49(5):1057-1097

Mohamed, A. A. A Jamaleldeen, M. M. A and Abbakar, A. A. E. (2019) The Determinant of Balance of Payments and The Mechanism of Adjustment Over (1990 - 2017) Arab Journal for Scientific Publication www.ajsp.net

Mongelle, Francesco Paolo (2002) New View on the Optimum Currency Union: What is the EMU telling us? Working Paper 138 http:/www.ecb.int

Ogawa, Eiji, and Kawasaki, Kentaro (2008) Empirical Analysis of Optimum Currency in East Asiahttp://www.ide.go.jp/library/English/Publish/Download/Report/2007/pdf/Ch7_Ogawa_Kawasaki.pdf

Ozkan, Ibrahim. Ozer, I. (2008) An Empirical Assessment of the Optimum Currency Area Theory: Turkey and the EMU Countries.Fuzzy Economic Review Volume XIII Number 1, p. 3 -18 https://www.researchgate.net/publication/46529679_An_empirical_assessment_of_the_optimum_currency_areas_theory_Turkey_and_the_emu_countries

Shogar, Abdelmunem Abdalla Haroon (2019) Short and Long-run Equilibrium Relations of Exchange Rate Determinants in Sudan by Using Auto-regressive Distributed Lag (1980-2016) https://www.econjournals.com/index.php/ijefi/article/view/6041/pdf

Pavlos Karadeloglou and Virginie Terraza (2008) Exchange Rates and Macroeconomic Dynamics Edited by PALGRAVE MACMILLAN

Roland MacDonlad (2007) Exchange Rate Economics: Theories and Evidence, Taylor & Francis e-Library.

Stučka, Tihomir (2004) The Effects of Exchange Rate Change on the Trade Balance in Croatia International Monetary Fund WP/04/65 https://www.imf.org/external/pubs/ft/wp/2004/wp0465.pdf MSc. And Ph.D. Dissertations

Abugroon, Ameer Suleiman Mustafa (2018) The Impact of Exchange Rate on Macroeconomic Indicators of Sudan for the Period 1980 2015 Unpublished Ph.D. University Shendi http://hdl.handle.net/123456789/753

Ahmed A. Omer (2009) Impact of the Exchange Rate on the Balance of Payments and Adjustment Mechanism Unpublished MSc. The University of Sudan for Science and Technology

Amani Mohamed E. Z. (2007) Impact of the Exchange Rate on the Current Account, Unpublished MSc. University of Elazhari

Habbab E. Sharfi (2015) Impact of Inflation and Exchange Rate on the Balance of Payments during the Period 2002 – 2013, Unpublished MSc. University of Khartoum

Hytham M. A.Ninni (2007) Impact of the Exchange Rate on the Foreign Direct Investment during the Period 1990 – 2005, Unpublished Ph.D. Omdurman Islamic University

Ibtisam Mohamed. A. A (2003) Impact of the Exchange Rate on the Balance of Payments during the Period 1979 – 2000, Unpublished Ph.D. University of Khartoum

Idrees M. A. Imam (2011) Impact of the Exchange Rate on the Current Account during the Period 2006 – 2010, Unpublished MSc. University of Khartoum

Mamoon M. S. Elfaki (2005) Impact of the Exchange Rate on the Balance of Payments during the Period 1996 – 2003, Unpublished MSc. University of Nelein

Manal A. Abbas (2004) Impact of the Exchange Rate on the Sudanese Economy during the Period 1990 – 2001, Unpublished Ph.D. University of Khartoum

Mohamed Aljeli M. S. (2002) Impact of the Exchange Rate Movement on the Balance of Payments during the Period 1970 – 2001, Unpublished Ph.D. Omdurman Islamic University

Musa M. Elbur (2005) Impact of the Exchange Rate on the Current Account during the Period 1979 – 2000, Unpublished MSc. University of Khartoum

Raha M. s. Jallab (2015) Impact of the Exchange Rate on the Current Account during the Period 1970 – 2010, Unpublished MSc. University of Khartoum

Razzaque, Mohammad A. Bidisha, Sayema Haque Khondker, Bazlul Haque (2017) Exchange Rate and Economic Growth: An Empirical Assessment for Bangladesh Journal of South Asian Development

Ruaa Taha Y. M (2012) Impact of the Exchange Rate on the Current Account during the Period 2000 – 2010, Unpublished MSc. University of Elazhari

Salma Hassna A. M (2013) Impact of the Exchange Rate Regimes and Policies on the Balance of Payments during the Period 1978 – 2010, Unpublished MSc. University of Khartoum https://www.researchgate.net/publication/5206398 Austrian exchange rate policy and European monetary integration selected issues Article • January 1995