Currency devaluation and output growth: new evidence from panel data analysis

Abstract

Using panel data unit root tests and panel cointegration tests including Johansen maximum likelihood cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as fully modified OLS, this study examines the effect of currency devaluation on output expansion in a sample of eleven Asian countries over the period 1968–1999. The results suggest that, in the long run, output growth is affected by currency devaluation in the majority of countries under examination and in the panel as a whole. This finding stands at variance with other recent studies, which concluded that devaluation does not exert any important influence on aggregate output.