Devaluation, Goods Price Variation, And Gdp Growth

The study evaluates how changes in prices of goods and services and currency rates have affected growth rate of GDP in a sample of thirty-two (32) developing countries across Africa, Asia, Latin America, and Europe and fifteen (15) developed countries from Europe, Asia, and North America. The methodologies adopted in analyzing the data collected in this research work were the panel GARCH, panel NARDL, and panel SVAR. For developing countries, positive devaluation shock induced a 0.641% decrease in GDP growth rate, while a decrease in devaluation shock stimulated a 0.286% increase in GDP growth rate. A positive variation in goods price led to a 0.496% decrease in GDP growth rate, while a 0.23% decline in GDP growth rate related to a percentage decline in price variation. For the developed countries, positive variation in goods prices stimulated a 0.00554 increase in GDP growth rate whereas 0.068% rise was induced owing a negative price variation. The major research outcome is that devaluation negatively impacted GDP growth rate in the developing countries while it favorably impacted GDP growth rate of developed countries. The observed shocks from devaluation and price variations to the growth rate of GDP are highly persistent for the developing nations. For the developed nations, shocks are symmetric, temporary and will die out with time. Economic managers of the developing countries should guide against devaluing their currency because it produces adverse consequences for their economies due to low productivity. Rather, policies should be implemented to stabilize variation in commodities prices in developing economies to prevent smuggling of goods as well as, price racketeering by producers.