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Business Cycle Fluctuations, Foreign Direct Investment, and Real Effective Exchange Rate Nexus Among Asian Countries

Author

Listed:
  • Summaira Malik

    (Lahore Campus)

  • Ali Abbas

    (National College of Business Administration and Economics)

  • Malik Shahzad Shabbir

    (Department of Business Administration, Faculty of Management Sciences, ILMA University, 75190)

  • Carlos Samuel Ramos-Meza

    (University of Andina Del Cusco)

Abstract

Asian economies had faced high economic instability as compared to advanced economies due to unstable exchange rates, financial dependence on advanced economies, and macroeconomic imbalances. To overcome uncertainty, earlier studies considered output volatility in the research models, while in this study, business cycle fluctuations are estimated through GDP de-trended through the Hodrick-Prescott filter, where the cyclical component of GDP is used as representative of business cycle fluctuations. This study has attempted to investigate the determinants of business cycle fluctuations among 20 Asian economies in the short run and long run through the panel ARDL model during 1990–2015. ARDL method is used as it is more suitable for cyclical component data series as compared to the standard co-integration method. Data was taken from world development indicators published by World Bank. The unit root tests showed that all the series were stationary with a mix of level and first difference, confirming the suitability of the panel ARDL technique. Panel regression analysis showed the positive and significant impact of external debt, foreign direct investment, imports, and real effective exchange rate while the negative and significant influence of exports and net domestic credit on business cycle fluctuations. Short-run analysis depicted a significant ECM value which confirmed short-run convergence toward the equilibrium. Graphical abstract

Suggested Citation

  • Summaira Malik & Ali Abbas & Malik Shahzad Shabbir & Carlos Samuel Ramos-Meza, 2024. "Business Cycle Fluctuations, Foreign Direct Investment, and Real Effective Exchange Rate Nexus Among Asian Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5466-5479, June.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:2:d:10.1007_s13132-023-01316-7
    DOI: 10.1007/s13132-023-01316-7
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