Economic Growth, Exchange Rate, Political Regimes and Extreme Events Linkage: A Time Series Approach for Pakistan

Abstract

This study explores the linkage of exchange rate, political regimes, structural shocks and economic growth by utilizing the time series data set from 1960 to 2016. Our results indicate that the exchange rate’s magnitude impact is relatively high on real GDP growth in the presence of more political shocks as compared to fiscal deficit and investment in Pakistan’s economy. Fiscal deficit has an adverse effect on economic growth. Thus due to an extreme event, the fiscal deficit is likely to have more influence than the exchange rate. However, political regimes do the reverse.