The Measuring Economic Cost of Exchange Rate: Empirical Evidence from Panel Data

Purpose- This study examines the economic cost of exchange rate. Pakistan has been facing serious issue in regard of exchange rate and this fluctuations impact on various economic indicators or variables. The overall exchange rate value is being depreciated since 2008, it started from Rs 60 against one dollar and recently it reached to Rs, 154 that is equal to one dollar.  Design/methodology/approach- Time series panel data from 2002-2016 has been used for analysis, it has two cross-sections Pakistan and India. Data is collected from various sources that include Asian Development Bank, Transparency International US and World Economic Indicators. Exchange rate in Pak rupees and Ind rupees, corruption perception index in percentage and foreign borrowings in both Pak rupees and Ind rupees’ variables are taken for analysis. Various statistical tests have been applied for the analysis of data such as unit root panel and regression analysis panel in E-views version 7. Findings- Based on all studied variables are found to have significant and positive impact on real exchange rate. Originality/value- In previous studies research scholars investigated overall exchange rate impact on GDP of any economy. This study gives insight into exchange rate impact on government department corruption of both countries Pakistan and India. In future similar study can be conducted for those countries which are also facing problem of exchange rate in their respective countries.