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

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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.

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Authors and Affiliations

  1. COMSATS University Islamabad, Lahore Campus, Lahore, Pakistan

    Summaira Malik

  2. National College of Business Administration and Economics, Lahore, Pakistan

    Ali Abbas

  3. Department of Business Administration, Faculty of Management Sciences, ILMA University, 75190, Karachi, Pakistan

    Malik Shahzad Shabbir

  4. Research Institute (IC-UAC), University of Andina Del Cusco, Cusco, Peru

    Carlos Samuel Ramos-Meza

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  1. Summaira Malik
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Malik, S., Abbas, A., Shabbir, M.S. et al. Business Cycle Fluctuations, Foreign Direct Investment, and Real Effective Exchange Rate Nexus Among Asian Countries. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01316-7

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