Are Devaluations Expansionary in Laos?

This study investigates whether currency devaluation is expansionary for Laos. We combine cointegration and vector error correction method (VECM) Granger causality analysis to examine long-run and causal relationships among selected macroeconomic variables. Our results confirm the presence of cointe...

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Bibliographic Details
Published in:Global business review 2019-02, Vol.20 (1), p.72-83
Main Authors: Kyophilavong, Phouphet, Shahbaz, Muhammad, Lamphayphan, Thongphet, Kim, Byoungki, Wong, Michael C. S.
Format: Article
Language:English
Subjects:
Causality
Currency devaluation
Economic growth
Economic models
Government spending
Macroeconomics
Money supply
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Summary:This study investigates whether currency devaluation is expansionary for Laos. We combine cointegration and vector error correction method (VECM) Granger causality analysis to examine long-run and causal relationships among selected macroeconomic variables. Our results confirm the presence of cointegration among the variables and support expansionary effects of currency devaluation on economic growth of Laos. Government spending increases economic growth but money supply decreases the growth. World income is inversely linked with Laos’ economic growth. Our evidence supports the devaluation-led growth hypothesis.
ISSN:0972-1509
0973-0664
DOI:10.1177/0972150918803996