Therefore, it has become very important for researchers and policy makers to evaluate whether economies relying on currency devaluation to improve their output, have the potential to achieve long term benefits or they are compromising on their long term benefits to achieve short term gains.
A huge literature work has been done to study the impact of currency devaluation and depreciation on output growth of economies. Various economic models such as Keynesian model argue that devaluation of currency has an expansionary impact on domestic output (Lai & Chang, 1989). This traditional view has been disproved by various researchers. Research study of Abdel-Haleim (2008) in Egyptian showed that devaluation has an initial contractionary effect on output however; this effect lasts for four years after which expected positive impact of devaluation starts to become significant. The impact of currency devaluation may also vary from economy to economy as found by the research of Kalyoncu and his co-researchers. Kalyoncu, Artan, Tezekici, & Ozturk (2008) found that currency devluation has a signitficant impact on output in nine out of 23 countries and out of nine, in six countries, depreciation reduces the output growth whereas, in three countries it improves the output growth. Upadhyaya in 1988 found that currency devaluation has a neutral effect on output level in the long run and Upadhyaya and Upadhyay in 1999 found that currency devaluation does not have any impact on output in six Asian countries (Upadhyaya, Rainish, & Phelan, 2009). Therefore, this research study has been proposed to reach a conclusion based on empirical study.
Where, Y is the dependent variable and in this research study, dependent variable is “real GDP” and x is independent variable, which is real exchange rate. The alphabet ‘a’ represents intercept and ‘b’ represents the slope. The secondary data of real exchange rate and real GDP of ten countries will be collected from electronic