Exchange Rate Volatility and Economic Growth of Lebanon

Abstract

The exchange rate fluctuation is a key macroeconomic factor that impacts economic growth and provides insights into attracting foreign investment. It also plays a role in imports and exports as influence on the economic growth of a country. Previous research employed different approach to study this impact and provided mixed results. The purpose of this paper is to examine the correlation between exchange rate and economic growth of Lebanon considering the control variables of imports, exports and investments relationship with GDP. An empirical investigation that uses annual data for all variables from the period of 2002 to 2021. Data are conducted from both The World Bank and Bruegel databases. This data will be analysed using multiple linear regression (MLR), for the time series analysis and assessing unit root problem, Augmented Dicky Fuller (stationary test) will be implemented. Findings suggest that the regression estimation for the data measure of real effective exchange rate (REER) to have a statically significant negative impact on GDP of Lebanon, while imports have a positive correlation with GDP and both exports and investments, appear to have a statically significant negative correlation with GDP. Research reveals that the effect of exchange rate volatility depends on the exchange rate regime of the country as well as the country’s economic situation and crisis.