Economic growth and political regimes: Dynamic panel estimation on the growth experiences of political regimes

College

School of Economics

Department/Unit

Economics

Document Type

Article

Source Title

Asia Pacific Business & Economics Perspectives

Volume

3

Issue

1

First Page

54

Last Page

74

Publication Date

Summer 2015

Abstract

As the Philippines continuously work to build a stable and developed financial market, an important factor to consider is the relationship of the existing and active financial markets in the country, which are the stock market, and the foreign exchange market. Other countries have studied their interaction in the past and this is not a surprise considering that while both markets are seen to be indicators of macroeconomic growth in a country, these markets are also the most sensitive segments of a financial system. While examining the relationship of both financial markets, the data used for the study includes the daily data of the exchange rate of the Philippine peso pegged to the US dollar and the PSEi closing price. To accurately measure this relationship, the study make used of the Granger’s Causality on a VAR Framework and the Correlation Test to further comprehend the nexus between the two markets. In addition to this, an Impulse Response Function was also conducted to trace the dynamic interaction among the variables. The study resulted to a bilateral relationship between the foreign exchange market and the stock market in the Philippines during the years 2006-2013. Also, with the employment of the Correlation Test it was determined that the two financial markets are negatively correlated throughout the research. Findings of the study are particularly helpful for the hedging and diversification of a corporation’s portfolio as volatility of the foreign exchange rate influences a firm’s value. Government officials and policy makers of a country (especially its central bank) will also be aided in their decision-making on both monetary and fiscal policies.

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Disciplines

Economics | Growth and Development

Keywords

Stock exchanges—Philippines; Foreign exchange—Philippines; Philippines—Economic policy

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