Anything relate to economic - Research Proposal Example

Research Proposal Problem ment The current global financial recession has severely affected the world economies. In order to come out of recession and to strengthen economic indicators, countries are focusing on improving foreign sector of economy. Currency depreciation or devaluation is being considered as an important way to improve trade balance because theoretically, devaluation of currency increases the prices of imports relative to exports, thereby, improving the foreign sector output level.

On the other hand, continuous currency depreciation is the sign of weakening of economy. 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. Research Question What are the effects of currency devaluation on output level of economies in the long run?Literature Review 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. Research Design The proposed research study will be an empirical research. To study relationship between currency devaluation and output growth, a simple model will be developed. Y = a + bXWhere, 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 sources such as International Monetary Fund for the period 1999-2009. The collected data will be analyzed by using two methods. First, correlation analysis will be done between the two variables to determine the nature of relationship. Second, regression model will be developed to explain the extent to which both variables are related. Moreover, secondary sources such as work of early researchers and theoretical concepts and models will be also used to support the findings of the data analysis.

Bibliography El-Ramly, H. (2008). The Effect of Devaluation on Output in the Egyptian Economy: A Vector Autoregression Analysis. Retrieved September 23, 2010, from EuroJournals Publishing : http://www.eurojournals.com/irjfe%2014%20hala.pdfKalyoncu, H., Artan, S., Tezekici, S., & Ozturk, I. (2008). Currency Devaluation and Output Growth: An Empirical Evidence from Oecd Countries. Retrieved September 23, 2010, from EuroJournals Publishing: http://www.eurojournals.com/irjfe%2014%20huseyin.pdfLai, C.-C., & Chang, W.-Y. (1989).

Income taxes, supply-side effects, and currency devaluation. Elsevier Inc , 11(2), 281-295 .Upadhyaya, K. P., Rainish, R., & Phelan, J. (2009, December). Currency devaluation and aggregate output in East Africa. Retrieved September 23, 2010, from http://findarticles.com/p/articles/mi_m1TSD/is_2_8/ai_n47559058/