THE THRESHOLD EFFECT OF EXCHANGE RATE ON ECONOMIC GROWTH IN BRAZIL, RUSSIA, INDIA, CHINA AND SOUTH AFRICA (BRICS) COUNTRIES
DOI:
https://doi.org/10.2478/eoik-2025-0057Keywords:
exchange rates, economic growth, BRICS, regimes, Panel, Threshold, regressionAbstract
The growth of any economy is pivotal to its development and sustainability. Achieving this kind of feat depends on various factors that include but are not limited to exchange rates. This article examines the threshold effect of exchange rates on economic growth in BRICS countries from 1994 - 2022. The paper employed the Panel Threshold regression model to explore the threshold effect of exchange rates on economic growth in BRICS countries across different regimes (lower regime or upper regime). The findings of this study confirm that economic growth exhibits a positive relationship with exchange rate appreciation in the lower regime (EXCH < 5.164), while exchange rate depreciation in the upper regime (EXCH > 5.164) has a negative impact on growth. Moreover, when the exchange rate depreciates beyond the threshold in the upper regime, the negative effects extend to other control variables such as inflation rate, interest rate and trade openness, further constraining economic growth. These insights provide valuable guidance for BRICS nations and similar economic blocs in formulating more effective monetary and exchange rate policies and choosing the most appropriate exchange rate regime, which can be leveraged by the New Development Bank to enhance economic stability and resilience. This study underscores the significant influence of exchange rates on economic growth in BRICS countries, providing valuable insights for policymakers to refine strategies during excessive exchange rate depreciation. It is one of the few analyses employing the PRT to investigate the threshold effects of exchange rates on growth and the first to do so specifically within the BRICS context
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