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    The linkage between relative population growth and purchasing power parity: cross country evidence

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    Authors
    Hassan, K.
    Salim, Ruhul
    Date
    2011
    Type
    Journal Article
    
    Metadata
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    Citation
    Hassan, Kamrul and Salim, Ruhul. 2011. The linkage between relative population growth and purchasing power parity: cross country evidence. International Journal of Development Issues. 10 (2): pp. 154-169.
    Source Title
    International Journal of Development Issues
    DOI
    10.1108/14468951111149096
    ISSN
    1446-8956
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/27090
    Collection
    • Curtin Research Publications
    Abstract

    Purpose – The aim of this paper is to examine the relationship between relative population growth and purchasing power parity (PPP) exchange rate for a panel of 80 countries. Design/methodology/approach – Panel unit root and panel cointegration tests have been used to investigate the above relationship over the period of 1951-2000. Findings – The empirical results show that there is stable relationship between PPP exchange rate and relative population growth in these selected countries in the long run. The results also show that this long-run relationship remains valid when the sample is divided on the basis of their stage of development. Practical implications – These empirical findings suggest that population growth has an important role in exchange rate determination through PPP. Originality/value – Thus, relative population growth could invalidate the PPP hypothesis in the long run. PPP is the main edifice of most of the monetary exchange rate models. Hence, the role of relative population growth should be taken into account in dealing with issues in international macroeconomics and renewed attention should be given in the theory of exchange rate determination in terms of relative population growth instead of relative price level.

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