TITLE:
Co-Integration Tests and the Long-Run Purchasing Power Parity: A Case Study of India and Pakistan Currencies
AUTHORS:
Anwar Al-Gasaymeh, Gouher Ahmed, Tariq Mehmood, Haitham M. Alzoubi
KEYWORDS:
Purchasing Power Parity, Johansen Integration, India, Pakistan
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.4,
March
26,
2019
ABSTRACT: This is a study of the application of the purchasing
power parity propositions to the interesting cases of India & Pakistan
through the Co-integration method. The results of the Co-integrations of both
the nations demonstrate that the exchange rates are more in tandem with price
movements supporting PPP theorem. This is interesting given the near-and-far
off relationship between India and Pakistan owing to historical and
contemporary factors which does not hold an irrational exchange rate. It is
good for the two important developing nations to expand their economic and
trade relationship which is a win-win situation for both countries. The study
also points to the need of the two countries, with extensive poverty still in
spite of their nearly seven decades’ history of their development, to better
manage their economies and currencies, the latter from fall and fall, which is
dimming the international standing of their currencies. The study is a modest
contribution to the literature on the Purchasing Power Parity theory with
reference to the “special” cases of India and Pakistan.