The relationship between exchange rate, export and economic growth in Afghanistan

Exchange rate, exports, and government expenditures are fundamental macroeconomic variables that have significant impacts on a country's economic growth. This study aims to examine the short- and long-term relationships between exchange rate, exports, government expenditures, and economic growth, taking into account the specific conditions of the Afghan economy. Using annual data from the period 1980 to 2021, the analysis was conducted through various econometric methods. The methods employed in the study include ADF and PP unit root tests, VAR model, Johansen cointegration test, VECM and FMOLS models, as well as the Granger causality test. The results indicate that in the short term, exchange rate, exports, and government expenditures have negative and significant effects on economic growth. In the long run, however, the exchange rate has a negative impact on economic growth, while exports show a positive and significant effect. Additionally, government expenditures play a supportive role in promoting economic growth in the long run. These findings suggest that economic policies should focus on promoting exports, stabilizing exchange rate fluctuations, and directing government spending toward more productive and efficient sectors.