Impact of Per Capita Income on Exchange Rate with Regression Tool

Abstract

In this article we test the relationship between per capita income differential and exchange rate differential between two different economic background countries. Recent researches have been done on the testing of international Fisher effect, Interest rate, GDP growth rate and purchasing power parity, but few researches based on regression analysis so we test this relationship by using simple regression model.

For this research, we have chosen United States of America a 'fully developed country' and Pakistan a 'developing country'. Research was conducted through the past ten years per capita income and exchange rate data in rupees. Research findings suggest there is a positive relationship between per capita income differential and exchange rate differential but there is a slight impact of per capita income differential on exchange rate between these two countries as there is a huge differences between the USA per capita income and Pakistan per capita income, Pakistan always has a gigantic per capita income because of that reason Pakistan currency continuously depreciating.

Keywords: Per Capita Income (PCI), Exchange Rate, Simple Linear Regression Model

JEL Classification: A1, A11, A12, A23, B4, C1, E4, E5, E51, E6, F31, M1, M2, N1, N2, P4, R1