Political Stability and Balance of Payment: An Empirical Study in Asia

Abstract

This study analyze that influences of political stability on balance of payment and relative importance of political stability and economic freedom for healthy of balance of payment and exchange rate stability. Political stability has an important role in determination of healthy of balance of payment than economic freedom. This study focus on selected 10 Asian countries of various income levels and test the factor of political stability and economic freedom in stability of balance of payment by using a simple econometric model with various techniques. Our empirical finding shows that political stability is more important than economic freedom in stabilizing balance of payment. Stable political regime with visionary leadership leads the nations to higher level of favorable balance of payment. Political stability is playing major role than theoretical explanation to achieve surplus of balance of payment hence exchange rare stability. Surplus of trade balance, foreign direct investment and higher international reserves hence appreciation of Yuan in china mostly depends on its long term political stability under one party political system rather than pure theoretical determination of balance of payment. Attaining of political stability before economic freedom is policy implication of this study to achieve international financial stability.