Page 520 - 2016 - Vol. 40

2-LITERATURE REVIEW:

In this chapter we briefly- review some of the
relevant literature related to the effect of exports, exchange
rate and government expenditure on the economic growth.

Exchange rate is an important economic variable that
influences the national economy and the regulations of
international trade as it converts foreign prices of exports
and imports into the domestic currency of the particular
country. These prices determine which goods are traded
and where they are shipped or sourced. Being able to
convert one currency into another at the prevailing
exchange rate is crucial to international business and
decision making. The difference in relative prices
determines the flow of products and the patterns of trade.
Currency devaluation and appreciation are used as tools to
correct external imbalances of countries, and mostly they
are short term in nature, as their effects occur during the
first several months after the exchange rate change
(Thirwall, 1992).

The choice of exchange rate regime and its impact on
economic performance is among the most controversial
issues in macroeconomic policy. The empirical 'works on

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