The Threshold Effect of Exchange Rate on Economic Growth in Brazil, Russia, India, China and South Africa (BRICS) Countries

Abstract This article examines the threshold effect of exchange rates on economic growth in BRICS countries from 1994 - 2022. The paper employed the Panel Threshold regression (PTR) model to explore how exchange rate fluctuations influence economic growth across different regimes (lower regime or upper regime). The findings of this study confirm that economic growth exhibits a positive relationship with the exchange rate in the lower regime (EXCH < 5.164), while exchange rate beyond the threshold value in the upper regime (EXCH > 5.164) has a negative impact on growth. Moreover, when the exchange rate is beyond the threshold value in the upper regime, other control variables such as inflation rate, interest rate and trade openness negatively affect economic growth. These insights provide valuable guidance for BRICS nations and similar economic blocs in formulating more effective monetary and exchange rate policies and choosing the most appropriate exchange rate regime, which the New Development Bank can leverage to enhance economic stability and resilience. This study underscores the significant influence of exchange rates on economic growth in BRICS countries, providing valuable insights for policy-makers to refine strategies during excessive exchange rate appreciation. It is one of the few analyses employing the PTR to investigate the threshold effects of exchange rates on growth and the first to do so specifically within the BRICS context.