EFFECT OF REAL EXCHANGE RATES MISALIGNMENT, EXPORT AND FOREIGN CAPITAL ON MACROECONOMIC GROWTH IN ASIA PACIFIC COUNTRIES.

ABSTRACT This study investigates the effects of real exchange rate misalignment, exports, foreign capital inflows, domestic investment, and government expenditure on macroeconomic growth across seven Asia-Pacific countries: China, Japan, Korea, Indonesia, Malaysia, Thailand, and Vietnam covering the period from 2010 to 2023. The research aims to fill a critical gap in the empirical literature by exploring nonlinear dynamics that standard linear models often fail to capture, particularly in the context of evolving Asian emerging and advanced economies. To achieve this, the study adopts a multi-model econometric strategy. Descriptive statistics and correlation analyses are used to explore initial data characteristics. The stationarity of the series is verified using panel unit root tests, including the Levin-Lin-Chu (LLC) and Im-Pesaran-Shin (IPS) tests. The study first applies the Panel Nonlinear Autoregressive Distributed Lag (NARDL) model to evaluate asymmetric short-run and long-run responses of growth to changes in exports, foreign capital, and government spending. The empirical results provide strong evidence of nonlinearities and regime-dependent effects. Real exchange rate misalignment exerts positive effects on growth when undervaluation is moderate but becomes growth-inhibiting when misalignment is extreme. Export performance enhances growth only beyond a structural transformation threshold, while foreign capital inflows and domestic investment stimulate growth more effectively once absorptive capacity and financial infrastructure pass critical levels. Likewise, government expenditure shows positive growth effects only when public spending exceeds a certain effectiveness threshold. These findings underline the importance of targeted, non-uniform policy interventions. The study suggests that policymakers in Asia-Pacific economies must consider the existence of thresholds in macroeconomic indicators to avoid policy inefficiencies. Strategies such as maintaining exchange rate alignment within an optimal band, scaling up productive public expenditure, and ensuring financial systems are mature enough to absorb capital inflows can lead to sustained and inclusive growth.