The Effect of Goods Market Efficiency, Market Size and Technological Readiness on the Strength of the National Currency in Selected Countries

Although the amount of gold reserves determines the strength of the national currency in the past, today, more production and trade in the world's market is the determinant of the national currency strength, in the meantime, the improvement of national efficiency and competitiveness by helping to increase the share of global production and trade will increase the power of the national currency. In this respect, the present study attempts to investigate the effect of factors of efficiency, including goods market efficiency, market size, and technical readiness as the key variables and higher education and training, labor market efficiency, and financial market development as controlling variables on the strength of the national currency in two groups of selected countries (efficiency-driven stage and innovation-driven stage) from 2007 to 2018. To accomplish this, the model is estimated using panel data and a generalized method of moments by splitting two groups of selected countries. The results show that the effect of the crucial variables of goods market efficiency, market size, and technical readiness on the strength of the national currency in both the selected countries is positive. Also, the effect of control variables of higher education and training, labor market efficiency, and financial market development on the strength of the national currency in both groups of selected countries is positive. Of course, except for higher education and training, the coefficient of all variables in countries of the efficiency-driven stage is greater than the countries of the innovation-driven stage.