Exchange rate volatility and trade balance in some selected Sub-Saharan African countries (1995-2013)
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Date
2015
Authors
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Journal ISSN
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Publisher
Economics,Obafemi Awolowo University
Abstract
The study examines and appraises exchange rate volatility and trade balance in some selected sub-Saharan African countries. It also determines the effect of real exchange rate on trade balance and investigates the joint impact of real exchange rate and exchange rate volatility on trade balance. These are with a view to determining the relationship among real exchange rate, exchange rate volatility and trade balance in some selected sub-Saharan African countries from 1995 to 2013.
Secondary data were used for the study. Annual data on gross domestic product, real exchange rate, export, import and world gross domestic product covering the period from 1995 to 2013 were sourced from the World Development Indicators (WDI) of World Bank. Data on exchange rate volatility was generated using Generalised Autoregressive Conditional Heteroscedasticity (GARCH 1,1). Both descriptive statistics and econometrics techniques of analysis were employed in a panel setting. Under descriptive techniques, tables and graphs were used while Generalised Autoregressive Conditional Heteroscedasticity, Generalised Method of Moment (GMM) and Panel Vector Autoregressive (PVAR) were adopted as the econometric tools.
The result from the trend and pattern analysis shows that in aggregate term, Sub-Saharan African countries had witnessed a negative balance of trade over the study period, while Cote d’Iviore experienced positive trade balance during the period of study. In addition, the region also experienced volatile movement in exchange rate. Furthermore, the GARCH econometric result reveals that GARCH (1,1) model was the right model for modelling exchange rate volatility in sub-Saharan African countries. The addition of the coefficients of variance was less than one (0.671744 < 1). The GMM estimates reveals that real exchange rate had a significant and negative effect on trade balance (t = -26.29, p < 0.05). Similarly, world gross domestic product had a negative and significant effect on trade balance (t = -2.284, p < 0.05). On the other hand, the study found that exchange rate volatility (t = 20.673, p < 0.05) and gross domestic product (t = 5.633, p < 0.05) both have positive and significant impact on trade balance in the region. Also, panel vector autoregressive result reveals that real exchange rate and exchange rate volatility (F = 5.9953, p < 0.05) jointly Granger cause trade balance.
The study concluded that real exchange rate and exchange rate volatility are very important in determining trade balance in Sub-Saharan African countries.
Description
xvi,131p
Keywords
Exchange rate, Trade balance, Sub-sharan African, Econometrics
Citation
Dada,J.T(2015). Exchange rate volatility and trade balance in some selected Sub-Saharan African countries (1995-2013) Obafemi Awolowo University