Munich Personal RePEc Archive

Effects of exchange rate policy on bilateral export trade of WAMZ countries

Balogun, Emmanuel Dele (2007): Effects of exchange rate policy on bilateral export trade of WAMZ countries.

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Abstract

This study examines the effect of exchange rate policy on the bi-lateral intra-WAMZ and global inter-WAMZ export trade, with a view to gauging its relative veracity among other determinants. The regression results show that the coefficient estimates of bilateral exchange rate (variable of interest in this study) was not significant in explaining the changes in the bilateral intra-WAMZ exports. This is not the case with the world inter-WAMZ regression results in which one of the partner’s exchange rate is significant and positively influences their collective exports to the rest of the world. This result is considered interesting as it tends to validate the assertion that exchange rates does not matter much to intra-WAMZ exports to warrant its use as an instrument of bilateral trade stimulation, but can potentially be useful as a common tool of balance of payment adjustment against the rest of the world (third parties). In conclusion, the study inferred that the maintenance of independent flexible exchange rate policy by either party to the bilateral trade makes no difference in terms of export performance, and may indeed constitute an impediment to free trade within the WAMZ region. Among the impediments identified are the microeconomic costs of foreign exchange conversion and high incident of trade diversion associated with it.

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