Is the effect of exchange rate volatility on export diversification symmetric or asymmetric? Evidence from Ghana

Obeng, Camara Kwasi (2017): Is the effect of exchange rate volatility on export diversification symmetric or asymmetric? Evidence from Ghana.

Abstract

Exchange rate volatility has been identified as one of the drivers of export diversification. Previous studies have assumed a symmetric relationship between the two variables. However, because volatility could be positive or negative and economic agents react to these changes differently, recent studies have argued for the adoption of an asymmetric approach to the study of the relationship between the two variables. This study employed the partial sum process to create two variables to replace exchange rate volatility (Positive and negative variables) and utilized the Linear Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) techniques to investigate asymmetric effects of exchange rate volatility on export diversification in Ghana for the period 1983 to 2015. The results indicate that exchange rate volatility has asymmetric relationship with export diversification in Ghana. Other drivers of export diversification in Ghana are income, investment, infrastructure, openness and inflation. The paper recommends that the Central Bank should strengthen its efforts at stabilizing the exchange value of the cedi.

• Item Type: MPRA Paper
• Language: English
• Keywords: Export diversification, Symmetric, Asymmetric, Linear Autoregressive Distributed Lag, Nonlinear Autoregressive Distributed Lag, Ghana
• Subjects: F - International Economics > F1 - Trade > F10 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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