Exchange-rate Volatility and International Trade Performance: Evidence from 12 African Countries

BAHMANI-OSKOOEE, Mohsen and GELAN, Abera (2017): Exchange-rate Volatility and International Trade Performance: Evidence from 12 African Countries.

Abstract

In this paper, we study a sample of twelve African countries to examine the impact of the real exchange-rate volatility on their trade flows. In order to distinguish the distinct impact of the real exchange-rate volatility on their exports and imports, both in the short-run and long-run, we use the bounds-testing approach. We find that while exchange rate volatility affects trade flows of many of the countries in our sample in the short run, the long-run effects were restricted only on the exports of five countries and on the imports of only one country. The level of economic activity in the world and at home were identified to be major determinants of exports and imports, respectively.

• Item Type: MPRA Paper
• Language: English
• Keywords: Africa, Trade Flows, Exchange Rate Volatility
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

Aghion, P., Bacchetta, P., Rancière, R. and Rogoff, K. (2009), “Exchange rate volatility and productivity growth: The role of financial development”, Journal of Monetary Economics, 56, pp. 494-513.

Arize, A.C. and Osang, T. and Slottje, D.J. (200), “Exchange-rate volatility and foreign trade: evidence from thirteen LDCs”, Journal of Business & Economics Statistics, Vol. 18, pp. 10-17.

Arize, A.C. Malindretos, J. and Kasibhatla, K.M. (2003), “Does exchange-rate volatility depress export flows: the case of LDCs”, International Advances in Economic Research, Vol. 9 No.1, pp.7-20.

Bahmani-Oskooee, M. (1986), "Determinants of International Trade Flows: Case of Developing Countries," Journal of Development Economics, Vol. 20, 107-123.

Bahmani-Oskooee, M. (1996), “Exchange rate uncertainty and trade flows of LDCs: Evidence from Johansen’s cointegration analysis”, Journal of Economic Development, Vol. 21, pp.23-35.

Bahmani-Oskooee, M. and Payesteh, S. (1993), “Does exchange-rate volatility deter trade volume of LDCs?” Journal of Economic Development, Vol. 18 No. 2, pp. 189-205.

Bahmani-Oskooee, M. and Gelan, A. (2007), “Real and nominal effective exchange rates for African countries”, Applies Economics, Vol. 39, pp. 961-979.

Bahmani-Oskooee, M. and Hegerty, S. (2007), “Exchange rate Volatility and trade flows: a review article”, Journal of Economic Studies, Vol. 34 No. 3, pp. 211-255.

Barkoulas, J., Baum, C. and Caglayan, M. (2002), “Exchange rate effects on the volume and variability of trade flows”, Journal of International Money and Finance, Vol. 21, pp. 481-496.

Broll, U. and Eckwert, B. (1999), “Exchange rate volatility and international trade”, Southern Economic Journal, Vol. 66 No. 1, pp.178-185.

Clark, P. (1973), “Uncertainty, exchange risk, and the level of international trade”, Western Economic Journal, Vol. 6, pp. 302-313.

Dellas, H. and Zilberfarb, B. (1993), “Real exchange rate volatility and international trade: a reexamination of the theory”, Sothern Economic Journal, Vol. 59 N0.4, pp. 641-647.

Ethier, W. (1973), “International trade and the forward exchange market”, American Economic Review, Vol. 63 No. 3, pp. 494-503.

Frank, G. (1991), “Exchange rate volatility and international trading strategy”, International Money and Finance, Vol. 10 No. 2, pp. 292-307.

Gagnon, J. (1993), “Exchange rate variability and the level of international trade”, Journal of International Economics, Vol. 34, pp. 269-340.

Hooper, P. and Kohlhagen, S. (1978), “The effects of exchange rate uncertainty on the prices and volume of international trade”, Journal of International Economics, Vol. 8, pp. 483-511.

Medhora, R. (1990), “The effect of exchange rate variability on trade: the case of the West African monetary union’s imports”, World Development, Vol. 18 No. 2, pp. 313-332.

Pesaran, M. H., Y. Shin, and Smith, R. J. (2001) “Bounds Testing Approaches to the Analysis of Level Relationships,” Journal of Applied Econometrics, 16, 289-326.

Sercu, P. (1992), “Exchange risk, exposure and the option to trade” Journal of international Money and Finance, Vol. 11, pp. 579-593.

Viaene, J. and de Vries, C. (1992), “International trade and exchange rate volatility”, European Economic Review, Vol. 36, pp. 1311-1322.

Willett, T. (1986), “Exchange-rate variability, international trade and resource allocation: a perspective on recent research”, Journal of International Money and Finance, Vol. 5 S1, pp. 101-112.