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Exchange Rate Volatility and International Trade Flows in sub-Saharan Africa: Empirical Evidence

Exchange Rate Volatility and International Trade Flows in sub-Saharan Africa: Empirical Evidence In this article, the authors examine the relationship between the volatility in exchange rates and the volume of international trade in sub-Saharan African countries. Using the gravity equation and annual data for the period 1998–2007, they find a statistically significant and negative correlation between the volatility in exchange rates and the volume of trade. The estimated elasticities show that the responsiveness of the flow of international trade to changes in exchange rate volatility is very small. This suggests that eliminating the volatility in the exchange rates will result in only small increments in the volume of trade. Accordingly, pursuing a policy of exchange rate stability would not be sufficient to significantly increase the volume of bilateral trade in the sub-Saharan African region. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal Of African Business Taylor & Francis

Exchange Rate Volatility and International Trade Flows in sub-Saharan Africa: Empirical Evidence

Musila, Jacob; Al-Zyoud, Hussein
Journal Of African Business , Volume 13 (2): 8 – May 1, 2012
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Exchange Rate Volatility and International Trade Flows in sub-Saharan Africa: Empirical Evidence

Abstract

In this article, the authors examine the relationship between the volatility in exchange rates and the volume of international trade in sub-Saharan African countries. Using the gravity equation and annual data for the period 1998–2007, they find a statistically significant and negative correlation between the volatility in exchange rates and the volume of trade. The estimated elasticities show that the responsiveness of the flow of international trade to changes in exchange rate...
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Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1522-9076
eISSN
1522-8916
DOI
10.1080/15228916.2012.693440
Publisher site
See Article on Publisher Site

Abstract

In this article, the authors examine the relationship between the volatility in exchange rates and the volume of international trade in sub-Saharan African countries. Using the gravity equation and annual data for the period 1998–2007, they find a statistically significant and negative correlation between the volatility in exchange rates and the volume of trade. The estimated elasticities show that the responsiveness of the flow of international trade to changes in exchange rate volatility is very small. This suggests that eliminating the volatility in the exchange rates will result in only small increments in the volume of trade. Accordingly, pursuing a policy of exchange rate stability would not be sufficient to significantly increase the volume of bilateral trade in the sub-Saharan African region.

Journal

Journal Of African Business – Taylor & Francis

Published: May 1, 2012

Keywords: cross-section data; exchange rate volatility; gravity equation; international trade flows; sub-Saharan Africa

References

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