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Real exchange rates, trade balance and capital flows in Africa

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  • Kodongo, Odongo
  • Ojah, Kalu

Abstract

We analyze the intertemporal causal relationships between the real exchange rate and trade balance and cross-border capital flows in Africa. We use annual data of nine major African countries for the period 1993–2009. Through panel VAR techniques, we document some causality from real exchange rates to cross-border flows of African countries. Results however differ amongst the three kinds of flows examined and are not uniform across different country clusters. Our findings lend support to the classical balance of trade theoretical view in which the net effect of a depreciation of the domestic currency is an improvement in the domestic country's balance of payments position in the short-run.

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  • Kodongo, Odongo & Ojah, Kalu, 2013. "Real exchange rates, trade balance and capital flows in Africa," Journal of Economics and Business, Elsevier, vol. 66(C), pages 22-46.
    • Handle: RePEc:eee:jebusi:v:66:y:2013:i:c:p:22-46
    DOI: 10.1016/j.jeconbus.2012.12.002
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    7. Christelle Meniago & Joel Hinaunye Eita, 2017. "The effects of exchange rate changes on Sub-Saharan Africa trade," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(3), pages 213-230.
    8. Warren Moraghen & Boopen Seetanah & Noor Sookia, 2021. "Impact of exchange rate and exchange rate volatility on foreign direct investment inflow for Mauritius: A dynamic time series approach," African Development Review, African Development Bank, vol. 33(4), pages 581-591, December.

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    More about this item

    Keywords

    Real exchange rates; Trade flows; Capital flows;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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