IDEAS home Printed from https://ideas.repec.org/a/jda/journl/vol.50year2016issue5pp241-256.html
   My bibliography  Save this article

Exchange rate volatility and manufacturing trade: Evidence from Africa

Author

Listed:
  • V Polodoo
  • B Seetanah
  • Sannassee R. V

    (University of Mauritius, Mauritus)

Abstract

Subsequent to the floating of the US dollar in 1973, liberalization of capital flows and the associated exponential growth of cross-border financial transactions during the last three decades, important volatility and uncertainty has been seen in exchange rates (Arize, 1998). Academicians, policy makers, researchers and economists have always raised eyebrows with regards to the potential impact of exchange rate volatility on trade. Taking into account the foregoing, recent volatility in world known currencies and given that African countries rely heavily on manufacturing trade for their survival, this paper analyses the impact of exchange rate volatility on manufacturing trade in a sample of 18i African countries spanning the period 1995-2012 using an import-export model and dynamic panel data econometrics. As measures of exchange rate volatility, the Z score and EGARCH as employed. In a dynamic setting, contrary to what static results suggest, random coefficient estimates reveal that both REER and its volatility are statistically significant in explaining real manufacturing imports and exports using both measures of exchange rate volatility. However, foreign income, contrary to the law of income elasticity of demand is inelastic in explaining the exports. When VaR estimation is employed, however, only when EGARCH is employed, does exchange rate volatility adversely affect real manufacturing imports and exports. The negative impact of exchange rate volatility on manufacturing exports means that the governments of the African states should look for policies to stabilize their external trade position. As the results, the African economies should seek the help of developed and emerging nations in developing their financial markets, more explicitly well-developed hedging instruments and markets. In the same vein, governments should come up with the necessary policies to promote the introduction of institutions to provide such services. The results of the study also have important insights to offer in terms of government macroeconomic policies to stabilise external trade in the African countries such as diversification of markets and payment alternatives and on a regional scene to start thinking about a regional currency pegged to a major world currency.

Suggested Citation

  • V Polodoo & B Seetanah & Sannassee R. V, 2016. "Exchange rate volatility and manufacturing trade: Evidence from Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(5), pages 241-256, Special I.
    • Handle: RePEc:jda:journl:vol.50:year:2016:issue5:pp:241-256
    as

    Download full text from publisher

    File URL: http://muse.jhu.edu/article/619660
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klaassen, Franc, 2004. "Why is it so difficult to find an effect of exchange rate risk on trade?," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 817-839, September.
    2. Antonio Aguirre & Afonso Ferreira & Hilton Notini, 2007. "The Impact of Exchange Rate Volatility on Brazilian Manufactured Exports," Económica, Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 0(1-2), pages 3-19, January-D.
    3. Serge Rey, 2006. "Effective Exchange Rate Volatility And Mena Countries Exports To The Eu," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 23-54, December.
    4. A. C. Arize, 1998. "The Effects of Exchange Rate Volatility on U.S. Imports: An Empirical Investigation," International Economic Journal, Taylor & Francis Journals, vol. 12(3), pages 31-40.
    5. Siregar, Reza & Rajan, Ramkishen S., 2004. "Impact of exchange rate volatility on Indonesia's trade performance in the 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 218-240, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dogukan Tarakci & Fevzi Olmez & Dilek Durusu-Ciftci, 2022. "Exchange rate volatility and export in Turkey: Does the nexus vary across the type of commodity?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 22(2), pages 77-89.
    2. Hsiao, Chiu-Ming & Zhang, Wei-Fang & Chiu, Chi-Chang & Huang, Jung-Chang & Huang, Yu-Ling, 2017. "The Enterprise Risk Management of Foreign Exchange Exposures: Evidence from Taiwanese Hospitality Industry," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 4(1), pages 32-48.
    3. Jin, Y. & Jin, S., 2018. "The Heterogeneous Impact of Exchange Rate Volatility on Agricultural Export: Evidence from Chinese Food Firm-level Data," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277197, International Association of Agricultural Economists.
    4. J. Zivanomoyo & A. Mushunje & W.N. Bandura, 2022. "The effects of exchange rate volatility on trade performance in Southern African Development Community countries: Pooled mean group approach," Journal of Economic Policy and Management Issues, JEPMI, vol. 1(1), pages 12-20.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sakli Hniya & Ahlem Boubker & Fatma Mrad & Sawssen Nafti, 2021. "The Impact of Real Exchange Rate Volatility on Foreign Direct Investment Inflows in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 52-67.
    2. Linh T.D. Huynh & Hien Thanh Hoang, 2019. "Effects of exchange rate volatility on bilateral import performance of Vietnam: A dynamic Generalised method of Moments panel approach," International Economic Journal, Taylor & Francis Journals, vol. 33(1), pages 88-110, January.
    3. Balázs Égert & Amalia Morales‐Zumaquero, 2008. "Exchange Rate Regimes, Foreign Exchange Volatility, and Export Performance in Central and Eastern Europe: Just another Blur Project?," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 577-593, August.
    4. Vikas Gautam & Suresh K G & Aviral Kumar Tiwari, 2013. "Impact Of Real Exchange Rates On Exports Of Agricultural Commodities: Evidence From India," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 11, pages 46-58, June.
    5. Jacques Jaussaud & Serge Rey, 2012. "Long‐Run Determinants Of Japanese Exports To China And The United States: A Sectoral Analysis," Pacific Economic Review, Wiley Blackwell, vol. 17(1), pages 1-28, February.
    6. Jacques Jaussaud & Serge Rey, 2012. "Long‐Run Determinants Of Japanese Exports To China And The United States: A Sectoral Analysis," Pacific Economic Review, Wiley Blackwell, vol. 17(1), pages 1-28, February.
    7. E. M. Ekanayake & John R. Ledgerwood & Sabrina D’Souza, 2010. "The Real Exchange Rate Volatility And U.S. Exports: An Empirical Investigation," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(1), pages 23-35.
    8. Lira SEKANTSI, 2011. "The Impact of Real Exchange Rate Volatility on South African Exports to the United States (U.S.): A Bounds Test Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 8, pages 119-139, December.
    9. Naseeem, N.A.M & Tan, Hui & Mohd, Siti, 2010. "Exchange Rate Regime, Exchange Rate Variability and Flows of Malaysia’s Foreign Trade," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 44, pages 35-49.
    10. repec:hum:wpaper:sfb649dp2007-042 is not listed on IDEAS
    11. Jamal Bouoiyour & Refk Selmi, 2016. "A Synthesis of the Effects of Exchange Rate Volatility on International Trade: A Meta-Regression Analysis," The International Trade Journal, Taylor & Francis Journals, vol. 30(4), pages 263-294, August.
    12. Erdal Demirhan & Banu Demirhan, 2015. "The Dynamic Effect of ExchangeRate Volatility on Turkish Exports: Parsimonious Error-Correction Model Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 429-451, September.
    13. Nicolas Péridy, 2003. "Exchange rate volatility, sectoral trade, and the aggregation bias," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(3), pages 389-418, September.
    14. Komain Jiranyakul, 2013. "Exchange Rate Uncertainty and Import Demand of Thailand," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1269-1280.
    15. WenShwo Fang & YiHao Lai & Stephen M. Miller, 2005. "Export Promotion through Exchange Rate Policy: Exchange Rate Depreciation or Stabilization?," Working papers 2005-07, University of Connecticut, Department of Economics.
    16. E. M. Ekanayake & Ranjini L. Thaver & Daniel Plante, 2012. "The Effects Of Exchange Rate Volatility On South Africa’S Trade With The European Union," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 13-26.
    17. Allison Roehling, 2021. "Implications of exchange rate volatility for trade: Volatility measurement matters," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1486-1523, November.
    18. Carlos Moslares & E. M. Ekanayake, 2015. "The Impact Of Exchange Rate Volatility On Commodity Trade Between The United States And Spain," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(4), pages 37-49.
    19. WenShwo Fang & YiHao Lai & Stephen M. Miller, 2006. "Export Promotion through Exchange Rate Changes: Exchange Rate Depreciation or Stabilization?," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 611-626, January.
    20. Ehikioya Benjamin Ighodalo, 2019. "The impact of exchange rate volatility on the Nigerian economic growth: An empirical investigation," Journal of Economics and Management, Sciendo, vol. 37(3), pages 45-68, September.
    21. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "Nonlinear effects of exchange rate volatility on the volume of bilateral exports," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 1-23.

    More about this item

    Keywords

    Exchange Rate Volatility; Trade; VAR; EGARCH;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jda:journl:vol.50:year:2016:issue5:pp:241-256. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Abu N.M. Wahid (email available below). General contact details of provider: https://edirc.repec.org/data/cbtnsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.