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The Impact of Real Exchange Rate Depreciation on Cameroon’s Trade Balance: Is Devaluation a Remedy for Persistent Trade Deficits?

Author

Listed:
  • Sokeng Dongfack, Laetitia P.

    (School of Economics, Huazhong University of Science and Technology)

  • Ouyang, Hongbing

    (School of Economics, Huazhong University of Science and Technology)

Abstract

Time-series data from 1980 to 2016 were analyzed to estimate the impact of local currency (i.e., CFA Franc) devaluation on Cameroon’s trade balance. The estimation of short-run and long-run relationships between the variables using Johansen cointegration and the vector error correction model (VECM) as a mean to examine whether the Marshall-Lerner condition (MLC) and the J-curve phenomenon hold in the case of Cameroon yielded mitigated results: Although the MLC is not met for Cameroon, as the sum of the elasticities of demand for exports and imports is not greater than unity, the empirical analysis results provide evidence of correction over the long-run of a prior deterioration of the trade balance at an adjustment speed of 81.17%, thus supporting the existence of the J-curve pattern.

Suggested Citation

  • Sokeng Dongfack, Laetitia P. & Ouyang, Hongbing, 2019. "The Impact of Real Exchange Rate Depreciation on Cameroon’s Trade Balance: Is Devaluation a Remedy for Persistent Trade Deficits?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 34(1), pages 189-213.
    • Handle: RePEc:ris:integr:0768
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    Cited by:

    1. Christian Andrés Palencia Hernández & Jesús Cristóbal Ruiz Torres & Andrés Daniel Aníbal Godoy Ortiz, 2021. "Los precios del petróleo y la complejidad de la canasta exportadora: la paradoja del caso colombiano," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 29(2), pages 167-196, October.

    More about this item

    Keywords

    Trade balance deficit; Real exchange rate; Marshall-Lerner condition; Devaluation; J-curve pattern.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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