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The External Sector of Africa's EconomyIs Currency Devaluation Appropriate for Improving Trade Balance in the WAMZ Countries?

The External Sector of Africa's Economy: Is Currency Devaluation Appropriate for Improving Trade... [The paper examines the appropriateness of devaluation in improving trade balance in the six WAMZ countries. The motivation is largely derived from the need to reverse the deteriorating external sector of these countries which has become worrisome particularly from the latter half of 2014 on the backlash of slump in commodities prices and tight global monetary condition. The study employs descriptive analysis, granger causality technique, and Vector Error Correction Model (VECM) to analyze the impact of devaluation on trade balance in these countries. Two other control variables, domestic and global output, are included in the model to capture the impact of domestic and global shock while the data covers the period 1980–2014. The trend analysis reveals considerable volatility in real exchange rate in all the countries with the exception of the Gambia while there is a virtual absence of co-movement between devaluation and trade balance in all the countries. All the series are integrated to the first order while Johansen cointegration test indicates the existence of long run relationship among the variables employed in the study.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

The External Sector of Africa's EconomyIs Currency Devaluation Appropriate for Improving Trade Balance in the WAMZ Countries?

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References (43)

Publisher
Springer International Publishing
Copyright
© Springer Nature Switzerland AG 2019
ISBN
978-3-319-97912-0
Pages
185 –212
DOI
10.1007/978-3-319-97913-7_9
Publisher site
See Chapter on Publisher Site

Abstract

[The paper examines the appropriateness of devaluation in improving trade balance in the six WAMZ countries. The motivation is largely derived from the need to reverse the deteriorating external sector of these countries which has become worrisome particularly from the latter half of 2014 on the backlash of slump in commodities prices and tight global monetary condition. The study employs descriptive analysis, granger causality technique, and Vector Error Correction Model (VECM) to analyze the impact of devaluation on trade balance in these countries. Two other control variables, domestic and global output, are included in the model to capture the impact of domestic and global shock while the data covers the period 1980–2014. The trend analysis reveals considerable volatility in real exchange rate in all the countries with the exception of the Gambia while there is a virtual absence of co-movement between devaluation and trade balance in all the countries. All the series are integrated to the first order while Johansen cointegration test indicates the existence of long run relationship among the variables employed in the study.]

Published: Apr 6, 2019

Keywords: F32; F14; C82; C32

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