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ESTIMATING EXCHANGE RATE AND BILATERAL TRADE BALANCE RELATIONSHIPS: THE EXPERIENCE OF SUB‐SAHARAN AFRICAN COUNTRIES
Author(s) -
Yol Marial Awou,
Baharumshah Ahmad Zubaidi
Publication year - 2007
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/j.1813-6982.2007.00104.x
Subject(s) - cointegration , economics , depreciation (economics) , balance of trade , exchange rate , tanzania , balance (ability) , international economics , bilateral trade , panel data , johansen test , macroeconomics , econometrics , error correction model , geography , socioeconomics , economic growth , medicine , capital formation , archaeology , financial capital , physical medicine and rehabilitation , china , human capital
This paper examines the effects of exchange rate changes on the bilateral trade balance of ten African countries vis‐à‐vis the US using annual data over period 1977‐2002. Both the Johansen and panel cointegration tests find cointegration among the series. The country FMOLS results show that real exchange rate depreciation improves the trade balance in six of ten countries in contrast to Tanzania in which it worsens the trade balance, with no effect found in Ghana, Morocco and Senegal. Foreign real income improves the trade balance in two countries but worsens it in another three. Finally, domestic real income negatively affects the trade balance in four countries but improves it in another three. The three‐panel coefficients are correctly signed and significant at the 1% level.