The Political and Economic Determinants of Parallel Foreign Exchange Markets: The Case of Selected African Countries
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Date
2024-12-08
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A.A.U
Abstract
This study aims at investigating the political and economic determinats of parallel foreign exchange market premium using panel data (gathered from the WB, IMF, UNCTAD and central banks) from 24 sub-saharan African countries with period from 2006 to 2023. The study applied a random effect panel data model to address its objectives. Results indicate that political stability and absence of violence, remittance inflow and foreign aid are negatively associated with parallel foreign exchange market premiums in SSA. Devaluation and corruption are not significantly associated with foreign exchange market premiums. The policy implication of the study is that better political stability and reducing violence could be one mechanism to reduce the discrepancy in exchange rates between official and paralle, to maximize the impact of Aid on the PEMP, recipient countries can improve transparency and accountability in aid management and Policymakers should develop policies that encourage and facilitate remittance inflows and explore ways to encourage and facilitate the flow of remittances into the country through legal channels.
Keywords: Parallel Foreign Exchange Market, Corruption, Political Stability, and Absence of Violence