The Impact of Exchange Volatility on the Agricultural Exports of Sub Saharan African Countries
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Date
2012-06
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A.A.U
Abstract
The abandonment of the fi xed exchange rate systems has caused exchange rate movements to become a
major concern for traders, policy makers and researchers. Numerous studies have been conducted to
determine whether exchange rate volatility affected international trade flows. Nevertheless, no general
consensus has been reached as to the magnitude and direction of the impact of exchange rate volati li ty on
trade flows.
This paper investi gates the im pact of exchange rate vol"tilities on the agricu ltural exports of Sub Saharan
African countries. Twenty nine sample SSAcountries were selected for the period 1996-2008. Estim ation
is made using random effects model, difference generalized methods of moments (GMM) and systems
GMM. Volati lities of the official exchange rate of SSA countries was generated using GARCH (I, I) and
ARCH models.
The Standard gravity model augmentedby variables which affect the trade between the SSA countries and
the maj or trading countries is estimated. Exchange rate volati lities is found to have a negative and
signifi cant impact on the agricultural exports of the SSA countries across the different estimati on
techni ques. Trade policies that are designed to increase exports might create uncertainty in the exchange
rate and ultimately end up reduc ing exports. The main lesson drawn from the study is, SSA countries
should have a stable exchange rate policy ..
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Keywords
Exchange rate volatilities, Gravity model