The Impact of Exchange Volatility on the Agricultural Exports of Sub Saharan African Countries

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Date

2012-06

Authors

Biruk, Tekle

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Publisher

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

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