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The asymmetric effects of exchange rate on trade balance and output growth

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  • Mesagan, Ekundayo Peter
  • Alimi, Olorunfemi Yasiru
  • Vo, Xuan Vinh

Abstract

The study analyses the impact of exchange rate asymmetries on trade and output growth in 8 of the largest African countries between 1970 and 2019 using the non-linear autoregressive distributed lag (NARDL) framework. The empirical result confirms a long-run relationship between exchange rate, trade and output growth. Also, currency appreciation and depreciation enhance short-run trade and output in South Africa while reducing both in Angola. Regarding Egypt and Morocco, currency appreciation improves short-run trade and growth, but in the long run, depreciation lowers both. This is similar in Kenya and Nigeria, except for the weak negative effect of currency depreciation on trade. In general, for most African nations, both appreciation and depreciation primarily exert negative impacts on the long-run trade balance, while depreciation has mainly short-run positive effects. Similarly, depreciation positively impacts short-run growth, while currency appreciation remains largely negative. We then recommend policy prescriptions for the continent.

Suggested Citation

  • Mesagan, Ekundayo Peter & Alimi, Olorunfemi Yasiru & Vo, Xuan Vinh, 2022. "The asymmetric effects of exchange rate on trade balance and output growth," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
  • Handle: RePEc:eee:joecas:v:26:y:2022:i:c:s1703494922000329
    DOI: 10.1016/j.jeca.2022.e00272
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    More about this item

    Keywords

    Exchange rate; Trade; Output; NARDL; Africa;
    All these keywords.

    JEL classification:

    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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