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Exchange Rate Volatility and Its Impact on International Trade: Evidence from Zimbabwe

Author

Listed:
  • Iveny Makore

    (Department of Finance and Fiscal Studies, National University of Science & Technology, P.O. Box AC 939, Ascot, Bulawayo, Zimbabwe)

  • Chisinga Ngonidzashe Chikutuma

    (Department of Financial Accounting, University of South Africa, Number 01 Preller Street, Muckleneuk Ridge, Pretoria, P.O. Box 392, Unisa 0003, South Africa)

Abstract

Zimbabwe’s economy has experienced extreme exchange rate fluctuations over the past decades, driven by persistent macroeconomic instability and episodes of hyperinflation. The instability in exchange rates can significantly impact trade balances, inflation rates, and overall economic resilience. Understanding the impact of exchange rate volatility (ERV) on international trade is crucial in such a context. This study investigates the impact of exchange rate volatility (ERV) on international trade in Zimbabwe, addressing a literature gap related to its unique economic challenges and hyperinflation. Using the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model on data from 1990 to 2023, the study finds a negative relationship between ERV and international trade. The analysis suggests that inflation reduces imports, but foreign direct investment (FDI) and balance of payments (BOP) increase export uncertainties. This study recommends optimal fiscal and monetary management to mitigate ERV and enhance trade stability, offering insights for policymakers to strengthen Zimbabwe’s trade resilience amid exchange rate fluctuations.

Suggested Citation

  • Iveny Makore & Chisinga Ngonidzashe Chikutuma, 2025. "Exchange Rate Volatility and Its Impact on International Trade: Evidence from Zimbabwe," JRFM, MDPI, vol. 18(7), pages 1-16, July.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:7:p:376-:d:1696130
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