Exchange rate volatility and trade in Sub-Saharan African countries: evidence from augmented mean group estimator

Exchange rate plays a major role in trade transaction of Sub-Saharan African countries with their trading partners. This study examines the effects of exchange rate volatility on trade in 40 Sub-Saharan African countries from 1992-2018. The paper used augmented mean group as a preferred estimator to take account of cross-sectional dependency between the countries under investigation. The dynamic common correlated effect is also used for robustness of the findings. Empirical finding shows that lags of exports and imports have significant positive effects on the contemporaneous levels of exports and imports in Sub-Saharan African countries. Moreover, the coefficients of elasticity of imports and exports with respect to exchange rate volatility are positive. Thus, higher volatility stimulates both imports and exports trade in the region. The results also uncover unidirectional causality running from trading partners' income to exports and imports trade, and also from exchange rate volatility to imports and exports trade.