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Determinants and Macroeconomic Impact of Parallel Market For Foreign Exchange in Sudan

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  • Ebaidalla Mahjoub Ebaidalla

    (University of Khartoum)

Abstract

This paper attempts to identify the factors that influencing the parallel exchange rate premium in Sudan during the period 1979–2014. In addition, the impact of parallel exchange rate premium on economic performance is examined; focusing on three key macroeconomic indicators namely, economic growth, inflation and exports. The empirical results show that parallel exchange rate premium is significantly affected by policy variables such as, real exchange rate, trade openness and money supply. The results also reveal that GDP growth, expected rate of devaluation, and foreign aid are the most significant factors affecting parallel exchange premium. Moreover, the results demonstrate that parallel premium has a detrimental impact on both economic growth and export performance. Expectedly, the results show a positive association between premium and inflation rate. These outcomes are still hold under robustness checks, indicating that parallel exchange rate premium has negative consequences on macroeconomic performance in Sudan. Accordingly, the paper concludes with some policy implications that aim to narrow the spread between the black and official exchange rate as an important way out to contain inflationary pressures, improve export competitiveness, and boost economic growth.

Suggested Citation

  • Ebaidalla Mahjoub Ebaidalla, 2017. "Determinants and Macroeconomic Impact of Parallel Market For Foreign Exchange in Sudan," Working Papers 1155, Economic Research Forum, revised 11 2017.
    • Handle: RePEc:erg:wpaper:1155
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    References listed on IDEAS

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    1. Elbadawi, Ibrahim A., 1992. "Macroeconomic management and the black market for foreign exchange in Sudan," Policy Research Working Paper Series 859, The World Bank.
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    3. Elbadawi, Ibrahim A, 1994. "The Expatriate Workers' Remittances, Parallel Foreign Exchange Market and Macroeconomic Performance in Sudan," Journal of African Economies, Centre for the Study of African Economies, vol. 3(3), pages 481-512, December.
    4. Hussain, M Nureldin & Thirlwall, A P, 1984. "The IMF Supply-Side Approach to Devaluation: An Assessment with Reference to the Sudan," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(2), pages 145-167, May.
    5. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    7. Jalal U. Siddiki, 2000. "Black market exchange rates in India: an empirical analysis," Empirical Economics, Springer, vol. 25(2), pages 297-313.
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    9. Aron, Janine & Elbadawi, Ibrahim A., 1992. "Parallel markets, the foreign exchange auction, and exchange rate unification in Zambia," Policy Research Working Paper Series 909, The World Bank.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Pinto, Brian, 1988. "Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa," Policy Research Working Paper Series 84, The World Bank.
    12. Ebaidalla Mahjoub Ebaidalla & Abdalla Ali Edriess, 2015. "Flow of migrants' remittances into Sudan: the role of macroeconomic environment," Middle East Development Journal, Taylor & Francis Journals, vol. 7(1), pages 70-88, January.
    13. Blejer, Mario I., 1978. "Black-market exchange-rate expectations and the domestic demand for money : Some empirical results," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 767-773, November.
    14. Ebaidalla Mahjoub Ebaidalla & Abdalla Ali Edriess, 2012. "Flow of Migrants’ Remittances into Sudan: the Role of Macroeconomic Environment," Working Papers 741, Economic Research Forum, revised 2012.
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    Cited by:

    1. Grethe, H. & Siddig, K. & Stepanyan, D. & Zhu, T. & Wiebelt, M., 2018. "Beyond mean rainfall and temperature changes: distributional effects of stochastic yield variability in the Sudan," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 275903, International Association of Agricultural Economists.

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