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Exchange Rate Regimes and Trade: Is Africa Different?

  • Mahvash Saeed Qureshi
  • Charalambos G. Tsangarides

This paper revisits the link between exchange rate regimes and trade in the context of Africa’s exchange rate arrangements. Applying an augmented gravity model that includes measures of currency unions and pegged regimes, the paper compares Africa’s experience with that of the world. Our results suggest that both currency unions and direct pegs promote bilateral trade in Africa vis-à-vis more flexible exchange rate regimes,and that their effect is almost double for the region than that for an average country in the world sample. Further, we find evidence that the effect of conventional pegs is at least as large as that of currency unions in Africa, and that the benefits of fixed exchange rate regimes stem through channels in addition to reduced exchange rate volatility.

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File URL: http://www.wider.unu.edu/sites/default/files/wp2011-14.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Working Paper WP2011/14.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:unu:wpaper:wp2011-14
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