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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/stc/repec/pdfs/wp2011/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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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  2. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
  3. Christopher Adam & David Cobham, 2007. "Exchange Rate Regimes And Trade," Manchester School, University of Manchester, vol. 75(s1), pages 44-63, 09.
  4. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2006. "What is Fuzzy About Clustering in West Africa?," IMF Working Papers 06/90, International Monetary Fund.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  7. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2010. "The Empirics of Exchange Rate Regimes and Trade; Words vs. Deeds," IMF Working Papers 10/48, International Monetary Fund.
  8. Yongcheol Shin & Laura Serlenga, 2007. "Gravity models of intra-EU trade: application of the CCEP-HT estimation in heterogeneous panels with unobserved common time-specific factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 361-381.
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