CAUSALITY BETWEEN INTERNATIONAL TRADE AND EXCHANGE RATE IN SUB-SAHARAN AFRICA: EVIDENCE AND INSIGHTS

Kenneth Chikezie Anyalechi, Okereke Emeka, Ikechukwu S. Nnamdi

Abstract


Motivated by the need to examine the exact nature of causality between international trade correlates and exchange rates, this study explored the directional causality between the two concepts. Panel Granger Causality- Dumitrescu-Hurlin tests and stationarity tests using Augmented Dickey-Fuller (ADF) were applied on data sourced from Sub-Saharan African countries for the period 1990-2018. Results showed bi-directional causality between real exchange rate, export and trade openness, while unidirectional causality was observed between real exchange rate and import. The prevailing contemporaneous causal relationship between real exchange rate, export and trade openness led the study to conclude that lagged values of each of the variables support the growth or behavior of the other. However, there was unidirectional causality which flow from real exchange rate to import. The conclusion here is that while real exchange rate promotes the volume of import, import on the other hand, does not support real exchange rate.

JEL: B17; F31; O24

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Keywords


real exchange rate, export, import, trade openness and Dumitrescu-Hurlin

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References


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DOI: http://dx.doi.org/10.46827/ejefr.v4i2.902

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