Exchange rate undervaluation and African surges: What do we learn from exported products?

Abstract

We study the role of undervaluation of currency exchange rates in triggering African product export surges. Over the period 1995–2017, 96 episodes are identified for 41 African countries from a basket of their primary and manufactured exported goods (149 products, 4-digit HS code). We compute country-product specific real exchange rate misalignments, that allow testing the hypothesis that undervaluation drives competitiveness and thus export surges. The complementary log–log model confirms that product-specific undervaluation promotes the occurrence of surge episodes. This effect proves robust to the way we define export episodes, the introduction of covariates in the model and the use of the Relogit as an alternative estimator for rare events.