Asymmetric Impact of Real Effective Exchange Rate Shocks on Economic Growth in Africa: Evidence From Symmetric and Asymmetric Panel ARDL-PMG Model

Abstract

This paper examines the effects of the real effective exchange rate on economic growth in 11 African countries from 1990 to 2022 using linear and nonlinear panel ARDL estimators. The linear panel ARDL-PMG results indicate that broad money supply and general government consumption positively impact economic growth in the short and long term, while the real effective exchange rate has an insignificant effect. The negative and statistically significant error correction term (ECTt-1) suggests a long-term relationship between the variables. Similarly, the nonlinear panel ARDL-PMG results show that broad money supply and general government consumption have positive and significant effects on economic growth in both the short and long term. Negative shocks in the real effective exchange rate hinder economic growth in the short and long term, while positive shocks do not significantly affect economic growth. The paper discusses the policy implications of these findings.