Effects of Exchange Rate Volatility on Trade in Some Selected Sub-Saharan African Countries

Abstract

The paper investigates the impact of exchange rate volatility on trade in 40 selected sub-Saharan African countries for the period 1986-2005. The study employs a gravity model with pooled ordinary least square (POLS) allowing for fixed effect and panel Generalized Method of Moments (GMM) techniques. The results of the analysis show that the net effect of exchange rate volatility on aggregate trade was positive using the two approaches. In the way the results show that there is not much difference between the impact of exchange rate volatility on primary and manufactured trade as well as between ECOWAS and non-ECOWAS countries. However, the results should be interpreted with caution as the history of exchange rate volatility is still relatively young compared with the developed countries.