Main Article Content
Abstract
Purpose ― This study investigates the asymmetric effect of real exchange rates on the economic growth of twenty African countries for the period 2005 to 2019.
Design/Method/Approach ― A refined method of Granger and Yoon (2002) was used to decompose real exchange into appreciation and depreciation. To address the problem of endogeneity and cross-sectional dependence, a two-steps system generalized method of moments, Driscoll-Kraay estimator, and Augmented Mean group were used.
Findings ― This study established the presence of asymmetries in the real exchange rate in the region. Further, the study found that real exchange rate appreciation inhibits economic growth while real exchange rate depreciation is beneficial to growth in the region. The results are robust to different estimation techniques.
Practical Implications ― The outcome of this study supports the traditional view of exchange rates on macroeconomic variables. Hence, findings from this study can help investors and policymakers in the region to better understand the dynamics of the exchange rate and its effect on economic growth.
Originality/Value ― This study enriches the literature on the relationship between exchange rate and growth, especially in Africa using a refined approach to decompose exchange rate into appreciation and depreciation.
Article Details
Copyright (c) 2022 James Temitope Dada
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Dada, J. T., & Olomola, P. A. (2017). Exchange rate volatility and trade balance: Evidence from Nigeria. International Journal of Humanities and Social Research, 3(5), 4–10.
Dada, J. T., Olomola, P. A., & Adedokun, A. (2021). Does non-linearity in exchange rate hold in Nigeria? Evidence from smooth transition autoregressive model. International Journal of Monetary Economics and Finance, 14(2), 152–165. https://doi.org/10.1504/IJMEF.2021.114024
Dada, J. T., Olomola, P. A., & Ajide, F. M. (2020). Productivity bias hypothesis: New evidence from parallel market exchange rate. ECONOMICS, 8(1), 31–40. https://doi.org/10.2478/eoik-2020-0003
De Hoyos, R., & Sarafidis, V. (2006). Testing for cross-sectional dependence in panel-data models. The Stata Journal, 6(4), 482–496. https://doi.org/10.1177/1536867X0600600403
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Dı´az-Alejandro, C. F. (1963). A note on the impact of devaluation and the redistributive effect. Journal of Political Economy, 71(6), 577–580. https://doi.org/10.1086/258816
Dornbusch, R. (1988). Open economy macroeconomics. New York: Basic Books, Inc.
Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. The Review of Economics and Statistics, 80(4), 549–560.
Edwards, S. (1986). Are devaluations contractionary? The Review of Economics and Statistics, 68(3), 501–508. https://doi.org/10.2307/1926028
Edwards, S. (1989). Exchange rate misalignment in developing countries. The World Bank Research Observer, 4(1), 3–21. https://doi.org/10.1093/wbro/4.1.3
Eichengreen, B. (2008). The real exchange rate and economic growth (Commission on Growth and Development Working Paper No. 4). Washington, DC.
Gala, P. (2008). Real exchange rate levels and economic development: Theoretical analysis and econometric evidence. Cambridge Journal of Economics, 32(2), 273–288.
Gkillas, K., Vortelinos, D. I., & Suleman, T. (2018). Asymmetries in the African financial markets. Journal of Multinational Financial Management, 45, 72–87. https://doi.org/10.1016/j.mulfin.2018.04.004
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Loretta, F., & Liu, J. (2007). The impact of real exchange rate movements on firm performance: A case study of Taiwanese manufacturing firms. Japan and the World Economy, 21, 85–96.
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