Abstract
Abstract. This paper examined the effect of real exchange rate volatility on the growth of export and import in Ghana. A monthly data was used. All the variables were cointegrated and vector error-correction model was used. It was found that, in the long-run, depreciation of real exchange rate, increase in volatility and increase in output growth were significant factors that increased the growth of export. Also, decrease in real exchange rate volatility and increase in industrial output growth were significant factors that can reduced the growth of import. However, in the short run, depreciation of real exchange rate and reduction in real exchange rate volatility were significant factors that can increase the growth of export. Also, depreciation of real exchange rate and reduction in real exchange rate volatility were significant factors that can decrease the growth of import. Finally, considering the directional causality, the current values of growth of export is determined by the past values of real exchange rate volatility Therefore, it was recommended that government policies that stabilized real exchange rate and reduce its volatility are to be encouraged to facilitate the growth of export and discourage the growth of import in Ghana.
Keywords. Real exchange rate volatility, Import, Export, VECM, Cointegration.
JEL. E40, E50, E60.References
Arize, A.C., Osang, T., & Slottje, D.J. (2008). Exchange-rate volatility in Latin America and its impact on foreign trade. International Review of Economics and Finance, 17(1), 33-44. doi. 10.1016/j.iref.2006.01.004
Baccheta, P., & Van Wincoop, E. (2000). Does exchange rate stability increase trade and welfare? American Economic Review, 90(5), 1093-1109. doi. 10.1257/aer.90.5.1093
Bailey, M.J., Tavlas, G.S., & Ulan, M.(1986). Exchange-rate variability and trade performance: evidence for the big seven industrial countries. WeltwirtschaftlichesArchiv, 122(3), 466-477. doi. 10.1007/BF02707374
Bahmani‐Oskooee, M., & Hegerty, S.W. (2007). Exchange rate volatility and trade flows: a review article. Journal of Economic Studies, 34(3), 211-255. doi. 10.1108/01443580710772777
Canzoneri, M.B., Clark, P.B., Glaessner, T.B. & Leahy, M.P. (1984). The effects of exchange rate variability on output and employment. International Finance Discussion Papers No.240. [Retrieved from].
Clark, P. (1973). Uncertainty, exchange rate risk and the level of international trade. WesternEconomic Journal. 11(3), 303-313. doi. 10.1111/j.1465-7295.1973.tb01063.x
Cushman, D.O. (1983). The effects of real exchange rate risk on international trade. Journal of International Economics,15(1-2), 43-63. doi. 10.1016/0022-1996(83)90041-7
Cushman, D.O. (1986). Has exchange risk depressed international trade? The impact of third-country exchange risk. Journal of International Money and Finance, 5(3), 361-379. doi. 10.1016/0261-5606(86)90035-5
De Grauwe, P.(1992). The benefits of a common currency, in Paul De Grauwe (ed). The Economics of Monetary Integration, New York: Oxford University Press.
Dell’Ariccia, G. (1999). Exchange rate fluctuations and trade flows: Evidence from the European Union. IMF Staff Papers, 46(3), 315-334. doi. 10.2307/3867646
Ethier, W. (1973). International trade and the forward exchange market. American Economic Review, 63(3), 494-503.
Frankel, J.A., & Rose, A.K. (1998). The endogeneity of the optimum currency area criteria. The Economic Journal, 108(449), 1009-1025. doi. 10.1111/1468-0297.00327
Gros, D. (1987). Exchange rate variability and foreign trade in the presence of adjustment costs. Département des sciences économiques, Université Catholique de Louvain. Working Paper, No.8704.
Hooper, P., & Kohlhagen, S. (1978). The effect of exchange rate uncertainty on the prices and volume of international trade. Journal of International Economics, 8(4),483-511. doi. 10.1016/0022-1996(87)90001-8
Koren, M., & Szeidl, A. (2003). Exchange Rate Uncertainty and Export Prices. Mimeo, Harvard University.
Makin, J.H. (1978). Portfolio theory and the problem of foreign exchange risk. Journal of Finance, 33(2), 517-534. doi. 10.2307/2326567
McKenzie, M.D. (1999). The impact of exchange rate volatility on international trade flows. Journal of Economic Surveys, 13(1), 71-106. doi. 10.1111/1467-6419.00075
Rose, A. (2000). One market, one money: Estimating the effect of common currencies on Trade. Economic Policy, 15(30), 7-45.
Srinivasan. P., & Kalaivani, M (2012). Exchange rate volatility and export growth in India: An empirical investigation. MPRA Paper No.43828. [Retrieved from].
Vergil, H. (2002). Exchange rate volatility in Turkey and its effect on trade flows. Journal of Economic and Social Research, 4(1), 83-99.
Yulu C. (2008). International Finance. Beijing: China Renmin University Press.