FOREIGN EXCHANGE RATES AND TRADE BALANCE IN SUB-SAHARAN AFRICA


Nahabwe Patrick Kagambo John, Kagarura Willy Rwamparagi, Munyambonera Ezra
Kabale University, Kabale, Uganda
Abstract
This study investigates the relationship between foreign exchange rates and trade balance in Sub-Saharan Africa from 2005 to 2022 using secondary World Bank data and an Auto Regressive Distributed Lags (ARDL) model. Trade balance serves as the dependent variable, while foreign exchange rates is the independent variable. Results indicate a statistically significant relationship, reflecting both short- and long-run dynamics. In the short term, a 10% increase in exchange rates worsens the trade balance by 7.5% (coefficient = -0.7543). However, the long-run coefficient (0.4580) shows a 4.6% improvement, demonstrating a J-curve adjustment pattern. Cointegration test confirm a long-term equilibrium between the variables. Model selection criteria and a low standard error further validate the model's robustness. Policy recommendations include prudent monetary and fiscal strategies to manage exchange rates and trade deficits. Short-term trade policies, like targeted subsidies can mitigate immediate impacts, while enhancing export competitiveness and regional trade integration supports long-term improvements.
Keywords: Foreign exchange rates, Trade Balance, Sub-Saharan Africa
Journal Name :
International Journal of Global Economic Light (JGEL)

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Published on : 2025-01-09

Vol : 11
Issue : 1
Month : January
Year : 2025
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