TITLE:
IMPACT OF EXCHANGE RATE VOLATILITY ON ECONOMIC GROWTH IN SUB-SAHARAN AFRICAN COUNTRIES
AUTHORS:
Jiakponna Maureen Chinyere, Okonkwo Chigozie Christian , Onwumere .J.U.J , Okwor Emmanuel Ejimnkonye , Emeter Patrick , Jiakponna Chinedu Sunday
DOI: 10.5110/77. 1708 Page: 138-174 Vol: 19 Issue: 07 Year: 2024
ABSTRACT
The level of fluctuation in exchange rates has prompted scholars and decision-makers to examine the kind and scope of exchange rate movements’ effects on economic growth. The influence of exchange rate volatility on the economic growth of the SSA countries was examined using annualized panel data for the years 2000–2022, with real gross domestic product as the dependent variables for a robust analysis. The study included terms of trade and interest rate as control variables in accordance with the Mundell-Flieming framework, with exchange rate volatility serving as the main independent variable. The World Development Indicators provided the data used in the study. To compute exchange rate, this study applied the GARCH (1,1) model. The unit root tests employed were the Levin, Lin and Chu (2002) and Im, Pesaran and Shin (2003). The unit root tests showed that the panel data employed for the study were statistionary at level, hence the panel lest squares based on the fixed effect and random effect was adopted for the estimation. From the analysis, it was observed that exchange rate volatility exerted a negative and statistically significant on real gross domestic product and RGDP growth rate. This implied that exchange rate volatility caused a considerable decline in real GDP growth. As a result, this study recommended that governments of SSA countries formulate policies that would help to diversify their respective economies for higher domestic production that would in turn discourage high import of goods and services.
Keywords:
Volatility, Garch model, Exchange rate, GDP, Interest rate.
Received: 04 July 2024
Accepted: 19 July 2024
Published: 26 July 2024