Exchange rate volatility on trade performance (1988-2022)

Author

Mwaluza, Christine M.

Title

Exchange rate volatility on trade performance (1988-2022)

Abstract

Zimbabwe has changed its currency more than twice in the past 2 decades from the Zimbabwe Dollar, to a multicurrency regime, RTGS and finally the current ZIG. This study sought to explore the effect of exchange rate volatility on trade performance. Estimation of results was conducted using Autoregressive distributed lag (ARDL) method with data samples spanning from 1988 to 2022 on E-views 10.The data was regressed using secondary data from World bank. The independent variables in this research were FDI, exchange rate, GDP, inflation and tariffs. After estimation. The study found a clear negative link between exchange rates and trade performance in the short term. In other words, higher exchange rates were associated with lower trade performance. The impact of inflation on trade was less clear. While the results suggested a possible negative relationship between inflation and long-term trade performance, the evidence wasn't statistically conclusive. The findings regarding GDP were more complex in the long run. Although the relationship between GDP and trade performance was negative, it was still statistically significant. This suggests a more intricate dynamic between economic growth and trade over extended periods. The research then proceeded to offer recommendations based on these findings discussing ways in which the objectives can be met and how policy makers can mitigate negative effects of exchange rate volatility.

Date

June 2024

Publisher

BUSE

Keywords

Exchange rate volatility

Trade performance

Supervisor

Dr. Damiyano