Exchange Rate Volatility and Trade Flows in Sub-Saharan Africa

Abstract

This article examines the relationship between exchange rate volatility and the flow of international trade in Sub-Saharan African countries. Using the gravity model and annual data for the period 1998-2007, we find that exchange rate volatility has adverse effect on the flow of exports and imports. However, the estimated results indicate a very low level of responsiveness of international trade to volatility in exchange rate. Thus, eliminating the volatility in the exchange rates will result in only very small increases in the flow of exports or imports. This shows that exchange rate stability is not a sufficient condition for promoting international trade in Sub-Saharan Africa.