Exchange rate volatility and agricultural exports: The case of Zambia 1991-2011

Abstract

The aim of the study was to investigate the impact of real exchange rate volatility on Zambia’s agricultural exports in an export demand framework this includes relative prices which are a measure of competitiveness and foreign incomes capturing foreign economic activity between 1991 and 2011.The study utilized annual data of exchange rate and trade flow of real agricultural exports of Zambia for the period 1991-2011. The study employed estimation techniques such as the Unit Root, Johansen Cointegration and Error Correction Model. The Exponential Generalised Autoregressive Conditional Heteroskedasticity (EGARCH) was used to measure exchange rate volatility as it takes into account periods of high and low exchange rate uncertainty. The results obtained from the econometric analysis revealed that exchange rate volatility has a negative long run effect on Zambia’s agricultural exports. The results suggest that Zambia’ institutional reforms must ensure a sufficient degree of macroeconomic stability so as to maintain a stable currency and minimize the degree of exchange rate volatility.

Keywords: Real exchange rate, volatility, Cointegration techniques and Error Correction Model, Agricultural Exports.