Exchange rate volatility and export growth in Zambia, the case of tobacco 1992-2014

Abstract

This study empirically investigates the effects of real exchange rate volatility on tobacco export growth in Zambia. The study employs annual time series data for the period 1992 to 2014 and uses the Exponential Generalised Autoregressive Conditional Heteroskedasticity (EGARCH) to measure exchange rate volatility; the Augmented Dicky Fuller (ADF) to test for order of integration among the variables and The ARDL Bounds F-testing procedure as proposed by Pesaran et al., (2001) to model the findings. The analysis assumes an export demand framework that includes; relative prices, which are a measure of competitiveness and foreign incomes to capture foreign demand factors. The empirical finding of the study reveals that real exchange rate volatility exerts positive but insignificant impact on tobacco export growth in both the short-run and the long-run. On the other hand, relative prices and foreign income have significant positive effects on tobacco exports growth in the short-run as well as the long run. Implying that a real depression in the kwacha and an increase in income of the trading partner are more stimulus to the growth of the tobacco export industry. Keywords: Real exchange rate, volatility, ARDL-Bounds testing procedure, Tobacco Exports.