Export-destination network effect on Zambia's metal exports performance (1995-2016).
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The study sought to understand the effect on Zambia’s metal export performance of the geographical patterns of these exports. Particular focus was given to the role of China as an anchor of the destination network in terms of external demand shocks. The dimensions considered were the effect of partner GDP on metal exports demand, the response of metal exports to external demand shocks and the importance of partner GDP growth correlations in international trade risk. The Vector Error Correction framework and the Exponential Generalized Autoregressive Heteroskedasticity model of volatility were employed using quarterly data from 1995q1 to 2016q4. It was found that, in the long run, partner GDP has a positive effect on metal exports demand while in the short run, metal exports are sensitive to changes in real effective exchange rate and foreign (partner) GDP. In addition, metal exporters in Zambia perceived external demand shocks due to a network of metal exports destination as short run opportunities during the period under study. The study further finds that partner GDP growth correlations between China and Zambia’s other metal trading partners were more important in explaining metal export volatility than individual output volatility in those partners. However, this risk tends to manifest itself through volatility in the exchange rate and barter terms of trade. In view of these findings, diversifying the geography especially through value addition to metals as well as developing a well-functioning derivatives market for hedging against exchange rate risk due to external demand shocks therefore become important dimensions of policy in Zambia. Keywords: Volatility, EGARCH, GDP Growth Correlations, Metal Exports, Cointegration, External Demand Shock
The University of Zambia