International trade, growth, and development in Africa: the role of exchange rate
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Date
2023
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knust
Abstract
Exchange rates are part of the underlying interest in studying why and how African economies continue to rise and fall. This research brings into perspective an understanding of the dynamics perpetuating this event in several African markets and economies. This study focuses on using mechanisms through the lens of economic and financial disparities on the African continent. This research aimed to examine transmission, spillover, and interdependence in the co-movement of exchange rates in topical issues around the movement of goods and services in Africa. The thesis considers questions and finds answers based on the effect's degree of intensity, direction, and magnitude.
This study focuses on using mechanisms through the lens of economic and financial disparities on the African continent. This research aimed to examine transmission, spillover, and interdependence in the co-movement of exchange rates in topical issues around the movement of goods and services in Africa. The thesis considers questions and finds answers based on the effect's degree of intensity, direction, and magnitude.
The study employed the Parametric and Nonparametric Granger Causality test, Markov Regime Switching, and dynamic conditional correlation (DCC) GARCH, which the researcher extended by wavelet transformation to estimate the extent of volatility spillover effects and movements. The study examined the selected African economies individually based on the size of their markets, the level of local currency depreciation, the inflow of remittance, and capital data available for analysis. The study used annual and daily data for the selected variables (remittance, economic growth [gdp: gross domestic product], global value chain participation [GVCs], inflation, trade, and stock market returns against exchange rates) to examine the co-movement's present in the economies. Data was sourced from the World Development Indicator database [WDI], UNCTAD-Eora Global Value Chain, International Monetary Fund, and investing.com.
The first thematic study employed partial and biwavelet coherence methods to investigate the time-frequency dependence structure of remittance inflow on economic growth by moderating the relationship with exchange rates. The study investigated co-movements of remittance and economic growth from 1980 to 2020. The study observed heterogeneous patterns in the co-movement structure of international remittance inflow and economic growth at various timescales. Findings from the wavelet transformations reveal that exchange rates influence remittance and economic growth connectedness in emerging and frontier economies in Africa.
The second thematic study employed continuous wavelet coherence techniques to examine the time-frequency dependence structure of global value chain (GVC) participation and exchange rate in Africa from 1990 to 2018. The study observed no identifiable heterogeneous patterns in co-movement structure at the various timescales for the exchange rate, trade, and inflation against GVC participation. The results imply that the exchange rates do not act to hamper value chain participation directly.
The third thematic paper employed the Markov Regime Switching and Continuous Wavelet Transformation (CWT) coherence technique lead-lag causal relationship to examine four(4) frontier stock markets in Africa and their respective currency markets. The study uses daily data from January 2010 to March 2023. The study observed heterogeneous patterns in co-movement structure at different time scales with a mix of lead-lag interplay among the indices for Ghana, Kenya, Mauritius, and Tunisia.
The fourth thematic paper examined the possible spillover and interdependency effect between stocks and currency markets for four selected African frontier markets. The study used daily data from January 2010 to March 2023, employing dynamic conditional correlation GARCH, cross-wavelet coherence, and partial wavelet coherence. The study further examines the moderating effect of global events and international development policies on the relationship. The study found empirical evidence of volatility, spillovers, and interdependencies between stock and currency markets in the selected countries. However, the effect of international policies and crises on the stock and currency relationship was low based on the uniqueness of the country, the nature and source of the event, and the policy.
During global events, African markets and economies underwent erratic exchange rate impacts on growth and development. The major findings imply that foreign exchange markets in Africa influence the movement of goods and services as they are more prone to spillover and transmission from global events. However, in sectors where value addition is a low direct impact from the exchange rate was not found along the international trade supply route.
The study recommends that the integration of African markets needs to be well implemented and curated to account for the transmission of contagion from one country's market to another. Policy makers must design programs to strengthen the stock markets and diversify shock events to attract more investment for growth and development opportunities. Policymakers can achieve exchange rate stability if they design control mechanisms for macroeconomic factors that mitigate risk in a constantly changing environment for moving goods and services globally and within the continent. Additionally, governments should moderate and strengthen institutional mechanisms in managing macroeconomic fundamentals and consider regional events to cope with unforeseen shocks and spillovers as Africa continues to integrate its markets.
Description
A thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of requirements for the award of the Degree of Doctor of Philosophy Business and Management (Finance)