ERF 26th Annual Conference
The Dynamic Interaction of Exchange Rates and International Trade Flows in the MENA Region: GARCH Analysis
No.
ERF26_180
Publisher
ERF
Date
June, 2020
Topic
C3. Multiple or Simultaneous Equation Models
O4. Economic Growth and Aggregate Productivity
F3. International Finance
F1. Trade
This study examined the dynamics between real exchange rate volatility and the level of international trade in the MENA region, by employing Generalized Autoregressive Conditional Heteroscedasticity (GARCH) (1,1) and threshold-Generalized Autoregressive Conditional Heteroscedasticity (TGARCH) (1,1) models to measure the exchange rate volatility on panel annual data from 1990 to 2018. The study is also used Augmented Dicky Fuller (ADF) and Johansen Cointegration tests to check for stationarity of data and detect the long run cointegration between variables under study, respectively. Additionally, the paper examines the impact of other control variables on international trade, namely (i) economic freedom; (ii) inflation rate; (iii) interest rate; (iv) reserves; and (v) industrial development. The results revealed that, in the long-run, exchange rate volatility negatively affects international trade significantly in the sample countries, which is in line with economic theory, arguing that exchange rate volatility may hurt international trade. The paper is divided into six sections. Section I is the introduction. Section II briefly presents a literature review on links between exchange rate volatility and international trade. Section III then illustrates recent development in the Middle East and North Africa region. Section IV discusses the methodology of the analysis as well as the data. In section V, results of the econometric estimations are presented. Section VI reports some conclusions of the paper.
Authors
Marwa Elsherif
Associate Professor of Economics, Arab Academy for...
Senior Associates
Mahmoud Mohieldin
Professor, Department of Economics - Cairo University,...