TRADE OPENNESS, EXCHANGE RATE FLUCTUATIONS AND MANUFACTURING OUTPUT IN SUB-SAHARAN AFRICA
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Date
2021-03-24
Authors
AYIRIKAME, ERIC KWAMEFIIK
Journal Title
Journal ISSN
Volume Title
Publisher
UNIVERSITY OF CAPE COAST
Abstract
Many industrialized economies in the world achieved higher economic
growth through the industrialization of their manufacturing sector. However, in
Sub-Saharan Africa, the development of the manufacturing sector appears to be in
decline. In the quest to increase the economic growth of these developing countries,
varieties of trade policies and exchange rate policies have been introduced. These
policies were subsequently introduced in Sub-Saharan Africa (SSA) as a means of
boosting economic growth and development. The importance of Trade Openness
and exchange rate policies in developing countries necessitated the need to study
the effect of Trade Openness and exchange rate fluctuations on the manufacturing
output of SSA. The study also focuses on the role of electricity as an intermediating
factor to Trade Openness, threshold effect, and heterogeneity across groupings.
Using the principal component analysis to generate Trade Openness Index and
other determinants from 2004 to 2017, (sourced from WDI and World bank doing
business indicators), the study employed fixed and random effect estimation
techniques in the analysis. The study revealed that less Trade Openness has a
negative effect on manufacturing output in SSA. Exchange rate fluctuations have a
positive effect on manufacturing. Therefore, it is recommended that the reduction
of the trade openness index should be encouraged. Also, exchange rate stabilization
policies should be encouraged to promote a good business environment.