1. BY ABU BAKARR TARAWALIE AND CHRISTIAN R. K. AHORTOR A Paper Prepared for the Third Annual Conference on Regional Integration in Africa (ACRIA3) Dakar, Senegal July 4 -5 2012

2. OUTLINE OF THE PRESENTATION  Introduction  Research Problem  Objectives  Volatility – Export Performance Experience  Literature Review  Theoretical Framework and Methodology  Presentation and Analysis of Results  Conclusion and Policy Recommendations

3. INTRODUCTION  Real exchange rate as a measure of a country’s international competitiveness.  Central Banks in the WAMZ aim at exchange rate stability.  Adoption of flexible exchange rate regime to:  reduce overvaluation of the local currency;  reduce protectionist tendencies;  promote exports; and  maintain external equilibrium  The real exchange rate remains misaligned in most WAMZ countries.  Hence, volatility remains a prominent feature.

4. RESEARCH PROBLEM  Most African countries adopted economic reform programmes in the 1980s with exchange rate liberalization as a major component.  Real exchange rate volatility in the WAMZ declined from 53.0% in 1991 to 45.6% in 2008, on average.  Correspondingly, export growth rose from 4.4% to 9.7% during the same period.  This perceived correspondence raises pertinent questions:  Is there any relationship between exchange rate volatility and export performance?  If yes, what is the effect of exchange rate volatility on exports in the WAMZ countries?  What is the magnitude of this effect?  Very few studies examined the issue in the WAMZ ( Yusuf and Edom, 2007; Aliyu, 2008).

5. RESEARCH OBJECTIVES  To empirically investigate the effects of real exchange rate volatility on exports performance in the WAMZ countries.  To determine the impact of the real exchange rate itself on exports performance in the WAMZ.  In case of cointegration, to find the speed of adjustment to equilibrium in the volatility- export relationship.

6. RELEVANCE AND JUSTIFICATION  It provides empirical evidence of the impact of volatility on exports in the WAMZ countries.  Specifically, it helps fill the gap in the empirical literature on WAMZ countries.  It proffers recommendations that will help stabilize the real exchange rate in the WAMZ.  It gives direction for future research.

7. VOLATILITY – EXPORTS EXPERIENCE IN THE GAMBIA

8. VOLATILITY – EXPORTS EXPERIENCE IN GHANA

9. VOLATILITY – EXPORTS EXPERIENCE IN GUINEA

10. VOLATILITY – EXPORTS EXPERIENCE IN LIBERIA

11. VOLATILITY – EXPORTS EXPERIENCE IN NIGERIA

12. VOLATILITY – EXPORTS EXPERIENCE IN SIERRA LEONE

13. LITERATURE REVIEW - THEORIES  Due to high adjustment costs and market imperfections, an increase in exchange rate volatility induces reduction in volume of trade and reallocation of production towards domestic markets (Hooper & Kohlhagen, 1978; IMF, 1984).  An increase in volatility causes a reduction in exports (SE), while falling revenues induces increase in exports (IE), hence ambiguous relationship (De Grauwe, 1988; Fountas & Aristotelous, 1999; Cote, 1994).  Higher risks present greater opportunity for profits, hence high volatility induces increase in exports (Franke,1991; Sercu and Vanhulle, 1992).

14. LITERATURE REVIEW - EMPIRICS  Volatility hurts exports (Chowdhury, 1993; Mahmood & Vixathep, 2002; Callabero & Corbo; 1989; Ghura & Greenes, 1993; Aliyu, 2008)  Volatility promotes exports (Cushman, 1986; De Grauwe, 1988; Bini-Smaghi, 1991; Todani and Munyama, 2005).  Volatility has no effect on exports (Rose, 2000).

15. THEORETICAL FRAMEWORK AND METHODOLOGY

16. ESTIMATION TECHNIQUE AND DATA  Dynamic OLS (DOLS) estimation technique  Sources: International Financial Statistics and Direction of Trade Statistics of the IMF  period 1990Q1 to 2010Q4 (2002Q1 to 2010Q4 for Liberia)

17. EMPIRICAL RESULTS  Cointegration results:  Cointegration exists in case of The Gambia and Sierra Leone but not in Ghana, Guinea and Nigeria  Variables are I(0) in case of Liberia  Long- and/or short-run results:  The Gambia – volatility impacts exports positively in both the long and short runs.  Ghana – insignificant short-run relationship  Guinea – insignificant short –run relationship  Liberia – significant long-run negative impact  Nigeria – significant long-run negative impact  Sierra Leone – significant short-run negative impact.

18. RECOMMENDATIONS AND CONCLUSION  The need to stabilize the real effective exchange rate by:  pursuing simultaneously disinflationary policies and nominal exchange rate stability;  implementing viable fiscal and monetary policies;  adopting export diversification strategies;  boosting domestic production to satisfy local production;  processing for exports.

19. THANK YOU FOR YOUR ATTENTION.