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Exchange rate, net export, and economic growth in East African countries: panel data analysis

Amsalu Ayalew

Wolkite University, Economics, Ethiopia


Abstract


This paper examines an empirical investigation of the exchange rate, net export, and economic growth in east African countries. The study fully employed a strongly balanced panel data for the period from 2000 to 2014 E.C. The data set was collected from NBE, IMF, and WB. The study employed a Random effect model as confirmed by the Hausman test. The study found that net export; real exchange rate, trade openness, and expenditure of government are positive and significantly explain economic growth. The empirical investigation indicates that both exchange rate and net export are equally important and determine economic growth. The result suggested that the improvement of exchange rate and net export was improved economic growth. In developing countries like those in Africa, more is dictated by policies than market forces and the exchange rate is not different. Generally, the policymakers of east African countries should give almost alike emphasis to the exchange rate and net export on economic growth performance and the efficient potential utilisation of East African countries is concerned. The empirical investigation of this study indicates that both the growth factor of exchange rate and net export is equally important in determining the economic growth GDP in east African countries. The bearing of exchange rates can be different in the long term compared to the short term period due to the slow adjustment of the trade quantity to the new exchange rate level. Therefore, the countries should emphasise and give more attention to improving more advancements in manufacturing products rather than the devaluation of the exchange rate.


Keywords: East African country, economic growth, exchange rate, net export, panel data, random effect


Contact Address: Amsalu Ayalew, Wolkite University, Economics, Guraghe, 07 Wolkite, Ethiopia, e-mail: amsalueco21@gmail.com


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