Exchange Rate Volatility and Foreign Trade Performance : Panel Ardl Approach

This study investigated the effect of exchange rate shocks on foreign trade (exports and imports) of 10 ECOWAS economies. The Autoregressive Distributed Lag (ARDL) approach to co-integration and error correction model was employed to examine the long-run and short-run relationship between the variables with data covering the period from 1980-2016. In predicting conditional variances as proxy for volatility, the study uses the GARCH (1, 1) model. Our empirical results are distinguished into export model and import model. For the export model, exchange rate volatility measured by GARCH affects exports negatively in the short-run, though it is not statistically significant. The effect however becomes positive in the long run, even though still statistically insignificant. For the import model, exchange rate volatility has negative but insignificant effects in both the short- and long-runs. To develop a robust international trade and ultimate economic growth, it is recommended that policymakers of these economies maintain a more stable exchange rate by way of intervention in the foreign exchange market