THE RESPONSE OF ZIMBABWE TOBACCO EXPORTS TO REAL EXCHANGE RATES VOLATILITY
Abstract
The focus of this study was on investigating the response of tobacco exports to real exchange rates and real exchange rate volatility and other factors in Zimbabwe using secondary data spanning from 1980 to 2019. Bilateral nominal exchange rates and time-variant weights of Zimbabwe’s 10 major trading partners were calculated and used to compute the real exchange rate index. The time-dependent weighting system was used to better represent the evolution of trade patterns in the index. The arithmetic method was employed for computing the index. Generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive conditional heteroscedasticity (ARCH) models were used to generate the real exchange rate volatility index. The export response function was adopted as the tobacco exports response model. The variables in the tobacco exports response model were the realworld Gross Domestic Product (GDP), real exchange rate, terms of trade, real exchange rate volatility and dollarization. A vector error correction model (VECM) was used to estimate the response of tobacco exports to real exchange rate, real exchange rate volatility and other factors. The VECM results indicated that real world GDP was insignificant in both the short and long run. In the long run, the real exchange rate appreciation had a negative impact on tobacco exports. Conversely, in the short run, the depreciation of real exchange rate had a positive impact on tobacco exports. Hence, the government has to adopt other mechanisms that reduce uncertain movements of exchange rates.
Keywords
Real exchange rate (RER); Real exchange rate volatility (RERV); Vector error correction model (VECM)
References
Danquah, B.A. (2014). The Effects of Exchange Rate on Ghana’s External Trade. British J. Econ. Fin. Manag. Sci., 9(1), 48–68.
Alimi, R.S. (2014). ARDL Bounds Testing Approach to Cointegration: A Re- Examination Of Augmented Fisher Hypothesis In An Open Economy. Asian J. Econ. Model., 2(2), 103–114.
Baier, S.L., Bergstrand, J.H. (2001). The Growth of World Trade- Tarrifs, Transport Costs, and Income Similarity. J. Int. Econ., 5(53), 1–27.
Bank of Uganda (2014). Does Real Effective Exchange Rate Volatility matter for Uganda’s Flowers Exports? A Cointegrated VECM Approach, Kampala.
Buigut, S. (2015). The effect of Zimbabwe’s Multi-Currency Arrangement on Bilateral Trade: Myth Versus Reality. Int. J. Econ. Fin. Iss., 5(3), 690–700.
Camarero, M., Tamarit, C. (2003). Estimating exports and imports demand for manufactured goods: The role of FDI. Jaume I University.
Cheng, K.M., Kim, H., Thompson, H. (2012). The real exchange rate and the balance of trade in US tourism. Int. Rev. Econ. Fin., 25, 122–128.
Darvas, Z. (2012). A tale of three countries: recovery after banking crises (No. MT-DP-2012/2). IEHAS Discussion Papers.
Ellis, L., Ellis, L. (2001). Measuring the real exchange rate: Pitfalls and practicalities (pp. 2001-2004). Reserve Bank of Australia.
Government of Zimbabwe (2016). The 2016 National Budget Statement, Harare. Retrieved Oct 27th 2016 from: www. dpcorp.corp.co.zw/assets
Kipici, A., Kesriyeli, M. (1997). The Real Exchange Rate Definitions and Calculations. Central Bank of the Republic of Turkey.
Loretan, M. (2005). Indexes of the Foreign Exchange Value of the Dollar, Washington DC.
Lubinga, M.H., Kiiza, B. (2013). Exchange Rate Uncertainty and Bilateral Trade Flows: Insights from Uganda. Bus. Econ. Res., 3(1), 227–239.
Mohamad, S., Jusoff, H.K. (2008). Exchange rates and export growth in Asian economies. Asian Soc. Sci., 4(11), 30–36.
Mumbengegwi, C. (2002). Macroeconomic and Structural Adjustment Policies In Zimbabwe. Palgrave Macmillan.
Mzumara, M. (2012). An overview of Zimbabwe’s macroeconomic environment. Int. J. Econ. Res., 3(1), 32–68.
Nicita, A. (2013). Exchange Rates, International Trade and Trade Policies. Int. Econ., 135–136(56), 47–61.
Nyanga, T., Sibanda, R., Kruger, J. (2020). Obstructions to Job Satisfaction: Voices of Small to Medium Enterprise Employees in the Manufacturing Industry in Zimbabwe. Bus. Excell. Manag., 10(1), 16–30.
Obayelu, A.E., Salau, S. (2010). Agricultural Response to Prices and Exchange Rate in Nigeria: Application of CoIntegration and Vector Error Correction Model (VECM). J. Agric. Sci., 1(2), 73–81.
Odili, O. (2015). Real Exchange Rate Volatility, Economic Growth and International Trade in an Emerging Market Economy: Evidence from Nigeria. Int. J. Acad. Res. Bus. Soc. Sci., 5(7), 179–201.
Oiro, M.O. (2015). Real Exchange Rate Volatility and Exports in Kenya: 2005. J. World Econ. Res., 4(5), 115–31.
Opoku-Afari, M. (2004). Measuring the Real Effective Exchange Rate (REER ) in Ghana. Nottingham. Retrieved from https://www.nottingham.ac.uk
Osman, M.A., Evans, S.R. (2005). Time Series Analysis of the Somalian Export Demand Equations: A Co-integration Approach. J. Econ. Soc. Res., 4(2), 71–92.
Pahlavani, M., Wilson, D., Worthington, A.C. (2005). TradeGDP Nexus in Iran: An Application of the Autoregressive Distributed Lag (ARDL) Model School of Economics and Information Systems. Am. J. Appl. Sci., 2(7), 1158–1165.
Payne, J.E., Mervar, A. (2010). Research note: The tourism– growth nexus in Croatia. Tour. Econ., 16(4), 1089–1094.
Reserve Bank of Zimbabwe (2014). Quarterly Economic Review: Zimbabwe. Harare. Retrieved Oct 20th 2016 from: www.rbz.co.zw/assets/quarterlyeconomic-review-december-2014-final.pdf
Reserve Bank of Zimbabwe (2016a). 2016 Mid-Term Monetary Policy Statement. Retrieved Oct 20th 2016 from: www.rbz.co.zw/ monetarypolicy.html
Reserve Bank of Zimbabwe (2016b). Monetary Policy Statement, Economic Transformation Through Transparency and Accountability. (January): 1–92. Retrieved Oct 20th 2016 from: www.rbz.co.zw/monetary-policy.html
Saungweme, T. (2012). Trade Dynamics in Zimbabwe (1980– 2012). Rus. J. Agric. Soc.-Econ. Sci., 10(22), 31–34.
Scoones, I., Marongwe, N., Mavedzenge, B., Murimbarimba, F., Mahenehene, J., Sukume, C. (2011). Zimbabwe’s land reform: A summary of findings. Brighton, IDS.
Sithole, G. (1996). Analysis of Policy Reform and Structural Adjustment Programs in Zimbabwe With Emphasis on Agriculture and Trade. Washington, D.C.
Thaver, R.L., Bova, C. (2014). An Estimation of Ecuador’s Export Demand Function with the Us. Int. J. Bus. Fin. Res., 8(1), 89–102.
Tobacco Industry and Marketing Board (2015). 2015 Annual Statistical Report. Retrieved Oct 27th 2016 from: http:// www.timb.co.zw.106
Trade Economics (2020). Zimbabwe GDP per capita. Retrieved April 30th 2020 from: https://tradingeconomics. com/zimbabwe/gdp-per-capita
United Nations Development Programme (2009). Foreign Trade, Competitiveness and the Balance of Payments. Harare.
Wong, H.T. (2013). Real exchange rate misalignment and economic growth in Malaysia. J. Econ. Stud., 40(3), 298–313.
World Bank (2016). Zimbabwe Economic Update, Harare. Retrieved Oct 27th 2016 from: www.worldbank.org
Yazici, M. (2006). Is the J-curve effect observable in Turkish agricultural sector? J. Cent. Eur. Agric., 7(2), 319–322.
University of Zimbabwe Zimbabwe
https://orcid.org/0000-0002-0811-1632
Mr Knowledge Mutodi is a Master's graduate of the Department of Agriculture Economics, in the Faculty of Agriculture at the University of Zimbabwe
University of Pretoria South Africa
https://orcid.org/0000-0001-7325-8932
Dr Tinashe Chuchu Ph.D. is a senior lecturer in the Department of Marketing Management, in the Faculty of Economic and Management Sciences at the University of Pretoria
University of the Free State South Africa
http://orcid.org/0000-0002-8047-4702
Dr Eugine Tafadzwa Maziriri Ph.D. is a researcher in the School of Economic and Business Sciences at the University of the Witwatersrand
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
This journal permits and encourages authors to post items submitted to the journal on personal websites or institutional repositories both prior to and after publication, while providing bibliographic details that credit, if applicable, its publication in this journal.
