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)
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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
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