Resilience to terms of trade shocks in Sub-Saharan Africa: the role of fiscal Policy and exchange rate regime

Aminou Yaya

Working Papers from African Economic Research Consortium

Abstract: This paper's objective is to analyse the role of fiscal policies and the exchange rate regime in the effect of terms of trade shocks on growth volatility in SSA. To achieve this objective, we use an estimation technique based on instrumental variables (2SLS) for a sample of 44 sub-Saharan African countries covering the period spanning 1980 to 2020. The results show that terms of trade shocks as well as discretionary policy contribute to growth volatility in sub-Saharan Africa. However, fiscal rules reduce the effects of terms of trade shocks and discretionary policy volatility on growth volatility. Furthermore, exchange rate regime fixity tends to positively affect growth volatility. This result implies the need for sub-Sahara African countries to consider fiscal policies, and the nature of the exchange rate regime in their resilience and volatility reduction strategy.

Date: 2025
New Economics Papers: this item is included in nep-afr and nep-mac
Note: African Economic Research Consortium
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