Exchange rate misalignment, state fragility, and economic growth in sub-Saharan Africa

Brian Tavonga Mazorodze and Mariam Camarero

Cogent Economics & Finance, 2021, vol. 9, issue 1, 1898113

Abstract: The sluggish and sometimes negative growth in sub-Saharan Africa has defined the objectives of most studies seeking to explain the sources of its slow growth. I contribute to this inquiry by estimating how state fragility influences the effect of exchange rate misalignment on economic growth. Since exchange rate misalignment captures the distortionary effects of inappropriate macroeconomic policies in the main, my hypothesis is that resilient and less fragile states cope better with macroeconomic imbalances making misaligned exchange rates less likely to have serious effects on growth in such countries. In testing this hypothesis, I first measure misalignment as deviations of the actual exchange rate from an estimated equilibrium level using the dynamic ordinary least squares method. I then insert this variable and its interaction with state fragility in a growth specification. In line with my hypothesis, results from the system generalised method of moments and data on 13 sub-Saharan countries observed between 2009 and 2018 show a significantly negative effect of exchange rate misalignment on growth that increases with state fragility. Based on this evidence, I urge countries in this region to improve state resilience as an effort to reduce the negative effect of exchange rate misalignment on economic growth.

Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/23322039.2021.1898113 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:oaefxx:v:9:y:2021:i:1:p:1898113

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/OAEF20

DOI: 10.1080/23322039.2021.1898113

Access Statistics for this article

Cogent Economics & Finance is currently edited by Steve Cook, Caroline Elliott, David McMillan, Duncan Watson and Xibin Zhang

More articles in Cogent Economics & Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().