The Impact of Real Exchange Rate Depreciation on Cameroon’s Trade Balance: Is Devaluation a Remedy for Persistent Trade Deficits?

Laetitia P. Sokeng Dongfack () and Hongbing Ouyang ()
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Laetitia P. Sokeng Dongfack: School of Economics, Huazhong University of Science and Technology, Postal: Huazhong University of Science and Technology, Wuhan, China
Hongbing Ouyang: School of Economics, Huazhong University of Science and Technology, Postal: Huazhong University of Science and Technology, Wuhan, China

Journal of Economic Integration, 2019, vol. 34, issue 1, 189-213

Abstract: Time-series data from 1980 to 2016 were analyzed to estimate the impact of local currency (i.e., CFA Franc) devaluation on Cameroon’s trade balance. The estimation of short-run and long-run relationships between the variables using Johansen cointegration and the vector error correction model (VECM) as a mean to examine whether the Marshall-Lerner condition (MLC) and the J-curve phenomenon hold in the case of Cameroon yielded mitigated results: Although the MLC is not met for Cameroon, as the sum of the elasticities of demand for exports and imports is not greater than unity, the empirical analysis results provide evidence of correction over the long-run of a prior deterioration of the trade balance at an adjustment speed of 81.17%, thus supporting the existence of the J-curve pattern.

Keywords: Trade balance deficit; Real exchange rate; Marshall-Lerner condition; Devaluation; J-curve pattern. (search for similar items in EconPapers)
JEL-codes: E42 F31 F41 (search for similar items in EconPapers)
Date: 2019
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