Exchange Rate Volatility and Economic Growth in the Francophone Countries

Abstract

This study examines the impact of exchange rate volatility on output growth in the Francophone countries, using time series data spanning from 1980 to 2015. The study employs panel data analysis to examine the relationship between exchange rate volatility and output growth in Francophone countries within ECOWAS. GARCH was used to establish the existence of volatility while Panel ARDL was used to examine the impact of exchange rate volatility on output growth in French speaking sub-region. The result of volatility test from GARCH confirmed the presence of volatility in Real Effective Exchange Rate (REER) in Francophone countries within ECOWAS. Furthermore, the short-run result confirms that there is a negative and significant relationship between exchange rate volatility and output growth in Francophone countries. While a positive and significant relationship was found to exist between exchange rate volatility and output growth in French speaking countries in the long run. Based on the findings of this study, it is therefore recommended that exchange rate policy that will pave way for competitiveness should be formulated by monetary authorities in Francophone countries. In addition, French speaking countries should endeavour to add more value to their products before exporting them to other countries.