Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries

Moumini Bamogo

doi:doi:10.11648/j.jbed.20200504.15

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Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries

Moumini Bamogo

Published in Journal of Business and Economic Development (Volume 5, Issue 4)

Received: 24 October 2020 Accepted: 10 November 2020 Published: 19 November 2020

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Abstract

Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.

Published in	Journal of Business and Economic Development (Volume 5, Issue 4)
DOI	10.11648/j.jbed.20200504.15
Page(s)	224-238
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Real Exchange Rate, Exchange Rate Regime, Sustainability of Current Account Deficits, Sub-Saharan Africa

References

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Moumini Bamogo. (2020). Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. Journal of Business and Economic Development, 5(4), 224-238. https://doi.org/10.11648/j.jbed.20200504.15

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Moumini Bamogo. Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. J. Bus. Econ. Dev. 2020, 5(4), 224-238. doi: 10.11648/j.jbed.20200504.15

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AMA Style

Moumini Bamogo. Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. J Bus Econ Dev. 2020;5(4):224-238. doi: 10.11648/j.jbed.20200504.15

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@article{10.11648/j.jbed.20200504.15,
  author = {Moumini Bamogo},
  title = {Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries},
  journal = {Journal of Business and Economic Development},
  volume = {5},
  number = {4},
  pages = {224-238},
  doi = {10.11648/j.jbed.20200504.15},
  url = {https://doi.org/10.11648/j.jbed.20200504.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20200504.15},
  abstract = {Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.},
 year = {2020}
}

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TY  - JOUR
T1  - Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries
AU  - Moumini Bamogo
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.jbed.20200504.15
DO  - 10.11648/j.jbed.20200504.15
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 224
EP  - 238
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20200504.15
AB  - Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.
VL  - 5
IS  - 4
ER  -

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Author Information

Moumini Bamogo

Department of Economics and Management, Thomas Sankara University, Ouagadougou, Burkina Faso

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APA Style

Moumini Bamogo. (2020). Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. Journal of Business and Economic Development, 5(4), 224-238. https://doi.org/10.11648/j.jbed.20200504.15

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ACS Style

Moumini Bamogo. Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. J. Bus. Econ. Dev. 2020, 5(4), 224-238. doi: 10.11648/j.jbed.20200504.15

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AMA Style

Moumini Bamogo. Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries. J Bus Econ Dev. 2020;5(4):224-238. doi: 10.11648/j.jbed.20200504.15

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@article{10.11648/j.jbed.20200504.15,
  author = {Moumini Bamogo},
  title = {Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries},
  journal = {Journal of Business and Economic Development},
  volume = {5},
  number = {4},
  pages = {224-238},
  doi = {10.11648/j.jbed.20200504.15},
  url = {https://doi.org/10.11648/j.jbed.20200504.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20200504.15},
  abstract = {Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Effect of the Real Exchange Rate on the Sustainability of Current Account Deficits in Sub-Saharan African Countries
AU  - Moumini Bamogo
Y1  - 2020/11/19
PY  - 2020
N1  - https://doi.org/10.11648/j.jbed.20200504.15
DO  - 10.11648/j.jbed.20200504.15
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 224
EP  - 238
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20200504.15
AB  - Sub-Saharan African countries run many current account deficits in the context of the new world economic order, namely globalization. The theoretical literature reveals that the real exchange rate improves the sustainability of the current account deficit, the effect of which may differ according to the type of exchange rate regime. Empirically, the authors are not unanimous on this issue. This paper analyses the effect of the real exchange rate on the sustainability of current account deficits in Sub-Saharan African countries over the period 1980-2016. Using a logit model applied to a panel of 38 countries and estimated using the maximum likelihood method, it appears that the depreciation of the real exchange rate has a positive effect on the sustainability of the current account deficit. This effect depends on the type of exchange regime. Under a floating exchange rate regime, the real exchange rate acts positively on the sustainability of the current account deficit when this rate is less than or equal to 250. On the other hand, under an intermediate exchange rate regime, the real exchange rate increases the sustainability of the current account deficit when the rate is between 275 and 600. In the case of the fixed exchange rate regime, the real exchange rate has a positive effect on the sustainability of the current account deficit if the rate is greater than or equal to 700. In the light of these results, the paper suggests to policymakers, the use of the real exchange rate to improve the sustainability of current account deficits. These policymakers should use real exchange rates below 250 for countries adopting a floating exchange rate regime, between 275 and 600 for the intermediate exchange rate regime, and greater than 700 for the fixed exchange rate regime.
VL  - 5
IS  - 4
ER  -

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