Author

  • Pabai Fofanah

    • Central University of Finance and Economics, Beijing, China
    • China

Abstract

The regression and the vector autoregressive VAR models are employed in this analysis. I use the auto-distributed lag regression model to estimate both the short and long-run impacts. In the VAR model, orthogonalized impulse response functions are employed to estimate the short-run. The regression result shows that while the depreciation of the real exchange rate RER increases aggregate cocoa and coffee exports AGX in the current year, this variable is not significant in determining AGX in Sierra Leone. This is because AGX has a long gestation period and until this period is over; suppliers cannot raise their output and hence exports. The negative effect of the one-period lag of the RER variable on AGX can be attributed to the fact that in the long run, depreciation in the nominal exchange rate leads to real exchange rate depreciation. This will lead to an increase in the cost of imported farming inputs in domestic currency terms. The reduction in imports that follows decreases the output and hence cocoa and coffee exports. However, this variable is not significant in determining AGX in Sierra Leone. An increase in the orthogonalized shock to the first difference of the RER causes a short series of increases in the first differences of AGX followed by a decrease, followed by an increase that dies out after four periods. The null hypothesis that the lag of the first difference of RER does not Granger-cause the lag of the first difference of AGX cannot be rejected. The paper concludes that i n the short and long term, the government should not use the depreciation of the real exchange rate as a policy tool to promote the total export of cocoa and coffee products .

Keywords

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How to Cite

Fofanah, P. (2020). Impact of Real Exchange Rate Fluctuations on Aggregate Cocoa and Coffee Exports in Sierra Leone. Journal of Economics and Behavioral Studies, 12(2(J), 34-56. https://doi.org/10.22610/jebs.v12i2(J).2976

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Research Paper

Published in

Vol. 12 No. 2(J) (2020) Debt, Trade & Corporate Performance View issue contents

Published

2020-05-22

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