Volume( 18) - Issue( 1) 2021 pp 127-138 DOI: -

REAL EXCHANGE RATE AND ECONOMIC GROWTH IN ECOWAS SUB-REGION: A PANEL COINTEGRATION APPROACH

Title

REAL EXCHANGE RATE AND ECONOMIC GROWTH IN ECOWAS SUB-REGION: A PANEL COINTEGRATION APPROACH

Abstract

The paper investigates RER and economic growth among ECOWAS countries. This has become necessary given the continuous decline in the level of competitiveness of ECOWAS countries. The study covered the 15 ECOWAS countries between the period of 1981 to 2019. Panel regression framework was adopted for the study. The panel unit root test result indicates that the variables are I(1). The result of the panel cointegration indicates the existence of a long run relationship among the variables. The Hausman’s test validated the alternative hypothesis that the Fixed Effect is appropriate. The result suggests that the RER has a positive and significant impact on the RGDP. The result showed further that the FDI and CED have significant and positive impact on the RGDP. The result revealed that openness has a positive but insignificant on the RGDP. The result of the panel VECM shows that the one period lagged RER has a significant and positive impact on the RGDP. The two period-lagged FDI and two-period lagged CED has positive and significant impact on the RER. The openness was not statistically significant. The study concludes that policies be put in place by ECOWAS countries to improve the production of tradable goods which will increase the benefit for depreciation and even a devaluation of currency. This will improve the competitiveness of ECOWAS countries.

Keywords

RER, openness, ECOWAS, FDI, panel cointegration, customs and excise duties