Analysis of Exchange Rate Volatility on Trade Balance in Sub-Saharan Africa (SSA): Stochastic Frontier Approach

This study assessed the exchange rate variables and trade balance covering the period from 1990 till 2022 in SSA. The exchange rate variables shall be included in the study are the population growth, The Gross Domestic Product, Real Effective Exchange Rate and the inflation rate. The data was collected from World Bank Group. In this study theories used are theory of efficiency market hypothesis developed by lyke (2020), the Marshall-learner condition developed by (Mahmud & Yucel 2004), J-Curve and Exchange rate pass-through theories. An econometric approach was used to find out answers to the research objectives and hypothesis. A regression analysis was used to find out relationship among variables while a panel VAR and Panel Granger was used to find out the long and short-run relationship among them. Several tests such as stochastic frontier models for panel data , Stationarity, post estimation test like normality, heteroscedasticity, autocorrelation and multicollinearity were conducted in this study. The results of the causality test using the standard Granger causality test demonstrate that there is unidirectional causality from trade balance to population growth , gross Domestic Product , inflation and Real effective exchange rate `.The estimation techniques including the fully modified ordinary least squares (FMOLS), Dynamic ordinary least squares (DOLS), and Canonical cointegration Regression (CCR) were used to test the consistency and Robustness of the results that were generated using the ARDL bounds testing method. This study will help the policy makers, the government authorities, the researchers and scholars to understand the exchange rate volatility on the trade balances of SSA's economies.