In the recent past, exchange rate
volatility has become a matter of concern for developing and emerging economies
partly due to monetary policy actions of advanced economies and partly due to
domestic policy actions. This study examines the effects of exchange rate
volatility on exports, using a panel gravity model covering the period 1997 to
2019, to estimate pooled, fixed and random effects models for a panel of 19 COMESA
member countries. Applying two alternative measures of exchange rate
volatility, empirical results reveal that exchange rate volatility tends to
depress both intra and extra-COMESA trade. The results suggest that policy
makers in COMESA should not ignore exchange rate volatility when designing
trade policies and strategies in member countries. Monetary authorities should
strive to stabilize exchange rates by addressing the underlying causes of
large, unpredictable and damaging exchange rate fluctuations while cautiously
avoiding either further destabilizing the exchange rate or depleting foreign
reserve buffers that could result in vulnerability to external shocks. It is also important to develop regional
infrastructure like roads, railways and ports to further integrate the region
and hence unlock the trade potential for COMESA region.
JEL classification numbers: F14, F30, F36.
Keywords: Exports, Intra Regional
Trade, Exchange Rate Volatility, COMESA.