Journal of Applied Finance & Banking

Exchange Rate Volatility’s Effect on Algeria and its Major Trading Partners’ Trade

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  • Abstract

    The following study investigates the effects of exchange rate movements on trade performance in Algeria and its major trading partners between 1981 and 2012 on quarterly basis. To operate our research, we employed the aggregate and disaggregate models. Whereas the aggregate model aims to identify the effects of the real exchange rate, the Algerian economic growth GDP, the economic growth of Algeria‟s major trading partners and the exchange rate volatility on Algeria‟s export, import and trade balance, the disaggregate model seeks to analyse the effect between Algeria and each of its major trading partners. The results which come out from the aggregate model reveal that the real exchange rate changes has a large influence over export and import in contrast with the income growth changes and exchange rate volatilities, which have less influence. The findings of trade balance model show that only the exchange rate and the domestic income growth have significant impacts on Algeria‟s trade balance in the short-run. On the other hand, the disaggregate model results indicate that all the considered variables have less influence over trade volume with most partners in determining bilateral exports and imports. The results that may come out from our analysis prove that the movements of exchange rate has a little effect on the bilateral trade balance of Algeria as well as bilateral export, import between the country each of its main trading partners.