LONG-RUN DETERMINATION OF EXCHANGE RATES IN SUB-SAHARAN AFRICA: EVIDENCE FROM GHANA, SOUTH AFRICA, NIGERIA, AND KENYA

Chinedu B. Ezirim
Amadi Christian Oyirinda
University of Port Harcourt, Nigeria

Austin A. Momodu
Rivers State University of Science and Technology, Nigeria

ABSTRACT

In this study, we analyze the long-run relationship between exchange rate and its determinants in Ghana, Nigeria, South Africa, and Kenya from 1985 – 2013 using a five-variable model with exchange rate as the dependent variable and external reserve, balance of payment, foreign direct investment, inflation rate, and net export as the independent variables. Results showed a significant long-run equilibrium relationship between exchange rate and the above independent variables for all the countries studied. Except for Kenya, the error correction model showed that adjustments from short-run to long-run equilibrium are readily tenable and ensured for all the countries.

Keywords: Long-run relationship, exchange rate determination, external reserves, balance of payment, foreign direct investment, inflation rate, and net exports