Exchange Rate Shocks and Trade Dynamics in African Emerging Markets: A Panel VECM Study.

This study investigates the impact of exchange rate shocks on trade flows in African emerging markets using a panel Vector Error-Correction Model (VECM) with data spanning 1980–2024. Panel unit root and cointegration tests confirm long-run relationships among imports, exports, the exchange rate, consumer prices, and output. The results show that currency depreciation reduces both imports and exports in the long run, reflecting structural import dependence and limited export competitiveness. Consumer prices, however, significantly increase trade flows, while domestic GDP stimulates imports and foreign GDP drives exports, consistent with macroeconomic expectations. Impulse response analyses reveal heterogeneous effects across identification schemes: baseline ordering indicates mild trade expansion, faster financial block and generalised IRFs show contractionary dynamics, while managed exchange rate settings yield muted responses. The study recommends that African emerging markets complement exchange rate policies with structural reforms aimed at reducing import dependence, diversifying exports, and strengthening productive capacity. Also, flexible exchange rate regimes, supported by sound macroeconomic frameworks, are essential for enhancing resilience and ensuring trade gains from exchange rate adjustments.