Are the Effects of Oil Price and Exchange Rate Volatilities on Exports Linear? Evidence from African Countries

Abstract

We examine the nonlinear and asymmetric effects of real oil price and real exchange rate (RER) shocks as well as their volatilities on the exports of two African countries using a Threshold Vector Auto Regressive (TVAR) model. Using Nigeria (an oil exporter) and Tanzania (an oil importer), results from nonlinear impulse response functions reveal that for both countries, RER appreciations have negative effects on exports while depreciations have positive effects. However, above the RER volatility thresholds, these effects are higher for Nigeria and lower for Tanzania. For both countries, a positive relationship is found between oil price shocks and exports, with the magnitudes of the effects depending on the thresholds. When oil price volatility is the threshold variable, it has positive impacts on both countries, with the effects being much larger for Nigeria than Tanzania.