Is There a Link Between the Exchange Rate Regime and Export Diversification in ECOWAS Countries?

Abstract

The choice of exchange rate regimes remains an important but controversial issue in developing countries that remain open to the rest of the world and whose exports depend on primary products. The objective of this paper is to analyse the effect of the exchange rate regime on export diversification of ECOWAS countries. To do this, we adopted an empirical investigation based on a regression of a linear panel data model of 10 ECOWAS countries over the period 1990 to 2014 using the IV-2SLS estimation technique. Our results mainly indicate that the fixed exchange rate regime is significantly conducive to export diversification in ECOWAS countries. In the light of these results, in order to improve export diversification, the governments of these countries need to undertake policies aimed at maintaining the stability of their national currencies vis-à-vis foreign currencies through an appropriate exchange rate policy.