Abstract
This paper investigates the impact of dollarization policy on Zimbabwe exports over a period of 20 years. The study used panel data for 50 Zimbabwe potential historical trading partners. Random Effects Model (REM) was applied to estimate the gravity model equation. Panel Feasible Generalized Least Squares (FGLS) regression technique corrected for heteroskedasticity and contemporaneous correlation across panels was applied to probe factors that drive Zimbabwe export flows. The results provide insights on the impact of dollarization policy, GDP, bilateral exchange rate, SADC membership status and population on Zimbabwe exports. If monetary authorities involuntarily re-dollarize the economy owing to monetary autonomy erosion, emphasis should be directed towards internal devaluation which could be attained by measures intended to exert downward pressure on domestic costs, wages and prices to recuperate export competitiveness. Further, government has to create an environment that encourage foreign direct investment inflows to ease liquidity challenges probable to be experienced under dollarization regime. Nevertheless, macroeconomic fundamentals ought to be addressed with action to spur economic growth. Sufficient resources should be channelled towards increasing the country's productive capacity, and this can enhance country‘s ability to supply export products to the international market, and curb import growth.Keywords: Dollarization policy, gravity model, ZimbabweJEL Classifications: F60, F63, 63DOI: https://doi.org/10.32479/ijefi.11315
Highlights
The evolution of Zimbabwe macroeconomic performance is highly related to the performance of the external sector
The estimated results in table below indicates that Zimbabwe exports are influenced by Dollarization policy, SADC membership status, Trading partner countries gross domestic product (GDP), Zimbabwe GDP, Zimbabwe bilateral exchange rate, Population of partner countries
The focus this paper was to examine the impact of dollarization regime on Zimbabwe exports
Summary
The evolution of Zimbabwe macroeconomic performance is highly related to the performance of the external sector. In 2014 the Reserve Bank of Zimbabwe introduced bond coins to alleviate change shortages in an economy that was predominantly using the United States dollar as its anchor currency. These major structural shifts have caused major internal and external imbalances as reflected in uneven and sluggish economic performance since independence, deteriorating internal and external positions (Reserve Bank of Zimbabwe, 2015b). The US dollar has continued to appreciate against the South African Rand negatively affecting exports which are priced in US dollars and encouraging imports (Reserve Bank of Zimbabwe, 2015b) This has resulted in accumulating trade and current account deficits, and escalating debt building up (Reserve Bank of Zimbabwe, 2015a).
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