THE EFFECTS OF REAL EXCHANGE RATE ON TRADE BALANCE IN COTE D'IVOIRE: EVIDENCE FROM THE COINTEGRATION ANALYSIS AND ERROR-CORRECTION MODELS

This paper investigates the effect of real exchange rate on the balance of trade of Cote d'Ivoire using multivariate cointegration tests and vector error correction models with time series data covering the periods of 1975-2007. Our investigation results confirm the existence of long-run relationships among Trade Balance (TB), Real Exchange Rate (RER), and foreign and domestic incomes for Cote d'Ivoire. Estimated results also demonstrate that the (RER) has a significant positive influence on Cote d'Ivoire's trade balance in both short and long-run under fixed real exchange rate management policies for the considering period. The Granger Causality test shows that the (RER) does Granger causes the trade balance then, based on the estimations, the Marshall-Lerner condition in Cote d'Ivoire's data is explored by utilizing the Impulse Response Function (IFR) which traces the effect of (RER) on the trade balance viewing the J-curve pattern.