Trade Balance, Exchange Rate Performance and Economic Growth: Evidence from Southern African Development Community

Abstract

This study explores the relationship between trade balance, exchange rate performance, foreign direct investment and economic growth in the Southern African Development Community (SADC) using quarterly data from 1970 to 2022. The results demonstrate that trade balance and exchange rate performance have a positive and significant impact on economic growth. The findings from the Dumitrescu-Hurlin (DH) panel causality tests suggest a bidirectional causal relationship between trade balance and economic growth, as well as between exchange rate performance and economic growth. The study concludes that promoting sound policies to enhance exports, reduce import dependency, and create favorable macroeconomic conditions is essential for achieving sustainable economic growth. Moreover, the study recommends the implementation of policies that optimize the benefits and retention of foreign direct investment (FDI) gains.

Keywords

• trade balance
• exchange rate performance
• foreign direct investment
• economic growth
• sadc