Effects of Real Effective Exchange Rate on Export of Goods and Services in Rwanda using Autoregressive Distributed Lag Model

Abstract

This study aims to assess the relationship between real effective exchange rate and export of goods and services in Rwanda from January 2005 to December 2023 using Autoregressive Distributed Lag (ARDL) model. The analysis aims to estimate the impact of exchange rate, inflation rate and imports on exports of goods and services in short-run and long-run. The findings reveal a statistically significant positive long-run relationship between exchange rate and export of goods and services. In contrast, the relationship between export of goods and services and control variables, inflation and import are not statistically significant in long-run. Short-run analysis demonstrates that previous export of goods and services positively influences current export of goods and services. Exchange rate in short run, lags have both positive and negative effect with both statistically significant and non-statistically significant. This may happen due to the time lag in adjustment or external shock. The study concludes with targeted recommendation for stabilizing the exchange rate, managing inflation, and strategically leveraging imports to boost Rwanda’s export.