Exchange Rate and Trade Balance in West African Monetary Zone: Is There a J-Curve?

An attempt is made in this paper to query the existence or otherwise of a J-Curve in four West African Monetary Zone (WAMZ) countries: namely The Gambia, Ghana, Nigeria and Sierra Leone. We use data from 1980Q1 to 2007Q4 and a bounds testing approach, with an autoregressive distributed lag (ARDL) methodology, to cointegration in capturing the impact of devaluation on the trade balance. Our results indicate that cointegration exists among the trade balance, foreign income, the real effective exchange rate and domestic income in all countries. More importantly, our results seem to support the J-Curve hypothesis only in the case of Nigeria with Sierra Leone exhibiting no J-Curve pattern. The differential impact, of this policy of real devaluation, across countries implies that such policies should engender incentives that are compatible with the growth and developmental objectives of member states.