2.1. Marquez and Schindler (2006) estimated the responsiveness

2.1. GENERAL REVIEW2.1.1 RELATIONSHIP BETWEEN EXCHANGE RATE FLUCTUATION AND INTERNATIONAL TRADEExchange rate is the attacker to most businesses that operate internationally once there is global instability.

Since the introduction of the floating exchange rate system during the 1970s, many studies have emerged to demonstrate the relationship between exchange rate fluctuations and international trade. Since then, the introduction of a common currency in Europe has promoted this dispute. Aninpah (2009) a large part of the literature holds that trade is important for growth. Such an observation derives from studies concluding that outward-oriented economies consistently have higher growth rates than inward-oriented economies. Most studies reveals that increase in exchange rate volatility reduces international trade. Marquez and Schindler (2006) estimated the responsiveness of Chinese trade to changes in exchange rate without using proxies for trade prices using data from 1995-2005. The Result suggested that 10% real appreciation of the RMB lowers the share of aggregate Chinese exports by a half of a % point.

Best services for writing your paper according to Trustpilot

Premium Partner
From $18.00 per page
4,8 / 5
Writers Experience
Recommended Service
From $13.90 per page
4,6 / 5
Writers Experience
From $20.00 per page
4,5 / 5
Writers Experience
* All Partners were chosen among 50+ writing services by our Customer Satisfaction Team

Same appreciation lowers the share of aggregate imports by about 10th of a percentage point. Kurihara (2013) examined the relationship between international trade and exchange rate fluctuations in developed and developing countries. Panel data was used to conduct a dynamic panel model.

The findings indicated that exchange volatility negatively influences international trade in developing countries. As the volatility exchange rate increases, it dampens international trade. He went further to explain that exchange rate volatility does not significantly decrease international trade. The reason would be that as financial market development has been attained, many hedging or covering instruments have been developed to combat exchange rate volatility.

Nicita (2013) investigated the importance of exchange rates on international trade by analyzing the impact that exchange rate volatility and misalignment have on trade and then by exploring whether exchange rate misalignments affect governments’ decisions regarding trade policies with panel dataset comprising about 100 countries and covering 10 years (2000-2009). The relationship between trade and exchange rate volatility and misalignment was measured by a panel gravity model. The investigation lead to the following results first, exchange rate volatility does not affect international trade except in the occurrence of currency unions and pegged exchange rates. That is, any relationship between the volatility and trade variables is most likely driven by the underlining long-term policy credibility provided by currency unions and pegged exchange rates rather than short-term volatility itself. The second finding was that exchange rate misalignments do affect international trade flows in a substantial manner. Currency undervaluation is found to promote exports and restrict imports and conversely in the case of overvaluation. In magnitudes, misalignments across currencies result in trade diversion quantifiable in about one per cent of world trade.

It also support the argument that trade policy is used to compensate for some of the consequences of an overvalued currency, especially with regard to anti-dumping interventions. Hou (2014) Analyzed the RMB real effective exchange rate change on the influence of the export of general trade and processing trade exports. Using monthly data from 2005 to 2013.

The results showed that the effects of real effective exchange rate on general trade export was larger than the impact on the export processing trade industry. The reason may be because due to the impact of RMB appreciation, the general trade due to the impact technology is relatively large at the beginning of the appreciation of the renminbi, in the short term, it cannot have too much technological innovation, so as to affect exports greatly. Guneren and Kibritci (2014) determined the impact of exchange rates on imports and to investigate the impact of exchange rates on exports of economically developing countries.

The Panel co-integration method is used with an annual frequency between 1985 and 2012 for 22 emerging countries. The Result, showed there was co- integrated relationship between effective exchange rates and exports-imports of emerging countries in the long run. In total 5 of 22 emerging countries had both long term relationship and short term parameters and were statistically significant. The error correction parameters for export was negative and significant while there was a long term relationship between the effective exchange rate index and export.Also, few studies have focused on developing and newly industrialized economies Sherzod (2007) found out that export and import are stationary time series around time trend.

Effects in short run changes of volatility are negatively associated with export and import. From another point, the relationship is appeared to be positive when admitted the fact that traders being aware of the previous period fluctuations made appropriate decisions regarding the volume of their trade in Sweden. BAAK (2008) findings showed that the currency value of China has long-run negative impacts on the export volume of China. Similarly, the currency value of the US turns out to have long-run negative impacts on the export volume of the US.

Therefore, the recent revaluation of the Chinese renminbi is expected to have positive impacts on the US exports to China, but negative impacts on the Chinese exports to the US in the long-run, if other factors are not changed. Bourdon and Korinek (2011) Mentioned that a rise in national income can lead to an increase in the value of domestic imports through the increased purchasing power of domestic consumers. They investigated the impact of exchange rate on bilateral trade in large economies and found out that exchange rates in large economies do not drive trade flows whereas it does in smaller economies or developing countries. Baek (2013) Results showed that Korea’s exports and imports are relatively sensitive to the bilateral exchange rate in the short-run, but less responsive in the long-run.

He also found that income in the two countries has significant impacts on the bilateral trade flows in both the short- and long-run. Finally, exchange rate uncertainty and Japanese FDI to Korea are found to have little impacts on Korea’s trade with Japan in the short- and long-run. TWAMUGIZE et al (2017) findings revealed that the increase in exchange rate or devaluation of Rwandan currency is negatively related to exports while the increase in exchange rate indicates the negative effect on import in long-run.

On the imports side, the results indicate the increase in exchange rate affect the level of import negatively. Therefore currency fluctuation has an adverse effect on both export and import flows in the long run. Leigh et al (2017) examined the relationship between exchange rate and trade prices and using the depreciation episodes, analyzed whether there is a stable relationship between export and exchange rate. There was limited evidence which supported the fact that exchange rate affects trade prices. After they studied the depreciation events of large currencies, they found out that a depreciation in exchange rate will mostly affect economies with economic slack.On the other hand, some studies revealed that there exist a positive relationship between exchange rate fluctuation and international trade.

Jiang (2014) Analyzed the RMB exchange rate volatility and China’s foreign trade situation. And also investigated the effect of nominal RMB exchange rate changes on import and export trade all sample data including the nominal exchange rate, the imports and the exports are from 1981 to 2012. At the same time, it combines China’s economic development status to discuss the effect of RMB exchange rate change on China’s overall economic development. Its result showed that the RMB nominal exchange rate fluctuation is the main factor that affects China’s imports and exports.

In the long run, the rise of RMB exchange rate which means devaluation of RMB will have a positive effect on the foreign trade, and will also makes a significant growth on domestic import and export volume. Baek (2014) examined the effect of exchange rate fluctuations on the bilateral trade between Korea and the U.S by taking the roles of exchange rate volatility and third country effects into account. The dataset contains 86 quarterly observations for the period 1991:Q3 to 2012:Q4. The author found that Korea’s major export industries accounting for nearly 75% of total exports are highly responsive to the bilateral exchange rate, volatility and third country effects in both the long- and short-run.

On the other hand, it is found that Korea’s imports are relatively insensitive in both the short- and long-run. Therefore depreciation of the Korean won (Japanese yen) could increase (decrease) the export volumes of Korea’s major products in the short- and long-run. There is no harmony vis-à-vis the relationship between exchange rate volatility and international trade. Tenreyro (2007), Šimáková (2014), and Su (2017) showed international trade seems to be affected by other factors than development of exchange rates.2.1.

2 CHINA-AFRICA TRADE China’s trade patterns with African countries are rooted in powerful market dynamics only partially created by government policies. It’s almost entirely determined by its comparative advantage in labor-intensive and capital-intensive production EISENMAN (2012). China has contributed to African economic growth both positively and negatively. Zafar (2007) scrutinized the main trade, investment, and aid links between China and Sub-Saharan Africa and assesses the principal dynamics of the relationship. It also examines the indirect macroeconomic effects of China’s policies on Africa, particularly in relation to global output, savings, and commodity prices using data from 1990-2006.

China has contributed to African economic growth both positively and negatively. Positively, China has helped accelerate economic growth in Africa by contributing to a strong commodity boom due to the upward swing in the prices of oil and metals exported by many African economies. Second, it has deepened trade and investment on a continent that has been marginalized from flows of international trade and global capital, and China is investing significantly in Africa’s transport and education infrastructure. Third, it has given many Africans access to low-cost consumer goods.

Fourth, China’s low-transactions–cost way of doing business and its noninterference in countries’ internal affairs. Fifth, China’s ascent has created more competition in the aid market and increased countries’ bargaining power with donors. Challenges and risks. First, there is some concern that Chinese investment in Africa will be based on capital-intensive natural resource extraction and will not contribute to local employment generation and the continent’s long-term economic development.

Second, China’s influence on global energy demand and on oil markets has led to increased energy prices for net oil importers in Africa and a worsening of their terms of trade. Third, the supply shock to world manufacturing, particularly in textiles, and the growing imports of cheap Chinese goods in Africa, coupled with increasing competition between Chinese and African textiles in third-country markets, threaten to hinder economic diversification in Africa and contribute to deindustrialization. Fourth, important issues like corruption and governance, which had moved to the forefront of the development agenda, may slide back down again. Meyersson et al (2008) analyze the causal impact of China’s rising demand for natural resources (NR) on Sub-Saharan African political and economic development the matched data set contains data for 44 sub-Saharan African countries over 17 years (1990-2006). Found that exporting NR to China is unique in having large positive effects on economic growth and investment, but is not alone in its detrimental effects on human rights.

Exporting NR to China also increases capital formation, investment in value added industries, and decreases labor force participation. Second, exporting NR to China worsens internal conflict and has adverse effects on human rights. The results were compared to the effects of exporting NR to the U.S. and exporting to India, respectively. We found that exporting NR overall had no effect on economic growth but had potentially negative effects on political institutions. Giovannetti and Sanfilippo (2009) measured the indirect impact of China on African exports to its main trading partners, US and EU, and to other African countries Using disaggregated data for the period 1995-2005.

The results showed that Chinese exports had a significant and negative impact on African exports to main trade partners as well as inside Africa, where the demand for non-sophisticated low quality goods is expected to be high. Baliamoune -Lutz (2010) analyzed the growth effects of Africa’s trade with China, distinguishing between the effect of imports and the effect of exports, and controlling for the role of export concentration using Arellano-Bond GMM-DIF estimations and panel data over the period 1995-2008. The results suggest that export concentration enhances the growth effects of exporting to China, implying that African countries exporting primary products to China benefit more in terms of growth than do countries that have more diversified exports. And that imports from China have a positive effect on African growth, contradicting the wide held belief of resource curse and displacement effects. Weisbrod and Whalley (2011) used the Solow growth accounting methods to assess the incremental impact of Chinese inward FDI inflows to Africa, especially in the three years 2005 to 2007 before the financial crisis.

Their results suggest that a significant portion of the accelerated growth in some African countries in the years immediately before and after the financial crisis can be attributed to Chinese FDI inflows. GUILLAUMONT and HUA (2013) Analyze the role played by the bilateral real exchange rates between China and African countries in the growth of their bilateral trade and also the determinants of the specific changes in the real bilateral exchange rates of African countries relative to China using panel data for 49 African countries over the period 2000 to 2011. The result shows that China’s exports of manufactured goods to Africa, contrary to its imports of raw materials, are significantly influenced by the real bilateral exchange rates.

The real appreciation of African currencies stimulates China’s exports of manufactured goods. Busse et al (2015) investigated how Chinese trade, FDI and aid in Africa affect African economic growth using a Solow-type growth model and panel data for the period 1991 to 2011 and two with sample consisting of 43 sub-Saharan African countries. Result shows African imports from China, particularly non-resource imports, have a negative impact on economic growth in Africa. African exports to the world (excluding China) are positively associated with growth in Africa. Also African economies that export natural resources benefit from China’s rising demand for raw materials due to both positive changes in their terms-of-trade and increasing exports of natural resources to China. GUILLAUMONT and HUA (2016) Study the impact of China’s competition on the manufacturing added value of African countries using panel data on 44 African countries covering the period 2000 to 2013.

Found that the imports of manufactured goods from China by African countries exert a negative effect on their manufacturing and that a moderate real appreciation of their currencies relative to the renminbi has a positive effect, although it also increases their imports from China and raises the cost of labor. Huang et al (2017) suggested that the import of resources should not be considered a-priori a load on a country’s economy, in that the economic performance is supported by the availability of high quality resources. What is important in bilateral and global trade is that a country is capable of securing sufficient primary energy sources to support its economic processes. 2.1.3 CHINA IMPACT ON CAMEROON Some authors suggested that more trade openness can impact the economy positively.

First and foremost, an increase in trade may encourage specialization in the production of export products, which in turn may enhancement the productivity level and lead to a rise in skills. Therefore leading to a reallocation of resources from the inefficient non-trade sector to the higher productive export sector. Change in productivity may lead to output growth. Weng et al (2017) stated that China’s new priority in investing in Africa is shifting away from traditional extractive industry investment towards investments in finance, infrastructure and manufacturing.Aninpah and Menjo (2008) examined the nature of the economic relations between China and Cameroon especially with regards to trade, investment and aid flow. Chinese private investors have brought some benefits to the Cameroonian economy. They have increased the stock of capital goods through cheap capital imports from China.

They have equally increased the production of goods and services at lower costs like construction of the road in Douala which has greatly improved circulation in that neighborhood. Although the PRC’s recent partnership with Cameroon is portrayed as “among the most steadfast and faithful” (Cameroon Tribune 2011 cited in Cabestan, 2015), it is no longer just about trade or about providing infrastructure with associated benefits: it is also about getting an own share of Cameroon’s natural resources to feed Chinese industries back home (Nguepjouo – 2017) .There is need for Cameroon to consistently assess its relationship with China so as to minimize the risk and exploit the advantages.

Trade, investment and aid from China are good for Cameroon’s development, but good policies and better management (good governance) have also been shown to be important and should not be neglected in China’s cooperation with Cameroon. Based on Aninpah et al (2009) an expansion in trade (especially exports) may promote specialization in the production of export products, which in turn may boost the productivity level and may cause the general level of skills to rise. This may then lead to a reallocation of resources from the (relatively) inefficient non-trade sector to the higher productive export sector. They examined the key features of trade with China and assess its impact on the Cameroonian economy and stated that Chinese goods are having a positive impact on consumers, especially those at the lower strata in the distribution of income. Imported motorcycles from China are found to be complementing the production of taxi services in the main cities. Although there is insecurity, environmental and spare-part-intensity concerns, Chinese bikes are increasing the supply of taxi services, creating jobs, and generating government revenue. They went further to explain that Cameroon trade with China has increased considerably over the past few years.

This has however been due to a surge in imports from China, while exports are declining. Cameroon has been running a large trade deficit with China. Imports from China are providing cheap and diverse consumption and capital goods, though issues of quality abound. Exports to China are limited to a few primary products, essentially cotton and wood products.

Imports on the other hand are made up of a large variety of essentially manufactured goods. This raises the risk of undermining the industrial sector and locking Cameroon in primary activities. Exports in Cameroon are only fairly diversified and that export diversification positively and significantly affects economic growth in Cameroon. Labor productivity and investment also positively affects economic growth while external debt and balance of payments show a negative relationship with economic growth (Njimanted et al – 2014).2.2. Conceptual framework; International trade and Exchange rate.

International trade is the exchange of capital, goods, and services across international borders or territories. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. In most countries, such trade represents a significant share of gross domestic product (GDP).While international trade has existed throughout history its economic, social, and political importance has been on the rise in recent centuries. (Ortiz and Max, 2017) After a long period characterized by insistently low international trade, over the course of the 19th century, technological advances triggered a period of marked growth in world trade (the ‘first wave of globalization’). During the interwar period, the growth slowed down, but started growing again during the Second World War, and in the last decades, it has been faster than ever before.

Transport and communication costs have decreased across the world in the last couple of decades, and preferential trade agreements have become more common, especially among developing countries. Today, total trade across nations is higher than 50% of global production. At the turn of the 19th century this figure was below 10%.In 2017, world trade was $34 trillion. That’s $17 trillion in exports plus $17 trillion in imports. In the same year global trade grew 10.

5 percent reduced by 2 percent in 2016. International trade contributes about 27 percent to the global economy. Until the 2008 financial crisis, world trade grew 1.

9 times faster than economic growth. Until 2017, trade grew more slowly than the global economy. In 2015 the 5 largest countries by total international trade of good and services ($ billions) are; United States (4,921), china (4,342), Germany (2,966), japan (1,602) and United Kingdom (1,565). One-quarter of trade was in electrical machinery, computers, nuclear reactor parts, and scientific instruments The top 5 traded commodities ($ billions) are, mineral fuels, oil, distillation products (2,183), Electrical, electronic equipment (1,833), machinery, nuclear reactors boilers (1,763), vehicles other than railways (1,076) and plastics and articles thereof (470).

The 5 Most traded export products globally ($billions) are crude oil (786.3), cars (672.9), processed petroleum oils (605.9), phone system devices (532.

2) and integrated circuits (516.7). Automotive contributed 9 percent.

Commodities like oil, iron and diamonds added 19 percent. There are four essential reasons for the recent global trade slowdown. ? Primary, the Soviet Union collapsed in the 1990s. Allowing countries like Poland, the Czech Republic, and East Germany to catch up as they rejoined the global economy. ? Secondly, China joined the World Trade Organization in 2001. Due to these two events, the growth was super-charged but their contributions have stabilized after 15 years.

? Third, the 2008 financial crisis slowed trade and growth. Many companies became more alert. Consumers were less likely to spend. Mostly because they’d grown older. They had to rebuild their retirement savings.

Younger people faced high unemployment rates. They had a hard time getting their career started. That meant they weren’t as likely to marry and buy homes. Many of them also had large school loans to pay off. ? Last but not the least, most countries implemented more protective measures.

In 2015, governments quietly added 539 trade restrictions. These included tariffs, government subsidies to domestic industries and anti-dumping legislation.

You Might Also Like

I'm Alejandro!

Would you like to get a custom essay? How about receiving a customized one?

Check it out