AN ECONOMETRIC MODEL FOR THE FOREIGN TRADE SECTOR OF THE SUDAN 1960-2009

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Date
2015-06-17
Authors
Mukhtar Yahia Ahmed, Gumaa
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Publisher
UOFK
Abstract
The performance of Sudan’s foreign trade sector in the period 1960-2009 was very poor. Sudan had been losing its share of total world exports. During 1960s and 1970s, the economy of Sudan was protected as a result of the adoption of import substitution policies and excessive government intervention in economic activities. Since 1978, when a structural adjustment program and later in 1990 the national economic salvation program were adopted Sudan has striven to liberalize its market with the aim of strengthening export competitiveness and enhancing economic growth. This period witnessed a strong shift in economic policy towards export-led growth stance. The thesis analyses the determinants of Sudan’s foreign trade performance during the period 1960-2009. Data used are mainly of secondary nature. The assumptions of the study are: • The continuous devaluation of the national currency under different exchange rate system has failed to improve the balance of trade position. • Devaluation of the national currency with the purpose of improving the performance of the foreign trade sector should be accompanied by monetary and fiscal measures. • Liberalization of the foreign trade policy provides the mechanism to enhance productivity. The study used a simultaneous equation framework where three-stage least square (3SLS) estimation techniques is employed. Tests for identification and stationarity had been carried out. The result showed that Sudan exports are largely determined by demand side factors. Among them the world demand, exchange rate, relative prices. Oil discovery and its export since 1999 has favorable impact on the foreign trade sector of the Sudan. Specifically, the nature of external demand has a significant impact on the prospects of Sudan’s exports performance. On the other hand, imports are determined by gross domestic products, exchange rate and relative prices. The policy implication of low-income elasticity of imports is that policies of aggregate demand or stabilization may not improve the balance of payment position. However, the exchange rate determinants are the general price level and previous year exchange rate price, but the rate of growth of domestic income has no effect on exchange rate. The interaction among the exchange rate (the local price of foreign exchange), inflation (the change in domestic prices), and economic growth (the change in real income) are especially important. Sudan economic problem was created by high and rising inflation (due to widening budget deficits in 1970s) within the context of a sluggishly adjusting nominal exchange rate, which was "managed" by the central bank in order to "maintain price stability". The resulting real over-valuation of the exchange rate impedes export growth and creates uncertainty about potential future movements in the exchange rate. The adjustment programs implemented in Sudan during the period 1978-1993 failed to achieve their targets of improved price incentives and promotion of Sudan’s exports. Our conclusion is that improvements in exchange rate management alone are not adequate to achieve favorable balance of payment position in Sudan, but have to be part of a broader program of economic reform. Keywords: Foreign trade, Exports, Imports, Exchange rate.
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AN ECONOMETRIC MODEL FOR THE FOREIGN TRADE SECTOR OF THE SUDAN 1960-2009
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