Analysing the relationship between real exchange rate misalignment and capital flow in Namibia

The paper analysed the relationship between real exchange rate misalignment and capital flow in Namibia during the period 1993Q1 - 2015Q4. Namibia has a fixed exchange rate regime which is prone to speculative attack, moreover, a devaluation or undervaluation is the major cause of capital outflow which hinders economic growth. Thus, the estimation of the equilibrium RER and misalignment is essential. The study employed time-series techniques such as the unit root test, autoregressive distributed lag bound test to co-integration, error correction modelling approach, diagnostic and stability test. The inflexion point of misalignment was also used to find the effects of real exchange rate misalignment on capital flow in the country. The error correction model results showed amongst others that the terms of trade, inflation rate, interest rate differential and GDP are positively and insignificantly associated with capital flow. On the other hand, the real exchange rate misalignment had a negative and insignificant effect on capital flow. Many policy recommendations were drawn from the research findings. Firstly, policy makers could improve the exchange rate and the management of the REER misalignment thereby promoting the competitiveness of commodities. Secondly, the focus of policy reform could also be on creating a conducive investment atmosphere so as to entice foreign capital and encourage domestic investment. Moreover, restrictions could also be placed on capital outflow in an attempt to ease the effect on the exchange rate.

Grantor dc:publisher

University of Namibia

Year dc:date.issued

2018

Author dc:creator

• Nghinamupika, Isabel Ndshipanda

• Real exchange rate
• Capital flow

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/11070/2267

OAI identifier oai:identifier

oai:repository.unam.edu.na:11070/2267