Structures of Fiscal Budget and National Accounts as Real Exchange Rate Fundamentals

Structures of Fiscal Budget and National Accounts as Real Exchange Rate Fundamentals: Econometric Evidence from Africa

The study examines the effects of the composition of government expenditure and national accounts on real exchange rate behavior in Africa. Annual data over periods that fall within 1970 and 1990, pooled across 38 countries, form the basis of the empirical analysis. Our findings suggest that the shares of (both public and private) investment spending in GDP and in domestic absorption depreciate real exchange rate, just as the share of government total expenditure in GDP and in absorption. The corresponding shares of (public and private) consumption expenditures appreciate real exchange rates, just as the overall absorption-GDP ratio; terms of trade and per capita income level. (JEL: F31)