The Competitiveness Role of Currency: Competitiveness and Currency Devaluation in COMESA Member Countries

Abstract

Currently, domestic currency devaluation is the daily home work of the COMESA countries in order to stimulate their global competitiveness. To examine the competitiveness role of domestic currency devaluations of COMESA countries over 2004 - 2017 the paper employs panel data Tobit RE model and robust panel transformed ordinary least square data models. The paper also examined other factors that influence the competitiveness of COMESA. The study was constructed on an indexed model of RER to measure competitiveness based on twelve pillars. Both descriptive and econometrics approaches are used to analyze the results. COMESA countries are clustered based on the efficiency enhancer approach and are grouped under the middle-income level of development. Panel Tobit Random effect model and Robust Transformed Linear Model are employed. After validated both models with different diagnostic tests, the robust linear transformed model was selected for the econometric analysis. Domestic currency devaluation has no significant role in the competitiveness of the COMESA. However, export, GDP per capita, trade balance, unemployment, and governance effectiveness has a significant role. The study, therefore, suggests that the stakeholders of the COMESA countries ought to give more emphasis on economic and non-economic variables than domestic currency devaluations.