ON THE VALIDITY OF PURCHASING POWER PARITY: EVIDENCEFROM ENERGY EXPORTING SUB-SAHARAN AFRICA COUNTRIES

• Main Author: Ntokozo Patrick Nzimande
• Format: Article
• Language: English
• Published: Social Sciences Research Society 2015-01-01
• Series: International Journal of Economics and Finance Studies
• Online Access: http://www.sobiad.org/eJOURNALS/journal_IJEF/archieves/ijef_2015/Ntokozo-Patrick.pdf

Substantial amount of studies have examined the validity of mean-reversion onthe real exchange rate. However very limited studies of this nature have beenconducted in Sub-Saharan Africa countries, particularly energy exportingcountries, hence this study endeavors to find evidence for or against the mean-reversion of the real exchange rate. There is, however inadequate data requiredfor the statistical significance for Sub-Saharan African currencies. Hence thisstudy uses a panel of 5 energy exporting countries, i.e. South Africa,Mozambique, Congo Republic, Nigeria and Angola, to examine the validity of thepurchasing power parity. Relying on the Im, Pesaran and Shin and the Fisher ADFproposed panel unit root tests the study fails to reject the null hypothesis of a unitroot when small sample size is employed however by extending sample size andemploying different price index, i.e. traded goods prices instead of GDP deflatorsthe study reject the null hypothesis of a unit root and hence concludes thepurchasing power parity holds in Sub-Saharan African energy exporting countriesconsidered in the study.