Analysis of the impact of dollarisation on Zimbabwe’s international trade flows (2009-2013)

Abstract

This study analyses the extent to which dollarisation or the multi-currency system impacted on Zimbabwe’s trade flows to, and from, its major trading partners during the period 2009 to 2013, in comparison with the period prior to dollarisation, 2000-2008. Studies that have been done on other dollarised countries have shown mixed results regarding the trade-enhancing effects of dollarisation. This study used the Gravity Model of trade analysis to estimate the effect of dollarisation and other variables on Zimbabwe's exports and imports. A crosssection of twelve (12) Zimbabwe's major trading partners, constituting at least 90% of total trade, formed part of the study over a period of fourteen (14) years. The Gravity Model panel dataset was estimated using the Pooled Ordinary Least Squares regression method, with variables including GDP, distance, exchange rate volatility and dummies for dollarisation, free trade agreements and common language. The study found that dollarisation had no significant effect on the country's exports. Dollarisation was found to have had a very significant effect on imports with an estimate of 0.82 implying that Zimbabwe’s imports increased by 147% i.e. 100(e.82-1), holding other things constant. This finding is consistent with results of major studies done elsewhere and is kind of a true reflection of the surge in imports actually experienced by the country during the period 2009-2013. The study concludes that dollarisation was more favourable to imports than exports, and contributed to some extent to the country's deteriorating balance of trade. The results, however, show that there could be other critical factors behind Zimbabwe’s trade performance given that only 40% of the variation in trade was explained by the variables under consideration.