Can Changes In The Exchange Rate Be Considered As Appropriate Policy To Improve The Trade Balance For Angola\\\’s Economy? A Test Of The Marshall-Lerner Condition.

Authors: Luindula António Chaves Miguel

Abstract: The main objective of this study is to investigate the validity of the Marshall-Lerner condition for the Angolan economy. That is, to test the effect of the change in the exchange rate on the trade balance, taking into account the concept of the Marshall-Lerner condition, according to which the sum of the elasticities of imports and exports must be greater than one, for a change in the exchange rate to have effects on the country's trade balance. From the research carried out, there is no evidence that there is an empirical study on the trade elasticities or Marshall-Lerner condition for the economy of Angola. Thus, this article intends to analyze, making an empirical analysis of the Marshall Lerner condition, whether the elasticities of imports and exports in Angola are high enough to justify a change in the exchange rate as an appropriate policy to improve the country's trade balance situation. Since the transaction of the centralized economy model in the early 90s, the country has already seen several stages regarding the functioning of the economy and the functioning of the exchange rate regime itself. The transition from the floating exchange rate regime administered before 2017 to the fixed exchange rate regime that was in force in 2017, which in turn gave way to the floating exchange rate regime by bands in 2018 and later the adoption of the floating regime in October 2019 is one of the most striking milestones in the implementation of exchange rate policies in the country, which led to the definition of the period 1990-2024 using annual data to the variables selected for the elaboration of the present study. A log-log model was used to estimate separate equations of the elasticity of exports and imports. The results of the study suggest that the sum of the price elasticity of export and import demand is less than one, which indicates that, in the period analyzed, an exchange rate depreciation does not necessarily improve the trade balance in a short-term analysis.