Effects Of Currency Devaluation On Balance Of Trade In South Sudan

The constant decline in balance of a trade has been a major setback of South Sudan economy for which the history can be traced to 2012,a year following its independence.The deficit is an awful sign in the economy because,it shows how less competitive the country export sector is and it also implies economic retardation.In quest for a solution to this long standing problem,the study was carried out on the effects of currency devaluation on trade balance in South Sudan,of which the variables used were: Exchange rate,interest rate,FDI,oil price,CPI,oil revenue and imports.In the study,Ordinary Least Square(OLS)method of estimation was used to test quarterly time series data that range from 2008-2018.The results show model goodness of fit R-Square and Ftest at 0.998 and 0.0000 respectively,which illustrate the superiority of model in explaining the data.The general opinion defended Interest rate,FDI,Oil price to have effects on trade balance,which multiple linear regression model results verified to be insignificant in this study.On the other hand,the results demonstrate significant level of less than 0.05 percent in exchange rate,oil revenue,imports and CPI.Furthermore,the empirical finding shows that currency devaluation has negative effect on trade balance which denotes that one unit upward alteration in exchange rate lead to deterioration of a trade balance by-6.17315 units.However,the misfortune is believed to have been caused by a defect of over reliance of a country on oil as a major source of revenue,but since the contribution of South Sudan is not big enough to influence the world market,the manipulation of monetary policy didn't earn a country surplus.In spite of the market size,favorable trade balance would have been realized through currency devaluation if economy was diversified.The finding holds that currency devaluation alone is not a solution to South Sudan trade deficit neither in short run nor in the long run,a situation contrary to prediction of J.curve theory.Hence,policy-makers should plan for development of other sectors for realization of favorable trade balance in the economy.