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Working Paper 240 - The Impact of the Real Exchange Rate Changes on Export Performance in Tanzania and Ethiopia


This paper investigates the impact of real exchange rate changes on the export performances of Ethiopia and Tanzania. Both countries have gone through a process of liberalisation including significant changes in both the nominal and real exchange rate. In the case of Tanzania, the exchange rate liberalisation process started in 1982 with a 10% currency devaluation followed by further devaluations by 20% and 26% in 1983 and 1984 respectively1 . These devaluations were regarded by aid donors to be insufficient to deal with the problem of overvaluation and resulted in a stand-off period before Tanzania finally agreed to IMF conditions for a substantial real devaluation in 1986 followed by an ongoing process of exchange rate depreciation. Ethiopia maintained a fixed exchange rate until 1992 when a substantial devaluation took place followed by ongoing depreciation (Taye 1999).

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