Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
This paper examined the validity of purchasing power parity (PPP) hypothesis and the degree of conformity to PPP in16 selected sub-Saharan African countries for the period of 1980 to 2005 using a panel unit-root methodology. The conventional ADF unit-root was first carried to investigate the stationarity of the real exchange rate series. The univariate ADF unit-root test showed that real exchange rate series of all the selected sub-Saharan countries had unit root except for Ghana and Uganda with stationary exchange rate series. To have a robust conclusion, the panel unit-root test of both Im, Pesaran and Shin ( IPS 2003) and Levin, Lin and Chu (LLC 2002) were explored to take power advantage of the extra information provided by the combination of the time-series and cross-sectional data. The panel unit-root estimation, however, failed to support evidence of PPP in the selected sub-Saharan African countries with the exclusion of Ghana and Uganda in the panel unit-root test. This paper, therefore, concludes that the degree of conformity to PPP is still relatively low in sub-Saharan African countries compared to other regions of the world.

Keywords: purchasing power parity, exchange rate series, panel unit-root test, sub-saharan african countries

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