Reciprocal Relationship between the Trade Balance and Exchange Rate in Sudan(An Econometric Study on the Period 2000–2023)

Abstract

This study aims to identify the nature and direction of the relationship between the exchange rate and the trade balance, covering both exports and imports and to analyze their behavior in Sudan during the period 2000–2023. An empirical model is presented to explain this relationship and its direction in both the short and long run. The central research problem is framed around two questions: (1) Is there a relationship between the trade balance and the exchange rate in Sudan during the period 2000–2023? and (2) What is the impact of the exchange rate on the trade balance in Sudan during this period? A descriptive-analytical approach is applied to establish the theoretical framework and describe the study variables, while a quantitative approach is employed to develop an empirical model measuring the reciprocal relationship between the trade balance and the exchange rate. The findings indicate the existence of an inverse relationship between the exchange rate and the trade balance. Specifically, a decrease in the exchange rate (i.e., devaluation of the local currency) improves the trade balance deficit, which is consistent with economic theory. Furthermore, the study confirms the existence of a long-term equilibrium relationship between these variables, implying that they do not diverge significantly from one another.