Assessment of impact devaluation on trade balance and marketing in Zimbabwe (1990-2005)

The cost of Marketing in a company is so critical that, marketing become costly in International Business, especially when devaluation hits local currency. The primary purpose of this study is to find the impact of devaluation on trade balance in Zimbabwe using the Johansen-Juselius Cointegration and Vector Error Correction Model (VECM), unit root tests, and impulse response analysis. Quarterly data for the period 1990 to 2005 is used. The result shows that devaluation is effective in improving trade balance in the long run and there is a cointegrated relationship between the real effective exchange rate and trade balance in the long run. The findings initially revealed that there is a long run relationship between trade balance and exchange rate. Secondarily the real exchange rate is an important variable to the trade balance, and that devaluation will improve trade balance in the long run, thus consistent with the Marshall-Lerner condition and finally, the results indicate no J-curve effect in Zimbabwe.