Dynamics of Export Performance, Productivity and Real Effective Exchange Rate in Manufacturing: The Case of Cameroon

In this study, a new sample of 38 manufacturing firms from Cameroon is examined for the period 1980-95. A production function and an export function are estimated in order to study the determinants of TFP and export performance. The results demonstrate a mutually reinforcing relation between productivity and manufacturing export performance. Moreover, the study provides evidence indicating that adequate management of the real exchange rate is a crucial factor for the promotion of manufacturing exports. The performance of the manufacturing sector in Cameroon has deteriorated substantially since the mid-1980s. This decline is to a large degree explained by Dutch disease symptoms and inward-looking policies for the manufacturing sector, resulting in a highly overvalued real effective exchange rate (REER). Based on the estimated export and production functions, a simple dynamic model is constructed to assess the cost of this REER overvaluation, in terms of both productivity and exports.