Impact of Exchange Rate Volatility on Sectoral Output in Liberia

This paper investigates the effects of exchange rate volatility on sectoral output in Liberia, focusing on agriculture, mining, and manufacturing. Using monthly time series data ranging from 2010 to 2022 and estimating the volatility in exchange rate using the ARCH model, the study found a strong sector-specific impact along with an overall economic impact on output with a significant coefficient of (-2.868) at 10%, 5% and 1% level of significance .We found that the agriculture with a coefficient of (-0.2127) and manufacturing sectors (-0.5171) proxy by value-added as % of GDP are negatively affected by exchange rate fluctuations due to their heavy reliance on imported raw material, which increases production costs and reduces output. Conversely, the mining sector, particularly gold production as measured by key output volume, shows a positive relationship with exchange rate volatility with a coefficient of (3.9677) significant at 10% level of significance, as global demand for gold rises in response to currency instability. The findings underline that policy interventions are needed to stabilize the exchange rate, particularly for agriculture and manufacturing. In fact, given the dual currency system of the country and the high level of dollarization, the country needs targeted policies to enhance sectoral resilience in its way to attain economic growth.