In 1991, The Gambia
and Senegal signed the Treaty of Friendship and Cooperation to promote trade
between them and to make their relations more harmonious and stronger. The
purpose of this study is to determine the socio-economic relationship and the
impact of the currency on the re-birth of Senegambia and how this new relationship
will affect the social and economic exchange rates of the two countries from
1996 to 2017. The results show that in the short-run, the lag of the log of
exchange rates and log of terms of trade show a positive sign on the log of
GDP. However, inflation and unemployment show a negative sign on the log of
GDP. Further, only the log of exchange rate has a positive effect on GDP in the
long run. To conclude, the log of exchange rates is significant on the log of
GDP in the short-run and long-run. The researchers recommend that policy makers
should reduce the tax levied on imported goods from Senegal, reduce domestic
prices of goods and services, avoid border closure, and improve the domestic
industries.
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