The Impact of South Africa’s Exchange Rate on Sectoral Exports
The aim of this paper is to analyse the impact of changes in the exchange rate of the rand on South Africa’s export sector. It is important to consider that different export sectors may react differently and sometimes in opposing ways, resulting in a subdued impact on total exports. The issue is examined using the Johansen Maximum cointegration technique and an Error Correction Model (ECM) to analyse the long run effects and the short-run dynamics of the effects of changes in the exchange rate on South Africa’s export volume, total exports, manufacturing exports, mining and agricultural exports for the period 1988-2014. The results show that while there is a long-run equilibrium relationship between the real effective exchange rate (REER) and all the dependent variables (excluding export volumes), a real depreciation of the domestic exchange rate only has a positive long-run effect on manufacturing and mining export performance. In the short run, while the EC model shows that REER depreciation may increase total exports, mining and manufacturing exports, this is not the case for export volumes and agricultural exports. The results also show that manufacturing and mining exports are affected more by their previous values than the exchange rate. In conclusion, the paper finds that an increase in world income, compared to the exchange rate, has a much larger impact on total exports from South Africa.
Keywords - Cointegrating relationship, Error correction model, Export performance, Real effective exchange rate, Sectoral exports.