Trade flows and the exchange rate in South Africa
AbstractThe exchange rate plays a central role in public debate around trade and trade policy in South Africa. The general view is that depreciation enhances export competitiveness, encourages export diversification, protects domestic industries from imports and ultimately improves the trade balance. This paper reviews the theoretical and empirical relationship between the exchange rate and trade flows in South Africa. Trade volumes are found to be sensitive to real exchange rate movements but nominal depreciations have a limited long-run impact on trade volumes and the trade balance, as real effects are offset by domestic inflation. Policy should not focus on the exchange rate, but on the fundamental determinants of the profitability and competitiveness of domestic exporters and import competing industries: productivity enhancement, infrastructure, constraints to business operations and production costs, including labour costs.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 36666.
Date of creation: Jan 2008
Date of revision:
Exchange rate; South Africa; international trade;
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F1 - International Economics - - Trade
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