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Industry-Level Evidence of J-Curve Effectsin the SACU Region

Author

Listed:
  • Simba Mhaka

    (Nelson Mandela University, South Africa)

  • Ronney Ncwadi

    (Nelson Mandela University, South Africa)

  • Andrew Phiri

    (Nelson Mandela University, South Africa)

Abstract

Our study examines the cointegration relationship between exchange rate movements and trade balances for the five Southern African Customs Union (SACU) countries between 1995 and 2020. We disaggregate trade activity at an industry level for 19 trade products and then determine whether industries benefit or are at a disadvantage during periods of currency depreciation over the short and long run. Applying pooled mean group (PMG) estimators to panel regression specifications of the industry-level J-curve, we find that exchange rate depreciation would be beneficial in 8 out of the 19 trade industries in the SACU region while harming the remaining 11 industries. In the strict theoretical sense, we only find J-curve effects in 6 of the 19 industries, in which exchange depreciation initially hurts trade balances and then adjusts towards positive long-run effects. Altogether, we advise policymakers in SACU countries to consider devising (i) export-oriented policies for industries whose trade balance is strengthened by currency depreciation and (ii) import-substitution industrialization policies and currency-risk mitigation strategies for industries whose trade balance is weakened by currency depreciation.

Suggested Citation

  • Simba Mhaka & Ronney Ncwadi & Andrew Phiri, 2023. "Industry-Level Evidence of J-Curve Effectsin the SACU Region," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 21(1 (Spring), pages 23-40.
    • Handle: RePEc:mgt:youmgt:v:21:y:2023:i:1:p:23-40
    DOI: 10.26493/1854-6935.21.23-40
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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