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Trade flows and the exchange rate in South Africa

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  • Edwards, Lawrence J
  • Garlick, Robert

Abstract

The 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.

Suggested Citation

  • Edwards, Lawrence J & Garlick, Robert, 2008. "Trade flows and the exchange rate in South Africa," MPRA Paper 36666, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36666
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    References listed on IDEAS

    as
    1. Lawrence Edwards & Robert Lawrence, 2006. "South African Trade Policy Matters: Trade Performance & Trade Policy," CID Working Papers 135, Center for International Development at Harvard University.
    2. By Gunnar Jonsson & Arvind Subramanian, 2001. "Dynamic Gains from Trade: Evidence from South Africa," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-8.
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    7. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
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    Cited by:

    1. Sandile Hlatshwayo & Mr. Magnus Saxegaard, 2016. "The Consequences of Policy Uncertainty: Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship," IMF Working Papers 2016/113, International Monetary Fund.
    2. Mehmet Demiral, 2016. "Currency Depreciation, Trade Balance and Intra-Industry Trade Interactions in Turkey¡¯s OECD Trade," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 8-22, April.
    3. Rahul Anand & Mr. Roberto Perrelli & Boyang Zhang, 2016. "South Africa’s Exports Performance: Any Role for Structural Factors?," IMF Working Papers 2016/024, International Monetary Fund.
    4. Edwards Lawrence & Hlatshwayo Ayanda, 2020. "Exchange rates and firm export performance in South Africa," WIDER Working Paper Series wp2020-1, World Institute for Development Economic Research (UNU-WIDER).
    5. Harris Maduku & Irrshad Kaseeram, 2018. "An Empirical Analysis of Exchange Rate Pass-Through to Prices in South Africa (2002-2016)," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 187-194.
    6. Lawrence Edwards & Ayanda Hlatshwayo, 2020. "Exchange rates and firm export performance in South Africa," WIDER Working Paper Series wp-2020-1, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Exchange rate; South Africa; international trade;
    All these keywords.

    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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