- Title
- The effect of the exchange rate on economic growth in South Africa
- Creator
- Maxwele, Chuma
- Subject
- Foreign exchange rates -- South Africa
- Subject
- Foreign exchange rates -- South Africa -- Econometric models Economic development -- South Africa South Africa -- Economic conditions -- Econometric models
- Date Issued
- 2019
- Date
- 2019
- Type
- Thesis
- Type
- Masters
- Type
- MCom
- Identifier
- http://hdl.handle.net/10948/41548
- Identifier
- vital:36505
- Description
- The study examines the effect of the exchange rate on South African economic growth rate, as this relationship is of paramount importance in South Africa, since the country has a highly volatile exchange rate in among emerging economies, and this has a significant impact on economic growth. The exchange rate can be explained or defined as the value of the home country or domestic currency in relation to foreign currencies, and economic growth, which is measured in terms of gross domestic product (GDP), which is the measure of currently produced final output in a country at a specific time period, usually a year or quarter. It has been long known that an inadequately or poorly managed exchange rate can be problematic in a country’s economic growth rate. Some economists point out that management of a country’s foreign exchange market is of utmost importance. Furthermore, bad exchange rate management can lead to unstable international relations that detrimentally affect the international trade of a country and cause large speculative financial flows, which could cause financial markets to be disrupted and also lead inefficient allocation of funds. At the same time, competitive exchange rate promotes a suitable economic environment that is a precondition when it comes to expanding of international trade and investment, and gaining of higher economic growth in a country. The purpose of this study is to investigate the effect of the exchange rate on economic growth in South Africa. This study employs a newly developed econometric technique known as non-linear autoregressive distributive lag (NARDL). This study employs annual data for the period of 1970 to 2017. The first variable is the real effective exchange rate of the rand, and the study compares the value of the rand against the currencies of the twenty trading partners. The second variable is economic growth, which is measured in terms of the gross domestic product (GDP). GDP is the value of output produced within the region or borders of a country during a period of time, usually a year or quarter. Investment is another variable used, and it is categorised into economic investment (capital formation) and financial investment but the study adopts economic investment. Economic investment is the quantity of capital stock in a society, simple put it is goods used in the making of other goods. Government expenditure is also used in the study, and government expenditure is about public goods and services provided to society, and is a major component of gross domestic product. The last variable employed in the study is broad money supply as a percentage of GDP, which can be explained as the sum of the currency outside financial institutions, such as demand deposits other than the ones for government, the time, savings, and foreign currency of residents other than the government. GDP data was obtained from the electronic data bases of South African Reserve Bank, and all the remaining variables were obtained from the electronic data bases of the World Bank. The results of the NARDL model indicate that a positive change of the real effective exchange rate has a positive and significant effect on the gross domestic product in the long-run, while a negative change of the real effective exchange rate has a negative and significant effect on the gross domestic product in the long-run. In the short-run, the results also behave in the same manner as in the long-run. The study recommends that the real effective exchange rate should not be the only area to look into when trying to improve economic growth in South Africa. Investments must be looked into as well, and South Africa needs more growth desperately.
- Format
- ix, 102 leaves
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela University
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | Chuma Maxwele.pdf | 1 MB | Adobe Acrobat PDF | View Details Download |