The effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector

Abstract

Purpose

The main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the period 1985Q1–2019Q2.

Design/methodology/approach

Jorda’s (2005) local projection method is employed and following Koop et al. (1996); generalized impulse response functions are generated to see the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector.

Findings

The results show that exchange rate uncertainty affects negatively and significantly employment in South Africa’s manufacturing sector. Employment also responds negatively and significantly to export shock. Inflation and output shocks, however, positively and significantly affect employment on impact. Asymmetric responses of employment to exchange rate uncertainty are also found in this study. While high exchange rate uncertainty leads to a reduction in employment, low exchange rate uncertainty brings an increase in employment in South Africa’s manufacturing sector.

Originality/value

This research adds to the scarce empirical literature on the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector by incorporating mainly non-linearities into the model.

Citation

Nuru, N.Y. and Gereziher, H.Y. (2023), "The effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector", Journal of Economic and Administrative Sciences, Vol. 39 No. 4, pp. 818-829. https://doi.org/10.1108/JEAS-06-2020-0085