Exchange rate undervaluation and sectoral performance of the South African economy
Abstract
Purpose
The purpose of this paper is to uncover the channels through which real exchange rate undervaluation influences the performance of the South African economy.
Design/methodology/approach
The author decomposes the South African economy into three sectors: agriculture, industry, and services. Specifying a model for each sector, the author employs the ordinary least squares (with Newey-West and robust standard errors) and generalized method of moments estimation techniques. The annual time series data cover the period 1962-2014.
Findings
The author finds that real exchange rate undervaluation exerted a positive influence on agriculture and industry, and a negative impact on services.
Research limitations/implications
The results have practical policy implications, which are discussed in the paper.
Originality/value
Although the growth effect of real exchange rate undervaluation has been well established in the literature, the channels through which this occurs has received limited attention. Prior to this study, no study has considered the impact of real exchange rate undervaluation on the economy through the various sectors in the South African context.
Keywords
Acknowledgements
The author thanks, without implicating, the Editor, Professor Bahmani-Oskooee and an anonymous referee for their helpful comments and suggestions which have vastly improved this paper. The author also thanks Professor P.-H. van Eeghen for proofreading and editing this paper. All remaining shortcomings are regretfully the author’s.
Citation
Njindan Iyke, B. (2017), "Exchange rate undervaluation and sectoral performance of the South African economy", Journal of Economic Studies, Vol. 44 No. 4, pp. 636-649. https://doi.org/10.1108/JES-03-2016-0052
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited