The effect of real exchange rate misalignment on exports in South Africa
The purpose of this study was to evaluate econometrically the effects of real exchange rate misalignment on South African exports between the period 1994 and 2015 using quarterly time-series data. Cointegration tests were done using the Johansen and Juselius approach. The study examined the effects of real exchange rate misalignment of the rand on South Africa’s exports, namely manufactured goods exports, automotive and chemical exports, mining exports, machinery and transport equipment exports and agricultural exports, on both an aggregate and a sectoral level. The long run impact of real exchange rate misalignment on total exports was found to be negative and significant, implying that real exchange rate misalignment negatively affects exports. In the short run, misalignment of the currency was found to enhance export growth and is not sustainable in the long run. On the sectoral level, the study found that in the long run exports are influenced by real exchange rate misalignment with varying sensitivity. Manufactured goods exports, automotive and chemical exports and machinery and transport equipment exports are all negatively affected by real exchange rate misalignment. On the contrary, mining exports and agricultural exports are positively affected by real exchange rate misalignment. Therefore, if an export-led growth path is envisaged for the South African economy, it is important for monetary and fiscal policy to be conducted in such a manner that ensures stability in the real exchange rate at an appropriate level. This will ultimately aid export competitiveness for South Africa. Based on the findings of this study, the researcher recommends that misalignment of the currency should be avoided at all costs.