Real exchange rate undervaluation and sectoral growth in South Africa

Brian Tavonga Mazorodze and Dev D. Tewari

African Journal of Economic and Management Studies, 2018, vol. 9, issue 4, 462-476

Abstract: Purpose - The purpose of this paper is to establish the empirical link between real exchange rate (RER) undervaluation and sectoral growth in South Africa between 1984 and 2014. Design/methodology/approach - The study employs a dynamic panel data approach estimated by the system generalised method of moments technique in a bid to control for endogeneity. Findings - The authors find a significant positive impact of undervaluation on sectoral growth which increases with capital accumulation. Also, the authors confirm that undervaluation promotes sectoral growth up to a point where further increases in undervaluation retards growth. Practical implications - The results confirm the importance of policies that keep the domestic currency weaker to foster sectoral growth. Originality/value - The originality of this paper lies in establishing the impact of exchange rate undervaluation on growth at a sector level in the context of South Africa using a dynamic panel data approach.

Keywords: Real exchange rate undervaluation; Sectoral growth; System GMM (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-06-2017-0132

DOI: 10.1108/AJEMS-06-2017-0132

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