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Real exchange rate undervaluation and sectoral growth in South Africa

Author

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  • Brian Tavonga Mazorodze
  • Dev D. Tewari

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.

Suggested Citation

  • Brian Tavonga Mazorodze & Dev D. Tewari, 2018. "Real exchange rate undervaluation and sectoral growth in South Africa," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 9(4), pages 462-476, July.
    • Handle: RePEc:eme:ajemsp:ajems-06-2017-0132
    DOI: 10.1108/AJEMS-06-2017-0132
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    Cited by:

    1. Amor, Thouraya Hadj & Nouira, Ridha & Rault, Christophe & Sova, Anamaria Diana, 2023. "Real exchange rate misalignments and economic growth in Tunisia: New evidence from a threshold analysis of asymmetric adjustments," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 215-227.

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