Exchange Rate Volatility and Export Competitiveness Nexus

Abstract

The objective of this study was to analyze the impact of real exchange rate volatility on export competitiveness of the South African economy during the period 2000:q1 to 2011:q4. Volatility of the real exchange rate was computed using the GARCH approach. The one-step Engle-Granger error correction model (ECM) was applied to investigate the magnitudes to which real exchange rate volatility affects the economy’s export competitiveness in both short- and long-run periods. Results from the estimated export competitiveness function indicate that real exchange rate volatility demonstrates adverse impacts on export competitiveness; with relatively more pronounced detrimental impact being demonstrated in the long-run period.

KEYWORDS: exchange rate volatility, export competitiveness, error correction model