The impact of exchange rate on clothing exports in South Africa

Abstract

The exchange rate is an important macroeconomic variable used as a parameter for determining international competitiveness. It is regarded as an indicator of competitiveness of any currency of any country and an inverse relationship between this competitiveness exists. The study empirically examines the impact of the exchange rate on clothing exports in South Africa, for the period 1994Q1 to 2017Q4 by using the time series data from Quantec Easy Data and the South African Reserve Bank. The study uses a three-step estimation approach in the form of a unit root testing, cointegration analysis and the Vector Error Correction Model to determine the long-run and the short run relationships and to determine the level of impact of exchange rate on clothing exports. The results revealed the presence of a long-run and a negative relationship between the two variables under study. The findings and conclusions are valuable for the clothing sector and the government. The government should make South Africa's exchange rate to be a fixed exchange rate, so that South Africa exports more than it imports having a competitive advantage and more employment.