The Effects of exchange rates on bilateral trade balances of SACU members states with their trading partners
- Authors: Mhaka, Simbarashe
- Date: 2020
- Subjects: Economic development -- South Africa , Purchasing power parity -- Econometric models
- Language: English
- Type: Thesis , Doctoral , PhD
- Identifier: http://hdl.handle.net/10948/50371 , vital:42152
- Description: The fluctuations of exchange rates prevent countries from achieving stability in their external account records. Appreciation or depreciation has effects on international trade. This thesis examines the relationship between exchange rate fluctuations on bilateral trade balances focusing on the SACU region. There are several theories made to explain the relationship between exchange rate and trade balances. In examining this phenomenon, this thesis will unveil if the purchasing power parity theory, the Marshall-Lerner condition and the J-curve effect holds in the Southern African Customs Union (SACU) countries. This analysis is divided into three parts. The first part examines the stability of the exchange rate in the SACU countries in the long run as given by the purchasing power parity. To test for the Purchasing Power Parity theory, the recently developed powerful unit root test was applied with multiple smooth structural breaks of Omay (2015), based on a Fractional Frequency Flexible Fourier Form (FFFFF) on unique data of SACU countries covering the monthly period of 1995M01-2017M11. The Purchasing Power Parity (PPP) results show that the nominal effective exchange rate (NEER) of all SACU members does not provide evidence for PPP theory. In terms of the real effective exchange rate (REER), the PPP condition holds in the case of South Africa only. Further unit root investigations were carried out using the panel data for all SACU members, NEER and REER. The FFFFF test results for panel data shows strong evidence of the PPP while the standard DF test rejects PPP theory in the SACU’s NEER. Both the standard DF and the FFFFF tests show strong evidence of PPP theory in the case of SACU’s REER. The second section of the analysis examines the Marshall-Lerner condition employing annual data from the period of 1980-2017. The import and export model were examined firstly in a time series format and then in a panel data format. The time series data was examined using the ARDL (PMG) model while the panel data used the panel ARDL, fully modified OLS (FMOLS) method and the Dynamic OLS (DOLS) method of estimation. The PMG/ARDL model shows no evidence to support the existence of the Marshall-Lerner condition in the short run for all SACU members. However, only two out of five countries show evidence of the Marshall-Lerner condition in the long run. There is strong evidence of the Marshall-Lerner condition in Namibia and Botswana in the long run using the PMG/ARDL model.
- Full Text:
- Date Issued: 2020
- Authors: Mhaka, Simbarashe
- Date: 2020
- Subjects: Economic development -- South Africa , Purchasing power parity -- Econometric models
- Language: English
- Type: Thesis , Doctoral , PhD
- Identifier: http://hdl.handle.net/10948/50371 , vital:42152
- Description: The fluctuations of exchange rates prevent countries from achieving stability in their external account records. Appreciation or depreciation has effects on international trade. This thesis examines the relationship between exchange rate fluctuations on bilateral trade balances focusing on the SACU region. There are several theories made to explain the relationship between exchange rate and trade balances. In examining this phenomenon, this thesis will unveil if the purchasing power parity theory, the Marshall-Lerner condition and the J-curve effect holds in the Southern African Customs Union (SACU) countries. This analysis is divided into three parts. The first part examines the stability of the exchange rate in the SACU countries in the long run as given by the purchasing power parity. To test for the Purchasing Power Parity theory, the recently developed powerful unit root test was applied with multiple smooth structural breaks of Omay (2015), based on a Fractional Frequency Flexible Fourier Form (FFFFF) on unique data of SACU countries covering the monthly period of 1995M01-2017M11. The Purchasing Power Parity (PPP) results show that the nominal effective exchange rate (NEER) of all SACU members does not provide evidence for PPP theory. In terms of the real effective exchange rate (REER), the PPP condition holds in the case of South Africa only. Further unit root investigations were carried out using the panel data for all SACU members, NEER and REER. The FFFFF test results for panel data shows strong evidence of the PPP while the standard DF test rejects PPP theory in the SACU’s NEER. Both the standard DF and the FFFFF tests show strong evidence of PPP theory in the case of SACU’s REER. The second section of the analysis examines the Marshall-Lerner condition employing annual data from the period of 1980-2017. The import and export model were examined firstly in a time series format and then in a panel data format. The time series data was examined using the ARDL (PMG) model while the panel data used the panel ARDL, fully modified OLS (FMOLS) method and the Dynamic OLS (DOLS) method of estimation. The PMG/ARDL model shows no evidence to support the existence of the Marshall-Lerner condition in the short run for all SACU members. However, only two out of five countries show evidence of the Marshall-Lerner condition in the long run. There is strong evidence of the Marshall-Lerner condition in Namibia and Botswana in the long run using the PMG/ARDL model.
- Full Text:
- Date Issued: 2020
A comparative analysis of the determinants of South Africa bilateral trade flows with the European Union-Southern African development community economic partnership agreement and trade development and cooperation agreement
- Authors: Mhaka, Simbarashe
- Date: 2018
- Subjects: South Africa -- Economic integration , Africa, Southern -- Economic integration , Southern African Customs Union
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/31875 , vital:31857
- Description: This research dissertation presents the impact of economic size, market size and exchange rate on South Africa’s trade flows with the European Union under the Trade Development and Cooperation Agreement (TDCA). The Big Five EU members are used to represent the EU trading bloc. The research also examines the effects of economic size, market size and ex-change rate on South African trade flows with members of the Southern African Customs Union and of the European Union in what is called the European Union-Southern African Development Community Economic Partnership Agreement (EU-SADC EPA). The research employs comparative analysis aimed at identifying the differences in the effects of market size, economic size and exchange rate on South Africa’s trade flows with these two trading blocs. The study exploits panel data on international trade of South Africa over the period 2000-’16. A gravity model of trade is used to identify the effect of these three variables on South Africa’s trade flows. The empirical analysis relies on a panel data econometrics framework as an estimation technique for the gravity model of trade between South Africa and the Big Five EU members. This shows the outcomes of the effects of economic size, market size and exchange rate on the trade flows of South Africa in the TDCA. The same technique is applied to estimate the effects of economic size, market size and exchange rate to trade flows of South Africa with the Big Five EU members as well as the other SACU members representing the SADC-EU EPA. In the panel data approach, three models are adopted. These are pooled OLS, fixed effects and random effects that can be estimated. The Hausman tests shows that the random effect is appropriate in the TDCA gravity function and the results indicate a positive relationship be-tween South Africa’s economic/market size and South Africa’s trade flows in the TDCA. In the EU-SADC EPA, the Hausman tests indicated that the fixed effect models are appropriate and the results show a positive relationship between economic size and market size with South Africa’s trade flows in the EU-SADC EPA. However, in the TDCA, the random effect model shows that exchange rate and the trading partner’s market size have a negative outcome on South Africa trade flows. The fixed effect model shows a negative relationship between the exchange rate and South Africa’s trade flows in the EU-SADC EPA. The results also show that it is better for South Africa to trade in the EU-SADC EPA than to remain in the TDCA. This is because the outcomes of economic and market size on South Africa’s trade flows are greater in the EU-SADC EPA than in the TDCA. On the other hand the negative effect of the exchange rate on South Africa’s trade flows is less in the EU-SADC EPA than in the TDCA. The research recommends that policy-makers select trading partners based on the sizes of their markets and economies.
- Full Text:
- Date Issued: 2018
- Authors: Mhaka, Simbarashe
- Date: 2018
- Subjects: South Africa -- Economic integration , Africa, Southern -- Economic integration , Southern African Customs Union
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/31875 , vital:31857
- Description: This research dissertation presents the impact of economic size, market size and exchange rate on South Africa’s trade flows with the European Union under the Trade Development and Cooperation Agreement (TDCA). The Big Five EU members are used to represent the EU trading bloc. The research also examines the effects of economic size, market size and ex-change rate on South African trade flows with members of the Southern African Customs Union and of the European Union in what is called the European Union-Southern African Development Community Economic Partnership Agreement (EU-SADC EPA). The research employs comparative analysis aimed at identifying the differences in the effects of market size, economic size and exchange rate on South Africa’s trade flows with these two trading blocs. The study exploits panel data on international trade of South Africa over the period 2000-’16. A gravity model of trade is used to identify the effect of these three variables on South Africa’s trade flows. The empirical analysis relies on a panel data econometrics framework as an estimation technique for the gravity model of trade between South Africa and the Big Five EU members. This shows the outcomes of the effects of economic size, market size and exchange rate on the trade flows of South Africa in the TDCA. The same technique is applied to estimate the effects of economic size, market size and exchange rate to trade flows of South Africa with the Big Five EU members as well as the other SACU members representing the SADC-EU EPA. In the panel data approach, three models are adopted. These are pooled OLS, fixed effects and random effects that can be estimated. The Hausman tests shows that the random effect is appropriate in the TDCA gravity function and the results indicate a positive relationship be-tween South Africa’s economic/market size and South Africa’s trade flows in the TDCA. In the EU-SADC EPA, the Hausman tests indicated that the fixed effect models are appropriate and the results show a positive relationship between economic size and market size with South Africa’s trade flows in the EU-SADC EPA. However, in the TDCA, the random effect model shows that exchange rate and the trading partner’s market size have a negative outcome on South Africa trade flows. The fixed effect model shows a negative relationship between the exchange rate and South Africa’s trade flows in the EU-SADC EPA. The results also show that it is better for South Africa to trade in the EU-SADC EPA than to remain in the TDCA. This is because the outcomes of economic and market size on South Africa’s trade flows are greater in the EU-SADC EPA than in the TDCA. On the other hand the negative effect of the exchange rate on South Africa’s trade flows is less in the EU-SADC EPA than in the TDCA. The research recommends that policy-makers select trading partners based on the sizes of their markets and economies.
- Full Text:
- Date Issued: 2018
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