Exchange Rate, Export, and Foreign Direct Investment Nexus within The South African Economy

Abstract

Purpose
This paper explores the relationship between exchange rates, exports, and foreign direct investment in South Africa.
Methodology
The paper utilized Johansen cointegration, vector error correction model (VECM), and Granger causality test on annual data from 1986 to 2022.
Findings
The study reveals a substantial causal relationship between the Real Exchange Rate (RER) and Real gross domestic product per capita (GDPPC). The RER implies that an increase in the value of the home currency causes a decline in exports (EXP). Disregarding the economic conditions in South Africa, in essence, only demonstrates that any upward or negative movement in RER causes GDPPC to grow or fall since any rand depreciation offers a pathway to reduce domestic imports while raising local exports, which leads to greater GDPPC.
Conclusion
This study concludes that adopting laws that support RER, exports, and foreign direct investment is important for South Africa's economic development. These policies can also be useful during national unrest, such as pandemics and emergencies. It is also important to consider the stability of domestic funds and how they affect foreign and domestic business sectors when developing a financial strategy and carefully managing foreign direct investment.