Heterogeneous effects of real effective exchange rates on agricultural exports

Abstract

Background: Enhancing South Africa-Southern African Development Community (SADC) intra-regional trade can strengthen economic connections, foster shared growth, and lessen reliance on external market shocks.

Aim: The study aimed to determine the conditional effect of real exchange rate on agricultural export.

Setting: The study used a panel of SADC countries for the period 2010 to 2022.

Method: A Method of Moment Regression (MMQR) was used to determine the flow of agricultural exports between South Africa and SADC countries.

Results: The MMQR results revealed valuable insights into how different quantiles of agricultural export flows change with varying levels of exchange rates in the region. The real effective exchange rates analysis indicated that all quantiles are significant. This showed that a depreciating currency can have a positive impact on agricultural exports in the SADC region, making agricultural products more competitive in international markets.

Conclusion: These findings correlate with the quantile MMQR graphs that, upon observation, indicate a wider U-shape, which implies higher variability in the real effective exchange rates, with significant fluctuations in both directions because of the instability of markets that can negatively affect agricultural exports. Therefore, the SADC region must maintain a stable exchange rate and diversify its agricultural exports to remain competitive in the market.

Contribution: The study contributes to the literature on exchange rate and agricultural sector in the region. Also, it provides a fresh perspective on quantile conditional effects of agricultural exports and real exchange rates between South Africa and SADC region.