South Africa is a typical small open Economy.
Its currency the Rand stands at R8.54 to the dollar at present. It
fell from R0.96 in 1979 to its present value.
Mainstream economists all argue that its good since exports are
stimulated (price thus elastic) and imports discouraged (also price
elastic).
My studies (econometric) seems to indicate that both are actually
more income elastic dependent thus on overseas growth for
exports and local growth for imports. The gains are thus purely in
extra rands from exports but losses ito an increased import bill.
My problem is this: SA is a price-taker internationally and thus
cannot influence the price. A devaluating currency will this only
benefit the exporter in Rand terms since the price in $ terms
(international price) remains the same. I must be missing
something since my colleagues still beg to differ.
Please advice me on where my arguments are going wrong.
Kind Regards,
Pierre le Roux
Sub-Head
Dept Economics,
P/bag x613,
Vista University,
Port Elizabeth 6000
South Africa
office 041 4083145
CELL 0822024819
FAX 041 4641563
