Effect of Real Exchange Rates on Fruit Exports in South Africa: a Vector Error Correction Model (VECM) Approach

The magnitude of a country’s exports positions it for international competitiveness. This study examined the effect of real exchange rates (RER) on fruit exports in South Africa and determined the direction of causality between fruit exports and exchange rate changes. The dataset covered for the period 1971–2019. The variables were tested for stationarity and the Vector Error Correction Model (VECM) was used for data analysis. The results showed that the unit root and cointegration tests indicated that the data were integrated of order one [I(1)]. The long-run OLS regression revealed that a weakening exchange rate has a positive effect on both export values and quantities. The study discovered that government spending in the form of Gross Fixed Capital Formation (GFCF) has a small but positive effect on fruit exports, thereby boosting exports by allowing the fruits to be sold at affordable prices in foreign markets. Also, government spending in the form of GFCF had a small but positive effect on fruit exports. It was concluded that the real exchange rate influences fruit exports in South Africa, and that the government and other stakeholders should work to enhance transportation and related infrastructure through increased public investment for streamlining requisite logistics for boosting agricultural export performance.