Rand Depreciation and Investment Dynamics: The Role of Imported Intermediate Inputs

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Abstract

This chapter examines the extent to which the exchange rate depreciation impacts growth in investment and whether it is impacted by intermediate imports. Evidence shows that the exchange rate depreciation shock lowers growth in investment significantly while intermediate imports rise. The persistence of exchange depreciation shocks matters for growth in intermediate imports. In addition, investment and GDP growth decline more in response to persistently rising NEER depreciation shock than to a non-persistent shock. Thus, evidence shows that increase in intermediate imports costs contributes to the decline in investment and this is a drag economic growth. A counterfactual analysis shows that the NEER depreciation shock leads to a decline in investment, which is much larger in the presence of intermediate imports than when these are shutoff in the model. This evidence shows that growth in the intermediate imports amplifies the responses of investment following a NEER depreciation shock.

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 1
  • Mthuli Ncube
    • 2
    • 3
    • 4
  1. 1.Economic Research and Statistics DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Quantum Global Research LabZugSwitzerland
  3. 3.Wits Business SchoolUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Said Business SchoolUniversity of OxfordOxfordUK

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