FINANCIAL DEVELOPMENT, EXCHANGE RATE DYNAMICS, AND EXPORT GROWTH IN SOUTH AFRICA: A NARDL APPROACH

Abstract

The study investigates the asymmetric impact of exchange rate dynamics and financial development on export growth in South Africa. This study employs annual time-series data from 1994 to 2024 and the nonlinear autoregressive distributed lag (NARDL) technique to determine the impacts of positive and negative shocks of the exchange rate and financial development on export growth. The cointegration test results provided evidence of an asymmetric long-run relationship. The findings show that exchange rate movements have a significant, but asymmetric, effect on exports in that currency appreciation reduces export growth, while depreciation enhances it, consistent with standard trade theory. In contrast, total credit to the private sector does not exhibit a statistically significant influence on exports in either direction, suggesting inefficiencies in financial intermediation and limited credit transmission to export-oriented sectors in the long run. However, bank deposits emerge as a key driver of export performance: positive changes significantly promote exports, while declines in deposits adversely affect export growth, confirming the presence of financial asymmetry. These findings suggest that the South African export growth requires a stable exchange rate, efficient credit allocation, and a coordinated industrial policy to support export-oriented industries and enhance the country’s global trade competitiveness.