Examining the effects of exchange rate regimes choice on South Africa’s agricultural trade : a gravity model panel approach

Abstract

This paper investigates the impact of exchange rate regimes and exchange rates on South African agricultural exports, a vital sector of the economy. Employing an augmented gravity model, the study examines bilateral trade with 21 countries from 1988 to 2023. Key variables include de facto classification of exchange rate regimes, GDP, distance, and trade-related factors such as borders, common language, free trade agreements, and landlocked status. Estimations are conducted using pooled OLS, fixed effects, and random effects models. Results show that GDPs of both South Africa and its trading partners positively influence agricultural exports, while distance and exchange rate negatively affect them. Exchange rate regimes are found to play a significant role: fixed regimes are most constraining to export performance, whereas managed float regimes are less restrictive. These findings underscore the importance of exchange rate policy in shaping South Africa’s agricultural trade outcomes and guiding economic policy decisions.