Exchange Rates, Growth, and Unemployment

by HAWKINS, P., 2006
Research Report, Employment Growth & Development Initiative, Human Sciences Research Council

There has been some debate on the impact of exchange rate volatility and levels in South Africa. This is a particular concern as South Africa needs to dramatically expand sustainable employment and at the same time raise value-added in its production of goods and services. These are not necessarily complementary objectives for a mineral-exporting economy. Using a computable general equilibrium model, with the appreciation induced by a commodity price boom, this paper analyses the possible impact of an appreciation of the rand on employment. The intention is to identify the impact on both aggregate employment and sectoral output. Although the economy does well as a result of the commodity boom, the results indicate the potential for ‘Dutch Disease’-type effects. Almost all traded sectors are negatively affected, while the non-traded sectors experience a boost as a result of the appreciation.