The effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector

Abstract

PurposeThe main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the period 1985Q1–2019Q2.Design/methodology/approachJorda’s (2005) local projection method is employed and following Koop et al. (1996); generalized impulse response functions are generated to see the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector.FindingsThe results show that exchange rate uncertainty affects negatively and significantly employment in South Africa’s manufacturing sector. Employment also responds negatively and significantly to export shock. Inflation and output shocks, however, positively and significantly affect employment on impact. Asymmetric responses of employment to exchange rate uncertainty are also found in this study. While high exchange rate uncertainty leads to a reduction in employment, low exchange rate uncertainty brings an increase in employment in South Africa’s manufacturing sector.Originality/valueThis research adds to the scarce empirical literature on the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector by incorporating mainly non-linearities into the model.