The effects of currency depreciation on trade: The case for SACU countries

This study examines the effects of currency depreciation on trade in the Southern African Customs Union (SACU) countries: Botswana, Eswatini, Lesotho, Namibia, and South Africa. The main research questions address how exchange rate depreciation impacts trade balances. The study fills a literature gap by focusing on the SACU region, which is underrepresented in empirical research on currency depreciation. Utilising a pooled mean group (PMG) regression model using data from 2000 to 2022, the analysis reveals that currency depreciation does not consistently improve trade balances, contradicting traditional economic theories. Key findings indicate that the relationship between currency depreciation and trade balance is complex and context dependent. The study contributes to the literature by highlighting the need for tailored economic policies that consider the unique socio-economic environments of SACU member states. This research underscores the potential of the African Continental Free Trade Area (AfCFTA) to aid in export diversification and industrial capacity enhancement, while also recommending measures for managing exchange rate volatility through regional cooperation and prudent monetary policies.