Investigating the Long-Run Relationship Between Exchange Rate, Interest Rate and Economic Growth in South Africa

This study was based on investigating the long-run relationship between the exchange rate, interest rate, and economic growth in South Africa. We used annual time series data ranging from 1990 to 2024, which was analysed with fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) estimation models. Economic growth was measured with real gross domestic product (RGDP), gross domestic product per capita (GDPpc) and gross domestic product growth rate (GDPgrt); while exchange rate and interest rate were measured with real effective exchange rate (REXR) and real interest rate (RINTR), and we controlled for inflation rate (INFR) and consumer price index (CPI). Evidence from the main findings of models 1 -3 of FMOLS and DOLS results entailed that a long-run relationship exists between the exchange rate, interest rate and economic growth in South Africa. To this effect, we recommended policies such as improvements in policies that would enhance all other South African macroeconomic indicators so as to improve the economic growth of the nation.