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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:The economic cost of foreign exchange for South Africa
Author:Harberger, Arnold C.ISNI
Year:2003
Periodical:South African Journal of Economics
Volume:71
Issue:2
Pages:298-324
Language:English
Geographic term:South Africa
Subject:exchange rates
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2003.tb01310.x/pdf
Abstract:This paper provides an analytical framework and a practical approach to the measurement of the economic cost of foreign exchange for South Africa. The analysis takes into account the capital extraction required to finance the purchase of business inputs and the substitution effects due to the changes in relative prices of tradable to nontradable goods in a general equilibrium setting. The empirical results suggest that the additional cost of the use of, or the benefit from generating, foreign exchange in South Africa would be approximately 6.2 percent of the market value of tradable goods. At the same time there is a small percent premium on the expenditures or receipts of nontradable goods of 1.4 percent. These figures represent the value of the generalized distortions that are created by differences between the market and the economic value of expenditures on traded and non-traded goods, respectively, when the funds used to make these expenditures are sourced from the capital market. In practical applications to cost-benefit analysis for new investments, a conservative adjustment to the values of traded and nontraded resource flows, of 6 and 1 percent, respectively, is recommended. Bibliogr., notes, ref. [ASC Leiden abstract]
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