The Government of National Unity, on coming into power in April, 1994, has endorsed the reconstruction and development programme (RDP) and its broad agenda for the rapid removal of the problems and gross inequality evident in all aspects of the South African society. Many economists argue that the sustain ability of the RDP, will depend crucially on the maintenance of fiscal discipline and the progressive reduction of the overall fiscal deficit. As excessive fiscal deficits are often associated with higher inflation, higher real interest rates, balance of payments disequilibrium and lower economic growth, thereby putting the RDP at jeopardy. The view based on the Ricardian Equivalence approach however, takes the position that neither deficits nor the way they are financed, is as critical to economic policy and the future prosperity of an economy, as is generally believed. The Ricardian view consequently, argues that government need not necessarily embark on deficit reduction programmes as advocated by the so called traditional view. The study investigates the validity of the Ricardian view, both on the empirical and theoretical side, with special reference to the South African economy. The specific question that this study attempts to address is whether economic agents behave in a Ricardian manner in the South African economy. Our results (based on the replication of the Dalamagas (1994) study) could be very consequential for South African policy makers, as they suggest that the Ricardian Equivalence proposition is valid and therefore, government could on purely theoretical grounds shift its focus away from the debt situation, and concentrate on the policies aimed to correct the inequalities (in wealth, distribution of public goods, employment opportunities) created by the Apartheid era. Whether government should do so in reality however is debateable due to the other considerations that government need to take account of when implementing actual macroeconomic policy. / Thesis (M.Soc.Sc.)-University of Natal, Pietermaritzburg, 1998.

MCOM / Department of Economics / The choice of a weak or strong currency has been at the center of the debate in most developing economies as exchange rates play a vital role in a country’s level of economic growth. This growth is critical to many developing economies. The study assessed the role of real exchange rate on economic growth in South Africa from 1994, first quarter, to 2015, fourth quarter. The study used time-series data in which Augmented Dicky Fuller and Philip Perron tests for stationarity, cointegration test, Vector Error Correction Model (VECM) approach for the long-run relationship were conducted. Impulse Response Function (IRF) and Variance Decomposition (VD) were also conducted to explain the response to shock amongst variables and how much of the forecasting error variance is explained by the exogenous shocks to other variables. VECM results showed a positive role exchange rates play on economic growth in South Africa. The study’s implication is that currency devaluation (exchange rates depreciation) can be effective in improving economic growth in the short-run. Nonetheless, a strong currency is good for economic growth in the long-run as it attracts foreign investments and a good instrument for controlling inflation. Thus, basing on the findings of the study, the floating exchange rate system adopted by South Africa in 2000 can be maintained.