Journal of
Development and Agricultural Economics

  • Abbreviation: J. Dev. Agric. Econ.
  • Language: English
  • ISSN: 2006-9774
  • DOI: 10.5897/JDAE
  • Start Year: 2009
  • Published Articles: 530

Full Length Research Paper

Estimating the cost of common monetary area in SADC countires: A case study from the Namibian Beef Industry, a vector error correction model approach

Teweldemedhin, MY
Polytechnic of Namibia, Windhoek, Namibia.
Email: [email protected]

  •  Accepted: 02 December 2011
  •  Published: 26 January 2012

Abstract

The aim of this study was to measure the cost of the common monetary area (CMA) to the beef industry in Namibia as a result of the South African Reserve Bank’s monetary policy. A vector error correction  (VEC) model was applied to measure the dynamic effect of the interest and exchange rate between the rand/Namibian dollar on the Namibian beef industry, and more specifically to examine how the volatile nature of the rand/Namibian dollar interest and exchange rates has caused consumers to absorb short-run price changes. The study found that Namibian consumers have to absorb more than the South African short-run price overshot, causing the beef industry to lose even more of its competitive advantage. For example, the results show that a 1% change in South Africa’s money supply or in the appreciation (depreciation) of the rand/Namibian dollar leads to a 2% rise in beef prices in Namibia, making the cost of living more expensive in Namibia than in South Africa. Due to the linkages between monetary policy variables and relative agricultural prices, it is recommended that agricultural policymakers and monetary authorities in the CMA work closely together in designing and implementing monetary policy for the planned Southern African Development Community (SADC) in view of facilitating a common currency. This is important, because monetary policies that are meant to stabilise the entire region and positively influence the SADC economy may have a less-desirable impact on the agro-food industry, as well as on farmers and consumers, especially in the short run.

 

Key words: Common monetary area (CMA), interest and exchange rates, Namibian beef industry, vector error correction (VEC) model.