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Impact of Trade Openness on Economic Growth: Empirical Evidence from South Africa

Author

Listed:
  • MALEFANE , Malefa Rose

    (Department of Economics, University of South Africa, UNISA, Pretoria, South Africa)

  • ODHIAMBO, Nicholas M.

    (Department of Economics, University of South Africa, UNISA, Pretoria, South Africa)

Abstract
This paper examines the impact of trade openness on economic growth in South Africa. The study employs the autoregressive distributed lag (ARDL) bounds testing approach to investigate the dynamic impact of trade openness on economic growth. Unlike some previous studies, the current study uses four proxies of trade openness, with each proxy addressing a different aspect of trade openness. The first proxy of trade openness is derived from the ratio of trade to gross domestic product (GDP). The second proxy is the ratio of exports to GDP, while the third proxy is the ratio of imports to GDP. The last proxy is an index of trade openness, which captures the effects of residual openness, resulting from taking the country’s size and geography into account. Based on the long run empirical results, this study finds that trade openness has a positive and significant impact on economic growth when the ratio of total trade to GDP is used as a proxy, but not when the three other proxies are employed. However, in the short-run, when the first three proxies of openness are used, the study finds trade openness to have a positive impact on economic growth, but not so when the trade openness index is employed. These results, therefore, suggest that the promotion of policies that support international trade is relevant in the South African economy. L’impatto dell’apertura commerciale sulla crescita: evidenze empiriche dal Sud Africa Questa ricerca esamina l’impatto dell’apertura commerciale sulla crescita in Sud Africa utilizzando il test ARDL (Autoregressive Distributed Lag). A differenza di studi precedenti, il presente lavoro utilizza quattro indici di apertura commerciale, ciascuno dei quali ne rappresenta un aspetto diverso. Il primo si ottiene dal rapporto commercio/PIL. Il secondo è rappresentato dal rapporto esportazioni/PIL, il terzo dal rapporto importazioni/PIL. L’ultimo è un indice di apertura commerciale che esprime gli effetti dell’apertura residuale ottenuta considerando la dimensione e le caratteristiche geografiche del paese. Sulla base di risultati empirici di lungo periodo questo studio rileva che l’apertura commerciale ha un effetto positivo significativo sulla crescita quando si utilizza l’indice ottenuto dal rapporto commercio totale/PIL, mentre tale effetto non emerge quando sono utilizzati gli altri tre indici. I risultati dello studio evidenziano che, nel breve periodo, se si utilizzano i primi tre indici risulta un impatto positivo sulla crescita, mentre ciò non si verifica quando viene impiegato il quarto indice.

Suggested Citation

  • MALEFANE , Malefa Rose & ODHIAMBO, Nicholas M., 2018. "Impact of Trade Openness on Economic Growth: Empirical Evidence from South Africa," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 71(4), pages 387-416.
    • Handle: RePEc:ris:ecoint:0833
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    References listed on IDEAS

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    4. Iti Vyas, 2020. "Whether the Economic Growth of India is Trade Openness Led?," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 8(1), pages 38-53.
    5. Kunofiwa Tsaurai, 2021. "Determinants of Trade Openness in Transitional Economies: Does the Complementarity between Foreign Direct Investment and Human Capital Development Matter?," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 318-330.
    6. Biyase, Mduduzi & Malesa, Mokgadi, 2019. "Life Expectancy and Economic Growth: Evidence from the Southern African Development Community," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(3), pages 351-366.
    7. Nadia Ben Yedder & Malek El Weriemmi & Sayef Bakari, 2023. "The Impact of Domestic Investment and Trade on Economic Growth in North Africa Countries: New Evidence from Panel CS-ARDL Model," EuroEconomica, Danubius University of Galati, issue 2(42), pages 22-41, November.
    8. Kudakwashe, Chinyanganya & Regret, Sunge, 2021. "Growth Effects of Foreign Direct Investments in Zimbabwe: Do Sources Matter?," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.
    9. Fereira, Semertesides Bitica & Cateia, Júlio Vicente, 2023. "Trade reform, infrastructure investment, and structural transformation in Africa: Evidence from Guinea-Bissau," Emerging Markets Review, Elsevier, vol. 55(C).
    10. Santos Bila & Mduduzi Biyase & Matias Farahane & Thomas Udimal, 2023. "Foreign Aid And Economic Growth In Sub-Saharan African Countries," Economics Working Papers edwrg-03-2023, College of Business and Economics, University of Johannesburg, South Africa, revised 2023.
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    12. Lawrence MASHIMBYE & Ashenafi Beyene FANTA, 2021. "Trade Openness And Economic Growth In Mozambique," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 21(2), pages 37-52.

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    More about this item

    Keywords

    ARDL; Economic Growth; Exports; Imports; South Africa; Trade Openness;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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