An analysis of manufactured exports and economic growth in Southern African Development Community (SADC)

Abstract

Countries have been strongly implementing regional trade agreements as a central objective of their trade policy. The economic literature have emphasised that countries with more diversified exports base are suitable trade contenders. The literature shows that low growth of manufactured exports has been identified as a major factor for poor economic performance in many SADC economies. Despite progress and increased trade policies in SADC, manufactured exports expansion remain a challenge. SADC still lags behind all other regions of the developing world in terms of manufacturing exports expansion. Hence, this study pursues to investigate the role of manufactured exports on economic growth of SADC countries. It is also the aim of the study to determine whether the relationship between manufactured exports and economic growth depends on the methodology used. Therefore, the findings of this analysis are expected to be relevant to SADC policy makers because stimulating economic growth through manufactured exports can create employment opportunities. In clarifying the kind of relationship between manufactured exports and economic growth in SADC context, this will help policy makers to design policies with a clear indication at sectoral level in contrast to aggregate level. An analysis of manufactured exports and economic growth was investigated using the existing literature on trade and growth theories. The study reviewed various theories departing from the Solow-Swan neoclassical theory to endogenous theories emanated from the theory of the AK growth model, and followed by the Lucas growth theory. Lastly, discussed the innovation based growth theory. To carry out this analysis, time series and panel econometric methodologies were used. The analysis covered the period 1980 to 2012. To determine the long run equilibrium, the study used three econometric techniques under time series and panel analysis to ensure robustness of results. The results under time series analysis provide that, by applying Engle-Granger method in 4 out of 13 SADC countries, there is long run relationship between economic growth and total manufactured exports. The results also prove that positive relationship between manufactured export and economic growth exists for countries such as Lesotho, Malawi, Seychelles and Zambia. In applying Johansen cointegration method it was found that 9 out of 13 SADC countries support the existence of cointegration. The confirmation of a positive relationship between manufactured exports and economic growth was witnessed on the following countries: Malawi, Seychelles, South Africa, Tanzania, Zambia and Zimbabwe. Lastly, in an application of ARDL cointegration method, it was found that 5 out of 13 SADC countries confirmed long run equilibrium among the variables. The results show that there is a positive relationship manufactured exports and economic growth for Madagascar, Malawi and Mauritius. Moreover, the study finds that in all panel cointegration methods applied, the results confirmed the existence of long run equilibrium among the variables undertaken. In an effort to study the coefficients of parameters for variables of interest, it was found that both the method of DOLS and FMOLS are consistent. The results proved that there is a positive relationship between total manufactured exports and economic growth in SADC region. The study furthermore investigated the panel causality, and it was found that causality is running from economic growth to total manufactured exports at 5% significance level. In an overall analysis it is quite clear that irrespective of the econometric method applied to investigate the relationship between manufactured exports and economic growth. The results in both approaches on time series and panel data, majority support a positive impact of manufactured exports on economic growth. The study recommends for policy purpose that policy makers in SADC countries, in order to improve economic growth they should increase total manufactured exports. In order for this strategy to be achieved they should revise policies regarding to access to foreign markets and within SADC region. And also diversify exports structure to manufactured exports.