Trade openness and economic prosperity in South Africa: Pre- and post-1994 analysis.

Abstract

This study empirically examines the causal relationship between trade openness and economic prosperity in South Africa with quarterly data from 1970 to 2017. The analysis is disaggregated into pre-1994 and post-1994 to capture the economic situation of South Africa during and after apartheid regimes. The long-run equilibrium is suggested between trade openness and economic prosperity using the Johansen cointegration process, during and after apartheid regimes. The Granger causality test suggested a unidirectional relationship running from economic prosperity to trade openness in the post-apartheid era but no causal relationship during the apartheid regime in South Africa. The vector error correction model (VECM) for short-run equilibrium suggests a positive relationship between trade openness and economic growth during the apartheid and post-apartheid era in South Africa. Therefore, the study suggests further trade liberalisation mechanisms in South Africa to enhance the export of excess domestic production, importation of capital goods and scarce skills and further development of technical know-how of local labour.