The Impact of International Trade on Economic Growth on South Africa : An econometric analysis

Abstract

International trade is one of the leading discussions taken not only in South Africa but worldwide on daily basis. The importance of international trade is that one country can be able to assist the other country to meet its needs. The level of economic growth is important in any country not only in South Africa. The purpose of this study is to examine the impact of foreign trade on economic growth in South Africa. The findings of this study will demonstrate the light about positive and negative effects of international trade on economic growth. The empirical analysis is conducted by using a time series data from 199001 - 201302 quarterly obtained from South African Reserve Bank (SARB) and Organisation of Economic Co-operation Development (OECD). The study follows a Cointegrated vector autoregression (CVAR) which contains the following: Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests for stationarity. The model is also taken through the Johansen cointegration test and Vector error correction model (VECM). VECM approach will be followed if cointegration amongst the variables has been established. The findings of the study are that all variables have unit root. The cointegration model emphasizes the long run equilibrium relationship between dependent and independent variables. The empirical results for the Johansen cointegration test reject the null hypothesis of no cointegration and suggest the presence of a long term relationship among all the variables. Empirical investigation reveals that three variables such as inflation rate , export and exchange rates are positively related to GOP while other one variable such as import is negatively related to GOP. The conclusion drawn from this work is that there is a correlation amongst GOP and its independent variable. This dissertation recommends that The South African government must start strengthening the competiveness of export by making sure that it is always balanced with the import.