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Corresponding Author:
Malefa Rose Malefane, Department of Economics, University of South Africa, UNISA, Pretoria, South Africa

Coauthors:
Nicholas M. Odhiambo, Department of Economics, University of South Africa, UNISA, Pretoria, South Africa

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

Volume 71 - Issue 4, November 2018
(pp. 387-416)
JEL classification: C13, F43
Keywords: ARDL, Economic Growth, Exports, Imports, South Africa, Trade Openness

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.

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

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Institute for International Economics of the Genoa Chamber of Commerce

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