The Impact of International Trade on Economic Growth in South Africa: An Econometrics Analysis

Abstract

International trade is one of the leading discussions taken not only in South Africa but worldwide on daily basis. 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 determine the effects of international trade on economic growth to the policymakers. The study follows the cointegrated vector autoregression approach which contains the following steps: Augmented Dickey-Fuller and Phillips-Perron to test for stationarity. The model is also taken through the Johansen cointegration test and Vector error correction model. The findings of the stationarity tests indicate that all the variables have a unit root problem. The cointegration model emphasizes the long run equilibrium relationship between dependent and independent variables. The empirical results of the Johansen cointegration test reject the null hypothesis of no cointegration and suggest the presence of a long term economic relationship among all the variables. Empirical investigation reveals that inflation rate, export and exchange rates are positively related to GDP whilst import is negatively related to GDP. The conclusion drawn from this work is that there is a correlation amongst GDP and its regressors. This study recommends that the policymakers should improve and strengthen the competiveness of export sector with the aim of striving for a balance with the import sector.

DOI: 10.5901/mjss.2014.v5n14p60