Abstract
The main purpose of this dissertation is to re-examine the determinants of merchandise exports in South Africa over the period 1980 to 2016, with specific emphasis on the role of foreign income. Empirical studies to date provide ambiguous evidence on the significance of foreign income in South Africa. Assuming that growth is export led, it becomes a crucial policy issue to identify the underlying determinants of exports. The empirical results obtained from Johansen's (1988, 1992) vector error-correction modelling procedure show that all three measures of foreign income, as proxied by OECD income, world income and US income, are highly significant long-run determinants of merchandise exports, whereas the effect of the real effective exchange rate is insignificant. A unique feature of the empirical strategy is that it imposes theory-consistent long-run exogeneity restrictions on foreign income to obtain more accurate estimates. The key policy implication of a significant foreign income variable is that policy makers should improve the structural demand characteristics of export goods in foreign markets to boost economic growth. This differs markedly from the policy implication when foreign income is insignificant. In this counterfactual scenario, exports are stimulated exclusively from the supply side.
M.Phil. (Industrial Policy)