Abstract
The trade-growth nexus is revisited for the specific case of South Africa. As an emerging economy, trade continues to be critical to its economic growth prospects; however, most of the previous empirical investigation on this ‘well-known’ nexus on South Africa has often focused on testing the validity of export-led growth hypothesis. We however argue that the ability of imports to stimulate productivity as well as further economic growth (and consequently a vent-for-surplus gains) cannot be underestimated: Thus, motivating our application of cointegration analysis based on the Johansen’s methodology to analyze the dynamic relationship between economic growth, exports and imports. We observed that, in the long run, export does not only drive economic growth but notably import growth as well: The positive long-run relationship suggests a healthy sustainable relationship between export growth and import growth in South Africa. Our empirical evidence however indicates that controlling for exogenous volatility including volatility in exchange rate and global economic sentiment is necessary for robust and sustainable long-run equilibrium relationship. Results of Granger Causality tests based on the estimated VECM compellingly underscores the contributions of imports to economic growth for South Africa. The significance of our findings and some useful policy implications are discussed in the paper.