Abstract
Trade openness is one of the leading discussions globally and it is increasingly becoming important for developing countries, such as is a case for South Africa. Trade openness is an important factor to enhance economic growth Guerrieri and Meliciani (2002). Although trade openness can be beneficial it is not necessarily the case for all the countries. It is clear that the successful outcome depends on the country specific factors such as strong institutional framework, size, and competitiveness. As a result, it is important for policymakers to focus on other factors that may influence the trade basket in order to ensure that trade openness will result in much needed economic growth. The purpose of this study is therefore to examine the impact of trade openness on economic growth in South Africa. The empirical analysis is conducted by using quarterly time series data from 1990Q1 – 2016Q4 obtained from the South African Reserve Bank (SARB) and the International Monetary Fund (IMF). The study follows a Vector Autoregression model (VAR) 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 a unit root. The cointegration model highlights 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. This suggests the presence of a long term relationship among all the variables. The study reveals that imports and import tax are negatively related to economic growth whilst exports and foreign direct investment are positively related to economic growth. The conclusion drawn from this work is that there is a correlation amongst economic growth and its independent variable. This is because all the variable was found to be statistically significant in the long-run. These results, therefore, suggest that the promotion of policies that support trade openness is beneficial for the South African economy.
M.Com. (Development Economics)