Foreign trade and economic growth in South Africa

ABSTRACT

This study investigates the effects of foreign trade (economic openness) on South African economic growth. We control for the role of human capital accumulation, physical capital and foreign direct investment. We employ the cointegration test, Gonzalo-Granger common long-memory test, and the error-correction model. The empirical evidence indicates that foreign trade is a significant catalyst of growth in both the short- and long-run period. The evidence also indicates that human and physical capital are significant catalyst of growth in the long-run. Accordingly, South Africa should have policies that encourage foreign trade in order to boost both short and long-run economic growth. Policies to invigorate the education system and physical capital in South Africa should persist over a long period of time to realize their expected economic benefits.

KEYWORDS:

• Cointegration
• granger-causality
• foreign trade
• economic growth

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Lutkepohl (1982) and Cheng, Taylor, and Weng (2007), show that omission-of-variables bias severely befouls Granger-causality tests.