Establishing the linkages between the South African agricultural trade balance and macroeconomic indicators

ABSTRACT

This paper investigates the long-run and short-run linkages between macroeconomic fundamentals, agricultural variables and the South African agricultural trade balance, using co-integration analysis and a vector error-correction model with yearly data from 1980 to 2011. The literature review shows that these linkages have not been empirically established for South Africa, despite the relative importance thereof in the policy process. The findings reveal that in the long run, the exchange rate, agricultural price, agricultural production and disposable income all have a significant impact on trade balance. The joint short-run dynamic impact of the lagged trade balance, lagged agricultural production, lagged exchange rate, domestic price and agricultural production explains the changes in the South African agricultural trade balance.

Keywords:

• agricultural trade balance
• macroeconomic fundamentals
• co-integration analysis
• vector error-correction model

JEL CLASSIFICATION:

• C50
• Q17