Impact of trade openness on economic growth: Empirical evidence from South Africa

Abstract

This paper examines the impact of trade openness on economic growth in South Africa. The study employs the autoregressive distributed lag (ARDL) bound testing approach to investigate the dynamic impact of trade openness on economic growth. Unlike some previous studies, the current study uses four proxies of trade openness, with each proxy addressing a different aspect of trade openness. The first proxy of trade openness is derived from the ratio of exports plus imports to gross domestic product (GDP). The second proxy is the ratio of exports to GDP, while the third proxy is the ratio of imports to GDP. The last proxy is an index of trade openness, which accounts for the country size and geography. Based on the long run empirical results, this study finds that trade openness has a positive and significant impact on economic growth when the ratio of total trade to GDP is used as a proxy, but not when the three other proxies are employed. However, in the short run, when the first three proxies of openness are used, the study finds trade openness to have a positive impact on economic growth, but not so when the trade openness index is employed. These results, therefore, suggest that the promotion of policies that support international trade is relevant in the South African economy.