Economic impact of sectoral aid for trade on export performance of South Africa

Abstract

This study explored the economic impact of Sectoral-Aid-for-Trade (SAfT) on export performance within South Africa’s agricultural and manufacturing sectors. Numerous generic studies had been conducted to assess the link between SAfT and export performance; however, there had been limited empirical research on country-specific Aid-for-Trade (AfT) and countries’ export performance in foreign markets, a gap this study completed by using South Africa as a case study. There was also a gap in academic literature regarding the impact of SAfT on the economic performance in emerging nations. Instead, literature argued that there was no guarantee that exports could positively influence the pecuniary growth of a country, and that there was doubt regarding the effectiveness of AfT initiatives, especially in African countries. This line of thought motivated the researcher to undertake an assessment of the economic impact of SAfT on the South African agricultural and manufacturing sectors’ export performance. The research was an attempt to assess how the SAfT impacts export performance within the South African agricultural and manufacturing sectors. Furthermore, the research was an attempt to assess the impact of exports within the agriculture and manufacturing sectors on economic growth. Using the pooled data compiled from South African exporters in the agricultural and manufacturing sectors, covering a period of 17 years (2002 to 2019) where data was converted into frequency monthly data, the findings of the study were as follows: 1. In relation to the agricultural sector, the Granger causality test revealed a bidirectional association between the broadest SAfT measure and South African agricultural exports. The dynamic linear model looked more closely at how SAfT affected agricultural exports and found that it had a considerable positive influence, with Lag_BB-SAfT implying improved exports with more SAfT. Lag_N-SAfT, on the other hand, had a non-significant negative connection, while Lag_BBT-SAfT, despite being statistically significant, had only a little positive effect on exports because of its tiny magnitude. 2. In relation to the manufacturing sector, the Granger causality uncovered the bidirectional relationships between trade performance and aid initiatives. The study underscored the reciprocal influence of various SAfT forms on manufacturing exports, with potential implications for economic growth. Using dynamic linear approaches, the research further examined lagged SAfT variables, revealing significant positive correlations between Lag_N-SAfT and Lag_BB-SAfT with Manufacturing Exports, and signalling enhanced trade and economic development potential. 3. In relation to economic growth, the Granger causality test found a unidirectional significant impacts of exports on economic development. The research further explored the link between agricultural and manufacturing exports and economic growth, revealing that increased exports from both sectors correlated with higher economic growth, emphasizing the importance of trade in driving overall economic performance. The investigation of the linkages between sectoral aid for trade (SAfT) and export performance in South Africa's manufacturing and agricultural sectors addresses gaps in the literature by offering sector-specific insights. The research illuminated the impacts of different SAfT types on exports and explores correlations between exports, SAfT, and economic growth, filling the void of longitudinal studies in this domain. By employing dynamic linear model, the study contributes to our understanding of the long-term effects of SAfT initiatives on exports and economic development. The empirical findings provide valuable information for policymakers and practitioners, offering potential policy suggestions and enhancing the understanding of how SAfT measures impact exports and contribute to economic growth, enabling more informed decision-making and resource allocation towards boosting both exports and economic growth. The major recommendation from the study includes the need for South Africa to implement measures that attract targeted SAfT support to improve export performance and enhance economic growth. South Africa should aim to implement policies that improves the trade structures and prevent possible leakages in the governance architecture of the fund. Efforts should be made to optimise the gains of the funding by closing leakages, improving efficiency and maximise growth potentials through export promotion. The key findings from the study are important for policymakers, especially those who regulate trade-related funding, because the country has to place a premium on the policy framework that is capable of enhancing the efficiency of the SAfT initiative, which may improve growth. Future research should consider investigating the influence of SAfT on export performance through sectoral value addition. Additionally, expanding the analysis to other sectors, employing qualitative methods, and exploring cross-country comparisons within regional blocs are suggested avenues to advance the frontiers of this study.