Abstract:
The driving objective of the study was to estimate the impact of foreign trade on
economic performance using the economy of South Africa as a test site. The study
contributes to the empirical literature by testing for a long-run relationship between
foreign trade and economic performance in South Africa by employing quarterly
data stretching from the period 1995Q1 to 2015Q4. The method of vector
autoregression (VAR) was employed. Variables included in the study consisted of
real GDP, exports, openness of the economy and exchange rate. The study found
cointegrating relationships among the variables investigated, and that export was
found to contribute more towards economic performance compared to openness of
the economy and exchange rates. When it came to Granger-causality analysis, the
study found a number of unidirectional relationships between the pairs of variables
examined in the model. For example, it was found that economic growth granger
causes exports and also openness of the economy granger causes exports. The
forecast error variance decomposition suggests that economic performance itself
accounted for most of the innovations that ensued during the 10-period forecast
horizon employed in the analysis. Policymakers could utilize the results of this
study, when it comes to policy formulation and design for the economy of South
Africa. The findings of the research could be used to improve upon economic policy
for South Africa and other developing countries on a similar path. The study creates
opportunities for further research endeavours concerning the issue under
investigation so as to unveil more evidence on the nature of the relationship between
foreign trade and economic performance in the economy of South Africa.
