The determinants of South African exports : critical policy implications

Abstract

This study takes an eclectic approach drawing on historic, theoretical and empirical sources to identify the main factors influencing the pattern and direction of South Africa’s trade. Rather than focusing on and proving or disproving individual theories, it looks at the broadly at various determinants of trade rather. Each of the theories that have been accepted as part of the canon of international trade theory explains part of the picture. This study therefore focuses on informing policy and therefore identifies and critically evaluates the determinants of South African exports and the role these determinants should have in policy development. Trade volume is usually seen as determined by the level of income level and relative prices. These are in turn determined by the dynamics of each GDP component (investment, consumption, public expenditure, exports); the price competitiveness of domestic production (influenced by exchange and relative inflation rates); non-price competitiveness of domestic production (product quality, technological innovativeness, design, promotion); the country’s attitude toward foreign goods; historical links with certain origin countries; and economic integration. This study attempts to isolate the determinants of export prices and volumes for the different manufacturing sectors. It will give policy-makers a clearer understanding of exporters and the factors that contribute to export growth, and will in turn inform policies, programmes and other export schemes. This information will allow the evaluation of the impact of their decisions and policies on each of the sectors’ export performance. Different sectors and industries face a myriad of different, and often unique conditions: elasticity, technology, market supply positions etc., and will therefore react differently to different policies. While government makes policy decisions that impact on the whole economy, it simultaneously has programmes that assist firms (particularly the Small Enterprise Development Agency (SEDA) and Trade and Investment South Africa (TISA)). This micro-level support and macro-policy must therefore operate together and complement each other. After setting the global and domestic scene, highlighting relevant events and trends that effect trade, this study critically evaluates international and South Africa applications of classical and new trade theories. From these processes, determinants are identified. Econometric models are then applied to test these determinants empirically. These techniques are applied to South Africa’s various sectors and industries thus giving macro- and meso-determinants. Qualitative techniques are then used to determine specific drivers at a firm level. From this a model is proposed for specific interventions to assist new exporters enter global markets, and to retain and grow existing exporters. Based on sound economic theory and the empirical findings from these research approaches, policy recommendations are made. In an increasingly competitive and uncompromising world, the role of sound policy is fundamental to economic success. This thesis argues that policy must be comprehensive and made with an understanding of the critical interactions in place.