An augmented gravity model of South Africa's exports of motor vehicles, parts and accessories

Abstract

The study applies an "augmented" gravity model to South Africa's exports of motor vehicles, parts and accessories to 71 countries over the period 1994 to 2004. A static panel data model is specified and estimated. Several conclusions are drawn from the study. First, a number of variables, namely, importer income, distance, level of import tariffs, government effectiveness, regulatory quality, use of right-hand drive vehicles are important determinants of bilateral trade flows for motor vehicles, parts and accessories. Second, solving the gravity model deterministically, we show that export potential exists in a number of countries like Malawi, Zambia, Kenya and Malaysia. A number of barriers hinder the members of the National Association of Automobile Manufacturers of South Africa (NAAMSA) from exploiting these export markets. These include very high import tariffs, lack of South Africa's diplomatic mission in the trading partner and the uncertainty regarding what happens at the expiry of the Motor Industry Development Programme (MIDP) in 2012. Finally, the export potential identified by the gravity model should be regarded only as an indication since it is sensitive to the model specification and sample of countries.