The impact of risk on bilateral trade in the Southern African Customs Union (SACU)

Abstract

In spite of the enormous risks facing developing countries in the trade arena, empirical studies have not adequately addressed the impact of risk on bilateral trade. The research that has been done isolates the impact of one type of risk and this methodology falls short in helping us understand the true impact of risk on trade. This situation is as much a consequence of the absence of a risk framework, as it is a result of the fragmented nature of the literature. This study develops a framework for quantifying risk in the South African Customs Union (SACU). This methodology adequately addresses the spill-over and snowballing-effects of risk. The results show a positive and negative impact of risk for the importer and exporter respectively. These findings suggest that if the resilience of the SACU countries is not improved, then their endeavour of economic growth through trade will be greatly compromised.