An augmented gravity model of South Africa's exports of transport equipments and machineries

Abstract

The study applies an “augmented” gravity equation to South Africa’s exports of motor vehicles, parts & accessories (SIC 381-383) to 76 countries over the period 1994 to 2003. The study employs a dynamic panel data model to estimate long-run and short-run coefficients. First, it is shown that it takes about 16 months for exports to adjust. Second, a number of variables, namely, importer income, population, exchange rate, distance, free trade agreements are important determinants of bilateral trade flows for motor vehicles, parts & accessories. Third, the gravity model is solved stochastically to determine South Africa’s “optimistic”, “pessimistic” and “average” potential exports to the 76 countries. Finally, estimates of the degree of variability of “average” potential exports are provided, which show that South Africa’s trade with Germany, the United Kingdom and the United States have low variability.