The Export-Output Relationship in South Africa: An Empirical Investigation

This study re-investigates the empirical relationship between exports and economic growth in South Africa using econometric techniques of co-integration and Granger causality over the period 1970Q1-2012Q4. The Johansen approach of co-integration shows that exports and GDP evolved together overtime, though deviations from the steady state might happen in the short-run. Furthermore, Granger causality based on a Vector Error Correction model (VECM) reveals the existence of short and long run bi-directional causality between export and GDP growth. Similarly, Granger causality based on an augmented vector auto-regression (VAR) model confirms that export Granger causes GDP and vice versa. Overall, the empirical findings of this study support the validity of export-led growth and growth –driven export hypothesizes in the case of South Africa. The main policy implication of these results is that a speedy and sound execution of government’s plans aimed at stimulating and diversifying production for export will contribute to the improvement of growth and employment prospects.