Testing Creative Destruction in an Opening Economy: the Case of the South African Manufacturing Industries

This paper analyses the relationship between trade liberalization and economic growth using a Schum-peterian framework of technological innovation. The framework illustrates direct and indirect effects of trade libaralization on productivity growth. Indirect impacts operate through a differential impact on firms conditional on their distance from the international technological frontier. Estimation results con-firm positive direct impacts of trade liberalization. In addition, results confirm that the greatest positive impact of trade liberalization will be on sectors close to the international technological frontier. Sectors with low product market competition and smaller scale of production benefit most significantly from trade liberalization. Results also confirm that sectors close to the technological frontier and that have greater product market competition, and sectors of greater scale and high product market competition experience higher productivity growth. Finally, the paper confirms the positive impact of product market competition on productivity growth under an open economy setting