AN ASSESSMENT OF THE RELATIONSHIP BETWEENFOREIGNTRADE AND ECONOMICPERFORMANCE:EMPIRICAL EVIDENCEFROMSOUTH AFRICA

The driving objective of the study was to estimate the impact of foreign trade oneconomic performance using the economy ofSouth Africa as a test site.The studycontributes to the empirical literature by testing for a long-run relationshipbetweenforeign trade and economic performance in South Africa by employing quarterlydata stretching fromthe period1995Q1to 2015Q4.The method of vectorautoregression (VAR) was employed.Variables included in the study consisted ofreal GDP, exports,openness of the economy and exchange rate.The study foundcointegrating relationships among the variables investigated,and thatexportwasfound to contribute more towards economic performance compared toopenness ofthe economyand exchange rates. Whenit came to Granger-causality analysis, thestudy found a number of unidirectional relationshipsbetween the pairs of variablesexaminedin the model.For example,it was found that economic growthgrangercauses exports and also openness of the economygrangercauses exports.Theforecast error variance decompositionsuggeststhat economic performance itselfaccounted for most of the innovations that ensued during the10-period forecasthorizonemployed in the analysis.Policymakers couldutilizethe results of thisstudy, when it comes to policy formulation and design for the economy of SouthAfrica.The findings of the research could be used to improve upon economic policyfor South Africaand otherdeveloping countrieson a similar path. The study createsopportunities for further research endeavours concerning the issue underinvestigation so as to unveilmore evidenceon the nature oftherelationship betweenforeign trade and economic performance inthe economy ofSouth Africa