Impact of trade liberalisation on economic growth: the case of the Southern African customs union (SACU) countries

Southern Africa’s contribution to global output remains depressed at less than 2% of global production. Furthermore, growth metrics show that many countries in the region have experienced poor growth since attaining independence over the last 50 years. This is despite ongoing globalisation, which according to the theory of international trade should stimulate growth, through a variety of mechanisms including increased investment, entry of advanced technology and human capital. Research from the International Monetary Fund and World Bank institutions has suggested that reasons for the poor growth in many developing countries has been the restrictive trade policies, which have hindered many of the positive externalities of globalisation. The existing empirical trade literature has not been able to shed light to these assertions as it has produced inconclusive results regarding the impact of trade liberalisation on economic growth. Common justifications for these debatable results have ranged from out–dated testing methods, poor data availability, lack of theoretical foundations, and the assumption of homogenous production functions across developing countries. The empirical literature has focussed on developing countries in Asia, Eastern Europe and South America with little research undertaken on Southern African countries. This study proposes to focus on five Southern African Customs Union (SACU) countries of Botswana, Lesotho, Namibia, South Africa and Swaziland. The study seeks to empirically investigate the impact of trade liberalisation on economic growth in SACU countries. The study employs a quantitative time–series approach using annual country–level observations between 1980 and 2011. The exact method used is the auto–regressive distributed lag (ARDL) bounds testing approach. In addition to time–series estimations, the study used fixed–effects panel data estimations to test the robustness of empirical results across all five countries. The study found that in the case of Botswana, Lesotho, Namibia, and Swaziland trade liberalisation measured through tariffs, trade ratios, adjusted trade ratios and the real effective exchange rate had an insignificant impact on economic growth. However, turning to South Africa, the study unearthed that trade liberalisation was found to consistently have an impact on economic growth. Policy recommendations are made based on the South African econometric results. The main policy research areas are: (i) the need for alternative ways to liberalise the economy; (ii) the need for a reduction of the high import bill in South Africa; and (iii) a move towards labour–intensive export oriented activities. The recommendations from the South African empirical results are arguably relevant to Botswana, Lesotho, Namibia, and Swaziland due to their high dependence on South African exports, monetary policy and SACU policies. However, caution should be exercised as the empirical data found an insignificant impact of trade liberalisation on economic growth in the latter countries