Links between growth, trade and financial openness in South Africa: An empirical investigation

Abstract

This study aims to confirm an empirical link between financial openness, foreign trade and income growth in South Africa. Although domestic credits, trade and growth are cointegrated, the findings indicate that no such link can be observed between money supply and exports as exports are a result of foreign demand and hence subject to foreign monetary factors rather than domestic financial development. The results of causality analyses reveal that the export-led and supply-leading hypotheses are confirmed for South Africa. Money supply in South Africa is also output driven. Finally, the study shows that changes in domestic credits precede significant changes in trade and growth in South Africa. As a result, this study suggests that the creation of domestic credits is a significant force behind trade and aggregate income in the region.