Published : 2021-03-31

A comparative analysis of the impact of merchandise exports versus services exports on economic growth for the SACU region

Section: Articles

Abstract

International trade is one of the critical drivers of the global economy. Many countries have successfully facilitated rapid growth via the export-led growth nexus. Diversification and specialisation are essential components of exports. This paper focuses on diversification and the role of merchandise exports versus service exports on economic growth in a developing region, namely the Southern African Customs Union (SACU). This region has experienced low growth over the last decade and requires different strategies to re-ignite growth. A quantitative methodology was selected to assess the difference in the impact of merchandise exports versus service exports, using Fisher Johansen cointegration panel time series data, FMOLS and DOLS regressions, and Granger causality analysis from 1990 to 2019. Economic growth was used as the dependent variable with merchandise exports, service exports, gross fixed capital formation, and the labour force as independent variables in three different models. The results indicated a cointegrating long-run relationship between all the variables and that merchandise exports had the highest impact on economic growth. Granger causality tests also found that exports cause changes in economic growth and that service exports cause changes in merchandise exports. The study found support for exportled growth as a means by which to re-ignite economic growth in the region;an export-focused development strategy is required in order to facilitate export diversification with a focus on improvingvalue-added merchandise exports and the development of service exports via incentives.

Keywords

economic growth ; merchandise exports ; service exports ; SACU region


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