The asymmetric effect of trade openness on economic growth in South Africa: a nonlinear ARDL approach

• Published in: Economic change and restructuring Vol. 54; no. 2; pp. 491 - 540
• Main Authors: Udeagha, Maxwell Chukwudi, Ngepah, Nicholas
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-05-2021; Springer Nature B.V
• Subjects: Asymmetry; Development Economics; Economic Growth; Economic Policy; Economics; Economics and Finance; International Economics; Macroeconomics/Monetary Economics//Financial Economics; Openness; Political Economy/Economic Systems; Trade; South Africa; International trade; F60; F41; F43; Economic growth; Asymmetry cointegration; F14; Symmetric ARDL; South Africa; F13; Trade openness; Nonlinear ARDL
• ISSN: 1573-9414; 1574-0277
• DOI: 10.1007/s10644-020-09285-6

The untested hypothesis of a linear association between trade openness and economic growth in earlier studies may bring about incorrect inferences if indeed the association is nonlinear. This study uses the newly developed nonlinear autoregressive distributed lags (NARDL) framework to re-examine the link between trade openness and economic growth in South Africa over the period 1960–2016, highlighting the asymmetric effects of trade openness using an innovative proxy of trade openness proposed by Squalli and Wilson (World Econ 34(10):1745–1770, 2011). In contrast to previous studies, the new proxy is constructed to take into consideration both South Africa’s trade share of its GDP and its relative size of trade in relation to world trade in a specified period. Adopting this novel approach to capture openness permits the simultaneous testing of short- and long-run nonlinearities through positive and negative partial sum decompositions of trade openness. It also enables us to quantify the short- and long-run impacts of trade openness increases and decreases on economic growth from asymmetric dynamic multipliers. The results show that trade openness has short- and long-run asymmetric effects on economic growth. These results have important policy implications.