Examining the external-factor-led growth hypothesis for the South African economy.

Abstract

Reducing the unemployment rate and achieving a sustainable economic growth underscore the sustainable development goal 8. Our study investigates a new model that specifies the external-factors-led growth hypothesis for the South African economy. The independent variables include trade openness, external debt, FDI and exchange rate against the GDP as the targeted variable. The ARDL approach was adopted after achieving a mixed order of integration from the stationarity test using traditional unit root tests. All external factors were found to exert a positive influence on economic expansion. Trade openness and exchange rate specifically, exert significant influence on economic growth which means that an improvement in these factors will proportionately favour economic expansion. In essence, a 1% improvement in the trade openness and the exchange rate will generate an equivalent of 0.30% and 0.19% increase in GDP in the long-run. On average, trade openness, exchange rate and external loan are beneficial to the economy of South Africa. Thus, a recommendation was made of the need for the authority concern to open more line of bilateral trade to enable the economy to fully tap from the benefits accrued from indulging in economic openness.