The effects of trade liberation on economic growth in South Africa and Nigeria : a comparative analysis

Abstract

This study provided a comparative analysis of the effects of trade liberalisation on economic growth in South Africa and Nigeria in the period1995 – 2015. In order to achieve the aim, autoregressive distributed lag (ARDL) test was employed to estimate both long run and short run relationships. The results of the ARDL Bounds test showed that for both South Africa and Nigeria there is a long run relationship between economic growth, trade liberalization, foreign direct investment and trade openness. However, in the long run Nigeria’s trade liberalisation had a negative effect on economic growth while South Africa had a positive effect. For foreign direct investment, Nigeria has been found to have a negative and significant effect on economic growth which is contradictory to South Africa which had a positive and insignificant effect. Trade openness showed comparative results for both countries as both showed positive and significant results. It has been found that the speed of adjustment to equilibrium was higher for Nigeria (86%) than South Africa (18%). To test for shocks impulse response functions and variance decomposition were utilised. Impulse response function Variance decomposition showed that the effects of the variables on economic growth differ between the countries over the period. Lastly the diagnostic tests found that there was no heteroscedasticity, no serial correlation and the model is normally distributed. The CUSUM and CUSUM of Squares test showed that the models where stable throughout the observation period. It can be concluded that both South Africa and Nigeria have a long and short run relationship between trade liberalization and economic growth. However, Nigeria converged faster than South Africa to equilibrium. It is recommended that a country like South Africa should learn from a country like Nigeria as they both have natural resources that can be traded to improve their economies. South African policymakers should focus on policies that could promote , foreign direct investment.