Exploring the Influence of Commodity Prices, Real Exchange Rate and Trade Openness on Economic Performance in an Emerging Country

Abstract

Do commodity prices, real exchange rate and trade openness influence economic growth in South Africa? This question is fundamental to academic research since it forms the basis of macroeconomic policies. Therefore, the comprehension of such a relationship is vital which has ushered this study into investigating the effect of real exchange rate, commodity prices and trade openness on economic growth in South Africa from 1984-2019. The purpose of this study is to contribute to the diverse literature on macroeconomics and international trade in the continent and the rest of the world. To achieve this, the Johansen cointegration method and Vector Error Correction Model were employed. The Johansen cointegration method confirmed the existence of a long-run relationship among the variables. Commodity prices and trade openness positively influenced economic growth while real exchange rate inversely influenced economic growth. The Vector Error Correction Model also confirmed that the disequilibrium in the model can be corrected in 1 year 9 months. The study`s findings suggest a methodical monetary policy synthesis that controls both the commodity price stability and exchange rate that spurs economic growth.

International Commodity Price and Economy Growth: Panel Data Analysis in Sub- Saharan Africa

“…Called immiserizing growth, this is a long-term phenomenon that occurs when the gain in a country's social welfare arising from economic growth is more than offset by the loss in such welfare associated with an adverse shift in the terms of trade (Bhagwati, 1958). Additionally, in South Africa, Ntshwe and Garidzirai (2021) revealed that commodity prices and trade openness increase economic growth when all other things are held constant by employing the Johansen co-integration method and Vector Error Correction Model (VECM) to data from 1984 to 2019.…”