The dynamics and effects of Trade openness and exchange rate on the economic growth of South Africa

Abstract

Trade openness, exchange rates, and economic growth are interconnected factors that play a crucial role in the development of a country. In the case of South Africa, these elements have been instrumental in shaping its economic landscape over the years. This study explores how trade openness and exchange rates have influenced the country's economic growth, highlighting the formal and long-term implications of these dynamics. The study will employ Autoregressive Distributed Lag (ARDL) on time series data extracted from the South African Research Bank ranging from 1990 to 2023. The outcome of the study shows that trade openness and exchange rate are positively related and significant towards economic growth. The study therefore identifies that through embracing trade openness, the country has been able to diversify its economy, attract foreign investments, and improve its competitiveness. Similarly, Exchange rate dynamics, influenced by market forces, have further shaped the cost competitiveness of its exports and imports. Understanding and managing these factors iscrucial for the sustainable economic development of South Africa, fostering long-term growth and improving the welfare of its citizens .