Aggregation bias, trade liberalisation and the J-curve in South Africa : exploring the bilateral real exchange rate - trade balance relationship
Master Thesis
2007
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University of Cape Town
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Abstract
This paper investigates the short and long-run effects of openness on South Africa's non-gold merchandise trade balance at the bilateral and aggregate level. Openness is measured using bilateral real exchange rates and a measure of tariff protection, namely collection rates. Bilateral trade balance relationships are estimated for seven countries (France, Germany, Italy, Japan, the Netherlands. the UK and the USA) to test for heterogeneous responses in the relationship. The robustness of the results are assessed USl11g the Autoregressive Distributed Lag (ARDL) Approach to co-integration. We find strong evidence of aggregation bias. In all cases a real exchange rate depreciation improves the bilateral (and aggregate) trade balance, but the strength of the relationship differs across regions. We find evidence of J-curve behaviour in the cases of South African bilateral trade with the UK and the USA. Similar behaviour is not found using aggregate level data. Protection is shown to improve the trade balance in some cases, but not others.
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Includes bibliographical references (leaves 44-46).
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Trappler, D. 2007. Aggregation bias, trade liberalisation and the J-curve in South Africa : exploring the bilateral real exchange rate - trade balance relationship. University of Cape Town.