South Africa’s Import Demand Function with China: A Cointegration Approach
The International Journal of Business and Finance Research, v. 9 (3) p. 33-44, 2015
12 Pages Posted: 8 Feb 2016
Date Written: 2015
During the past decade China has emerged as South Africa’s largest trade partner. In an effort to understand this important and remarkable trend, we estimate South Africa’s import demand function with China over the period 1993-2012. Specifying an error-correction model, we use the bounds testing approach of Pesaran, Shin and Smith (2001) and find evidence of long-run cointegration among the variables. Our long-run elasticity estimates suggest that income is the most important factor in the determination of South Africa’s imports from China. Interestingly, the effect of the real relative price is positive, but this counterintuitive result is consistent with evidence from other middle-income countries. These combined factors imply that the South African trade deficit with China will continue to widen despite a real depreciation of the rand.
Keywords: South Africa, China, Bilateral Trade, Elasticities, Cointegration
JEL Classification: F10, F14
Suggested Citation: Suggested Citation