Abstract
The study applies an “augmented” gravity model to South Africa’s exports of motor vehicles, parts and accessories to 71 countries over the period 1994 to 2004. A static panel data model is specified and estimated. Several conclusions are drawn from the study. First, a number of variables, namely, importer income, distance, level of import tariffs, government effectiveness, regulatory quality, use of right-hand drive vehicles are important determinants of bilateral trade flows for motor vehicles, parts and accessories. Second, solving the gravity model deterministically, we show that export potential exists in a number of countries like Malawi, Zambia, Kenya and Malaysia. A number of barriers hinder the members of the National Association of Automobile Manufacturers of South Africa (NAAMSA) from exploiting these export markets. These include very high import tariffs, lack of South Africa’s diplomatic mission in the trading partner and the uncertainty regarding what happens at the expiry of the Motor Industry Development Programme (MIDP) in 2012. Finally, the export potential identified by the gravity model should be regarded only as an indication since it is sensitive to the model specification and sample of countries.
Highlights
South Africa’s automotive industry, which includes manufacturing, distributing and servicing of vehicles and components, contributes about 7 per cent to the gross domestic product (GDP)
The export potential identified by the gravity model should be regarded only as an indication since it is sensitive to the model specification and sample of countries
Sample of countries: 71 countries are selected on the basis of importance to South Africa’s automotive exports as well as availability of data for variables described in equations 8 and 9
Summary
South Africa’s automotive industry, which includes manufacturing, distributing and servicing of vehicles and components, contributes about 7 per cent to the gross domestic product (GDP). In 2005, it employed slightly more than 300 000 workers in manufacturing vehicle and automotive components, the tyre industry and distribution and servicing in the motor trade (Table 2). We further employ the gravity model to predict within-sample potential export trade flows for motor vehicles, parts and accessories (SIC 381383) given certain conditions. With regard to South Africa, TradeSim shows that there is untapped trade potential in the United States for motor vehicles and other transport equipment.
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