Abstract
This study investigates the trade effects of the EU-SA and SADC preferential trade agreements of which South Africa is a member. Using a panel data estimation of the gravity model of bilateral trade and based on data from 1994 to 2008, the study finds the EU-SA preferential trade agreement to have a significant trade expansion effect. The study further reveals that an informative conclusion on trade effects of the SADC preferential trade agreement can only be reached once the agreement has been fully operational. The study also recommends that trade policy in South Africa should increasingly be geared towards broad-based multilateral liberalisation. In addition, South Africa should promote regional economic stability and development through supporting regional trade agreements initiatives. Keywords: Trade creation, trade diversion, preferential trade agreement, panel data estimation, gravity model of bilateral trade
Highlights
Preferential Trade Agreements (PTAs) have increased in number during the last decade in both developing and developed countries (Musila, 2005:117)
This study investigated trade effects of the two most significant preferential trade agreements to which South Africa is a signatory following evidence of reduced trade between South Africa and some of its major trading partners in the European UnionSouth Africa (EU-SA) preferential trade agreement and increased trade between South Africa and countries in the rest of the world such as China and Japan
Using a country-specific fixed effects panel data estimation of the gravity model of bilateral trade, the study reported that the Southern African Development Community (SADC) preferential trade agreement has had a trade contraction effect
Summary
Preferential Trade Agreements (PTAs) have increased in number during the last decade in both developing and developed countries (Musila, 2005:117). South Africa is currently a signatory to two significant Preferential Trade Agreements (PTAs): the European UnionSouth Africa (EU-SA) agreement signed in 1999 and the Southern African Development Community (SADC) agreement ratified in 2000. Some other studies such as Rangasamy and Blignaut (2005) and Cassim, Onyango and Van Seventer (2004) have investigated the openness and competitiveness of the South African economy. Few studies (Kwentua, 2006 and Holden & McMillan, 2006) have investigated the impacts of the EUSA and SADC preferential trade agreements to which South Africa is a prominent signatory
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