TRADE AND INVESTMENT-LED GROWTH IN SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC)

Abstract

The growth in the gross domestic product (GDP) has been below zero within the Southern Africa Development Community (SADC) region in recent years. Some member states have consistently experienced negative growth rates for an extended period which has contributed to low growth for the region on average. The lack of consensus on the findings in literature requires further research work to be done to guide policymakers on the potential sources of growth. This study examines the contribution of trade and investment on growth in the context of SADC. It applies the autoregressive distributed lag (ARDL) model to test relationships in both short and long run using annual data for the period 1994 to 2019. Findings confirm the existence of the trade and investment-led growth hypothesis. There is a short run, long run, and joint causality from both explanatory variables to economic growth. Cointegration between growth, trade, and investment is confirmed. Specifically, an increase in investment spurs growth in both the short and long run. Investment expenditure seems to double the growth potential in the long run. Additionally, the study shows that an increase in trade openness retards growth which is consistent with the Prebisch-Singer hypothesis. Results suggest that policies that focus on the development and improvements in fixed investment, locally, help to drive the growth potential. The improvement of capitalization by manufacturing-oriented firms, as opposed to primary product-oriented firms, is ideal.