Trade openness and industry performance in SADC countries: is the manufacturing sector different?

Abstract

The objective of this study is to examine the effect of trade openness on industry performance in selected SADC countries. Industry output as well as employment levels have declined in these countries since the 90s despite the increase in economic growth. Furthermore, higher levels of trade openness since the 90s are associated with declines in industry output. To test the hypothesis that trade openness has been detrimental to industry openness in the long-term, this study employs the Pooled Mean Group estimator using data from 1990 to 2017. The results show that overall, trade openness has a positive effect on industrial performance. The decline in overall industry output and employment can be attributed to shifts in the structure of SADC economies towards services. However, trade openness is detrimental to the manufacturing sector which has witnessed job losses and lower output levels due to lack competitiveness and a rise in imports. It is recommended that SADC countries maintain high levels of trade openness, however, investments in infrastructure, human capital levels and re-skilling of workers is of utmost importance especially for the manufacturing sector’s competitiveness.