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Impact of Trade Openness and Exchange Rate Volatility on South Africa’s Industrial Growth: Assessment Using ARDL and SVAR Models

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  • Tafirenyika Sunde

    (Department of Economics Accounting and Finance, Faculty of Commerce Human Sciences and Education, Namibia University of Science and Technology (NUST), Windhoek P.O. Box 13388, Namibia
    Tarde and Development Department, Faculty of Economic and Management Sciences, North West University, Potchefstroom 2531, South Africa)

Abstract

This paper explores the impact of trade openness and exchange rate volatility on South Africa’s industrial growth from 1980 to 2024 through a hybrid econometric framework combining Autoregressive Distributed Lag (ARDL) and Structural Vector Autoregression (SVAR) models. It captures both long-term relationships and short-term economic patterns; the analysis reveals that gross domestic product (GDP) is the most significant and consistent driver of industrial value added (IVAD), while trade openness and currency volatility exert limited standalone effects. Structural shocks, notably the 2008 global financial crisis and the COVID-19 pandemic, had significant negative short-term impacts on industrial performance, highlighting systemic vulnerabilities. Robustness tests, including rolling window ARDL and first-difference GDP estimation, confirm the persistence of these relationships. Impulse response functions and forecast error variance decomposition underscore the transient and moderate influence of external shocks compared with the dominant role of internal macroeconomic fundamentals. These findings indicate that liberalisation and exchange rate flexibility must be embedded within a broader developmental strategy underpinned by institutional strength, resilience building, and sustainability principles. This study provides fresh insights supporting policy frameworks that prioritise domestic industrial capacity, macroeconomic stability, and alignment with Sustainable Development Goal 9—inclusive and sustainable industrialisation.

Suggested Citation

  • Tafirenyika Sunde, 2025. "Impact of Trade Openness and Exchange Rate Volatility on South Africa’s Industrial Growth: Assessment Using ARDL and SVAR Models," Sustainability, MDPI, vol. 17(11), pages 1-18, May.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:4933-:d:1665895
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    References listed on IDEAS

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