The Impact of the BRICS alliance on South Africa economic growth - a VECM approach

This paper examines the impact of the BRICS alliance on South Africa’s economy and the impact that trade openness in the alliance has on South Africa’s economy. The study uses series data from 1980 to 2012 and employs up to date econometric methodologies- unit root and vector error correction model estimates to achieve its aims. The empirical result reveals that international trade has contributed a lot to the high economic growth rates experienced by the BRICS economies during the recent decades. However, it is also found that international trade is not the only contributing factor. Human Capital formation, Gross Domestic Capital Formation and Real Effective Exchange Rate appreciation are equally important contributors. Results of the study however reveal that South Africa’s trade openness in the alliance has detrimental long run effects for the economy. The study also reveals that despite the growth experienced overall in the alliance, South Africa’s economic participation is limited due to unfair trade practices amongst the members of the alliance. The findings provide an insight of the policies to be adopted to achieve higher growth rates in South Africa within BRICS alliance.