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The impact of economic shocks in the rest of the world on South Africa: Evidence from a global VAR

  • Annari de Waal

    ()

    (Department of Economics, University of Pretoria)

  • Renee van Eyden

    ()

    (Department of Economics, University of Pretoria)

The significant change in South Africa’s trade patterns over the past two decades should affect the impact of shocks in the rest of the world on the country, since South Africa is a small open economy. We investigate the effect with the use of a global vector autoregression (GVAR) model from 1979Q2 to 2009Q4. To account for changes in international trade linkages, we assemble the country-specific foreign variables with time-varying trade-weighted data. We show that the long-term impact of a shock to Chinese GDP on South African GDP is 330% stronger in 2009 than in 1995, due to the substantial increase in South Africa’s trade with China since the mid-1990s. By 2005, a United States (US) GDP shock only has a quarter of the long-term impact on South African GDP compared to 1995, as trade with the US declined noticeably. By 2009, the impact of a US GDP shock on South African GDP is insignificant. The results indicate why the recent global crisis did not affect South Africa as much as it affected developed economies. It also stresses the increased risk, to the South African economy and economies in the rest of the world, should China experience slower GDP growth.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201328.

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Length: 26 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:pre:wpaper:201328
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  1. Cesa-Bianchi, A. & Pesaran, M. H. & Rebucci, A. & Xu, T., 2011. "China’s Emergence in the World Economy and Business Cycles in Latin America," Cambridge Working Papers in Economics 1150, Faculty of Economics, University of Cambridge.
  2. Filippo di Mauro & L. Vanessa Smith & Stephane Dees & M. Hashem Pesaran, 2007. "Exploring the international linkages of the euro area: a global VAR analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 1-38.
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