Trade Openness, FDI and Exchange Rate Effects on Job Creation in South Africa's Tradable Sectors
Keywords:
Employment, foreign direct investment, job creation, non-tradable sector, real exchange rate, tradable sector, and trade openness
Abstract
Employment creation remains the pinnacle standard of sound social welfare and economic progress. It is a fundamental driver of economic development for any economy. However, such a pursuit faces tenacious challenges, especially amidst the growing global market integration. This study unravelled the effects of the underlying trade environment mechanisms such as trade openness, foreign direct investment(FDI) and the exchange rate on South Africa’s job creation efforts within the tradable sectors. The study employed a quantitative analysis and included time series explanatory variables of trade openness, netFDI flows and the real effective exchange rate. Employment series of both South Africa’s mining and manufacturing tradable sectors served as the dependent variables. The study made use of quarterly observations starting from 1995 to 2016. In doing so, various econometric methods were utilised. These included descriptive analyses, the standard Autoregressive Distributed Lag (ARDL) model, and the TodaYamamoto Granger Non-Causality test. Empirical ARDL results of employment in the individual mining sector, established no long-run and short-run relationships with trade openness, the real effective exchange rate and net-FDI. Employment in the manufacturing tradable sector presented significant and negative longrun relationships with trade openness, the real effective exchange rate and net-FDI. Meanwhile, the short-run findings exhibited significant and positive relationships between employment in the manufacturing tradable sector with trade openness, and significantly negative for net-FDI. However short-run results of manufacturing employment and the real effective exchange rate were not significant. Based on these results, South Africa’s mining sector seems unresponsive to mechanisms in the trade environment while these relationships are relatively dynamic in the manufacturing sector. Further recommendations were thus provided to improve these interrelationships in promoting job growth and its responsiveness to trade components.
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References
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Rogan, M., Diga, K. & Valodia, I. (2013). Labour Market Analysis and Business Process Services in South Africa: Poverty Reduction through Information and Digital Employment Initiative. University of KwaZuluNatal. Rose, A. K. (2011). Exchange rate regimes in the modern era: Fixed, floating, and flaky. Journal of Economic Literature, 49(3), 652-672. Sauvant, K. P. (2013). Yearbook on International Investment Law & Policy 2011-2012. Oxford University Press. NY: USA. Schumacher, R. (2012). Adam Smith’s theory of absolute advantage and the use of doxography in the history of economics. Erasmus Journal for Philosophy and Economics, 5(2), 54-80. Segerstrom, P. S. (2013). Trade and economic growth. (In Bernhofen, D. Falvey, R. Greenaway, D & Kreickemeier, U. Palgrave Handbook of International Trade. UK: Palgrave Macmillan. Selimi, N. (2012). Integration and Economic Globalization: Analysis of Selected Western Balkans’ Countries. International Journal of Academic Research in Accounting, Finance and Management Sciences, 2(4), 362-375. Spence, M. & Hlatshwayo, S. (2014). Demand and Defective Growth Patterns: The Role of the Tradable and Non-Tradable Sectors in an Open Economy. The American Economic Review, 104(5):272-277. Squalli, J. & Wilson, K. (2006). A new approach to measuring trade openness. Economic & Policy Research Unit. (Working Paper no 06-07).4 Strat, V. A., Davidescu, A. & Paul, A. M. (2015). FDI and Unemployment-A Causality Analysis for the Latest EU Members. Procedia Economics and Finance, 23, 635-643. Takaendesa, P. (2006). The Behaviour and Fundamental Determinants of the Real Exchange Rate in South Africa (Master Dissertation, Rhodes University. Eastern Cape Province). Taylor, J. E. (2001). Microeconomics of globalization: evidence from Mexico, China, El Salvador, and the Galapagos Islands. Report to the Latin America and Caribbean Regional Office. Washington, DC: World Bank. Toda, H. Y. & Yamamoto, T. (1995). Statistical inference in vector auto regressions with possibly integrated processes. Journal of Econometrics, 66(1), 225-250. Ulasan, B. (2012). Openness to international trade and economic growth: a cross-country empirical investigation. Central Bank of the Republic of Turkey. (Discussion Paper no. 25). Venter, J. C. (2009). Business cycles in South Africa during the period 1999 to 2007. South African Reserve Bank: Quarterly Bulletin. https://www.resbank.co.za/Lists/News%20and%20Publicat ions/Attachments/4050/Article%20%20Business%20cycles%20in%20South%20Africa%20during %20the%20period%201999%20to%202007.pdf. Date of access: 04 October 2017. Wacziarg, R. & Wallack, J. S. (2004). Trade liberalization and intersectoral labor movements. Journal of International Economics, 64(2), 411-439. Wei, Y. (2013). The effect of FDI on employment in China. Iowa State University. Graduate Theses and Dissertations. (Working paper 13379). Yanikkaya, H. (2003). Trade openness and economic growth: a cross-country empirical investigation. Journal of Development Economics, 72(1), 57-89. Zanini, F. C., Irwin, S. H., Schnitkey, G. D. & Sherrick, B. J. (2000). Estimating farm-level yield distributions for corn and soybeans in Illinois. http://ageconsearch.umn.edu.pdf. Date of access: 02 October 2017.
Published
2018-09-14
How to Cite
CHIPETA, C., & MEYER, D. F. (2018). Trade Openness, FDI and Exchange Rate Effects on Job Creation in South Africa’s Tradable Sectors. Journal of Economics and Behavioral Studies, 10(4(J), 197-212. https://doi.org/10.22610/jebs.v10i4(J).2421
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Research Paper
Copyright (c) 2018 Chama CHIPETA, Daniel Francois MEYER
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