How does globalisation contribute to South Africa economy?
Answers
Explanation:
Globalisation presents both opportunities and challenges for developing countries, especially the southern African region. It also demands that the region becomes competitive in attracting investment, applying new technology, and producing goods and services that can compete efficiently on the global market.Economic globalization is defined as the co-movement of prices across a large number of countries (O'Rourke and Williamson, 2002). This research note identifies the period when South African prices began to move in unison with those of the country's lead trading partner or, in other words, when South Africa globalized.The aim of this paper is to investigate whether the process of globalisation, through trade and financial liberalization, benefits economic growth in emerging market economies in general and in South Africa in particular. The analysis of trade openness and liberalization in emerging market economies reveals that trade volume seems to have a relative small impact on GDP per capita and is mainly driven by the performance of East Asian emerging market economies. In contrast, trade liberalisation led to an approximate 50% on GDP per capita over the 11-year period and is mainly driven by Latin American and the mixed group of emerging economies. The financial dimension focused on capital account openness and financial liberalisation. The evidence on capital account openness suggests that it is associated with a 34% increase in real GDP per capita growth over the period. Financial liberalisation seems to have a dramatic impact of approximately 136% over the 11-year period. The results on both the financial liberalisation variables indicate that it is strongly driven by the emerging East Asian region and can be ascribed to the dramatic turnabout in the financial sector policies during the late 1980s and early 1990s. These countries experienced significantly large increases in FDI flows since the early 1990s. Regarding financial liberalisation, the change in policy reforms allowed a more active role for private sector involvement on financial markets for the first time. The impact of globalisation on the South African economy is more complex. South Africa re-entered the international economy from isolation at a time when the forces of globalisation '-especially for developing countries' - seemed to gain momentum. Although the economic growth pattern is lower than acceptable norms in other emerging economies, the forces of globalisation seems to be stronger than expected. Approximately 98% of the current growth performance in the country can be explained by the forces of globalisation. The regression results also indicate that the South African economy is benefiting from the gradual relaxation of exchange controls. The relative small impact of trade volume on economic growth is in line with the conclusions in international literature in this regard. Sceptics like Krugmann and Rodrik (see Edwards, 1998:383) state that the effects of trade openness on growth "is, at best, very tenuous, and at worst, doubtful". The volatility in investment flows also has a relatively weak impact on the GDP. The benefits of the decrease in the nominal average import tariff indicate that, on average, import tariffs are at a competitive level. The variables that have the greater substantive significance in the model are the proxy for trade volume, followed by the financial liberalisation variable, the trade liberalisation variable and, lastly, the negligible capital account openness variable.