An analysis of the impact of the motor industry development programme (MIDP) on the development of the South African motor vehicle industry.

Thesis (M.Com.)-University of Durban-Westville, 2001.The study aims to research the performance of past and present motor industry policy in South Africa - with special reference to Phase VI of the local content programme and the Motor Industry Development programme (MIDP) - in the light of the domestic macroeconomic environment and global developments in the world automotive industry. The overall objective of this dissertation is to contribute to the debate on motor industry policy which concerns what future policy would be appropriate for the development of a viable and competitive motor vehicle industry. Thus this study is primarily policy-oriented, and the empirical analysis produced deals with important developments in the local motor and component industries and attempts to examine key variables to establish the likely impact of industry-specific policy changes - both past and future. The method of investigation involves the study of relevant theoretical literature regarding domestic automotive policy, and considers policies of low-volume automobile producing economies, especially Australia, Philippines, India and Malaysia. Also, empirical data of various sub-sectors of manufacturing in South Africa were examined and compared to the motor vehicle sector in order to determine the extent to which the macroeconomic state of the domestic economy as distinct from automotive policy might explain the performance of the South African motor industry. The dissertation presents a review of the local content programme of motor industry policy in South Africa since the early 1960s. It examines the claim that import-substituting policy in the motor industry actually had a negative impact on the country's balance of payments. The study finds questionable whether local content policy contributed significantly to the large net foreign exchange usage by the motor industry in real terms. There is evidence that increases in the nominal industry trade deficit can largely be explained by the weakening of the Rand, especially during the mid-1980s. Also, empirical data was used to make an examination of the performance of automotive exports under Phase VI and the MIDP in the context of economy-wide trade liberalization. It was found that exports of automotive products grew significantly under both Phase VI and the MIDP in real Rand terms. Thus, it seems probable that industry-specific policy played a major role in the strong export performance of the sector since the late 1980s through to the 1990s. The study then reviews the revised version of the impact of the MIDP and considers the future of the industry. The state of the domestic macroeconomic environment and globalization of the international automobile industry, including the influence of Transnational Corporations' (TNCs') strategies, will undoubtedly determine the future direction of South Africa's automotive sector. In the short to medium term, we might expect an increase in imported vehicles and some rationalization of the industry. Over the longer term, the possibility of fewer OEMs and component suppliers, and automotive exports are likely to rise as trade and the inflow of foreign investment accelerates due to foreign collaboration and global competition. A simple theoretical model applicable to the South African automotive industry attempts to show the welfare implications of a protective automotive regime (similar to Phase VI) and compares it with that of a more liberal (tariffs-only) automotive regime that may be considered as a likely policy-option for South Africa post-MIDP. The theoretical analysis indicates that the tariffs-only policy is superior to that of a more protective regime in that static efficiency losses are lower. However, the dynamic effects of such policy changes and of possible TNC responses to them, which are referred to in the previous paragraph, are not included in this simple model

Economic analysis of intra-industry trade : the case of South Africa’s automotive industry

Over recent years, international trade flows of automotive products have experienced rising trends. Thus, the need to gain a better understanding of trade theories that could explain such trade flows. Until recently, the theoretical and empirical distinction of intra-industry trade (IIT) into patterns of horizontally differentiated (by variety) intra-industry trade (HIIT) and vertically differentiated (by quality) intra-industry trade (VIIT) has become crucial because each IIT pattern may potentially be influenced in different manners by country and industry factors (Greenaway, Hine&Milner, 1995). The objective of this thesis is twofold. Firstly, to measure the empirical significance of IIT in the automobile industry between South Africa and its bilateral trading partners and to decompose total IIT (TIIT) into VIIT and HIIT patterns. Secondly, to develop empirical models to investigate potential country- and industry-specific determinants of IIT patterns in the South African automobile industry. The empirical strategy adopted in this thesis is a gravity model spanning the period 2000 to 2007. The automobile industry is a principal industrial sector in the South African economy contributing notably to trade, investment, employment and national output. The structure and conduct of the industry is aligned with several elements of IIT theories and thus represents an important and fascinating case of IIT patterns to investigate. Therefore, the findings of this thesis will be valuable to trade policy analysts and manufacturers in the local and global automotive industries. According to the objectives, the significance of IIT is estimated using the trade overlap index and the empirical separation of total intra-industry trade (TIIT) into VIIT and HIIT is conducted using the threshold method. The empirical results reveal the presence of significant levels of IIT in automotive trade flows between South Africa and its bilateral trading partners. In accordance with theoretical expectations, the empirical investigation signifies the existence of high shares of VIIT dominating TIIT in the South African automobile industry. Moreover, the empirical analysis postulates that, within VIIT, the domestic automobile industry potentially produces and exports high quality automotive products proposing that such VIIT can be partly explained by fragmentation and international production processes. Next, gravity models are estimated to investigate the determinants of IIT patterns in the automobile industry. The econometric results of the gravity models of VIIT, HIIT and TIIT are statistically and economically significant in the context of the fixed effects method of estimation and in accordance with new trade theories. The empirical results reveal that relative difference in economic size, trade openness, foreign direct investment (FDI) and tariffs stimulates VIIT, whilst distance, economies of scale and automotive assistance negatively affect it. Conversely, relative difference in economic size, FDI and automotive assistance negatively affects HIIT, whereas trade openness and depreciation of the exchange rate positively influences it. Thus, the findings of the thesis assert that IIT patterns of VIIT and HIIT in the automobile industry are influenced differently by country and industry determinants, revealing that the theoretical and empirical distinction of TIIT is important. The thesis proposes advancing trade liberalisation and deregulation of the South African automobile industry that could attract greater efficiency-seeking FDI complementary to trade and as a consequence enhance IIT levels.Thesis (PhD)--University of Pretoria, 2011.Economicsunrestricte