The Effect of financial sector development on International trade in South Africa

Abstract

Even though improving international trade through financial sector development is one of the preoccupations of countries around the world, the empirical literature on the relationship between finance and trade has not been rigorous in its analysis. The main aim of this study is to explore the effects financial sector development has on international trade in South Africa. The study utilized quarterly data from 2001Q1 to 2018Q4 employing the Johnson cointegration method and Granger causality to analyse the relationship between the variables of interests. Cointegration, the Vector Error Correction Model was also used to capture dynamics of both the short run and the long run effect. The findings show that there is a long-term relationship between the two variables of interest and the causality flows from Financial Development to the international trade. System generalized method of moment’s reveals differential effects of finance on trade. In particular, some variables has a negative impact on trade, whereas others increases trade. These effects are robust to macroeconomic measures as well as to trade measures.Thesis (MCom) (Economics) -- University of Fort Hare, 202