Trade openness, economic growth and economic development nexus in South Africa: a pre- and post-BRICS analysis

The study examines how South Africa’s integration into BRICS (joined in 2010) has shaped the relationships between trade openness, economic growth, and economic development. BRICS was formed to promote economic, political, and cultural cooperation among large emerging economies with goals of inclusive and sustainable growth. South Africa sought enhanced South–South relations, increased trade and investment, and a stronger international voice. While prior work largely focused on the openness–growth nexus, few studies considered development outcomes alongside growth, particularly using the Human Development Index (HDI). The paper asks: What is the trade–growth–development nexus in South Africa since joining BRICS? How has openness affected growth and development (HDI) in pre- (1991–2010) and post-BRICS (2011–2021) periods, and do these effects differ? By explicitly incorporating HDI, the study aims to provide a more holistic assessment of whether openness-led growth has translated into broader development and whether BRICS membership altered these dynamics.

The literature review covers theoretical and empirical perspectives on openness–growth–development. Theoretically, comparative advantage and endogenous growth frameworks suggest that trade liberalisation can raise productivity, promote specialisation, facilitate knowledge transfer, and support long-run growth, though potential drawbacks exist if specialisation bypasses R&D-intensive sectors. Empirically, many studies report positive long-run links between openness and growth (e.g., Rani and Kaur, 2018; Tahir and Azid, 2015; Cheung and Ljungqvist, 2021), with nuances around resource abundance, human capital levels, and price volatility. Evidence on openness and development is mixed and often proxies development by financial development rather than HDI; some find positive effects (e.g., Beck, 2002; Fatah et al., 2012), while others find insignificant or negative relationships depending on specification (e.g., Bandura, 2020; 2022). The review highlights a gap: few studies jointly examine trade openness, growth, and development, especially using HDI and distinguishing pre- and post-BRICS periods for South Africa. This study addresses that gap with a comprehensive time-series approach (cointegration, VECM, Granger causality, impulse responses, and variance decomposition).

Analytical framework: The study adopts an augmented endogenous growth framework grounded in comparative advantage and a Cobb–Douglas production setup, incorporating trade openness (total trade, % of GDP) and development (HDI) alongside controls. Two log-linear models are specified with LGDP and LHDI alternately as dependent variables and LTRD (openness), LFDI, LEMP (employment), LEXR (exchange rate), and LGEXP (government expenditure) as regressors. Data: Annual data for South Africa, 1991–2021, are used (guided by availability). Openness is total trade (% GDP) from UNCTAD; GDP per capita (growth/level as LGDP) and HDI from World Development Indicators (WDI). Controls (FDI, exchange rate, employment, government expenditure) are from WDI. For certain post-BRICS procedures, annual series were converted to quarterly to satisfy minimum observation requirements. Pre-BRICS is 1991–2010; post-BRICS is 2011–2021. Econometric procedures: Variables are log-transformed; optimal lag length selected via AIC, SBC, and HQ (lag = 1). Stationarity is tested via Augmented Dickey–Fuller (ADF); all series are I(1). Long-run relationships are assessed using Johansen cointegration (trace and max-eigenvalue tests). Short-run dynamics and error-correction are estimated using a Vector Error Correction Model (VECM). Direction of causality is analysed with Granger causality tests. Dynamic responses and forecast error variance contributions are evaluated via impulse response functions and variance decomposition (orthogonalized Cholesky ordering). Hypotheses: Null—no significant relationships between trade liberalisation and growth/development pre- or post-BRICS; Alternative—significant relationships exist and have evolved after BRICS membership.

- Stationarity and cointegration: ADF tests indicate all variables are I(1). Johansen tests reveal long-run cointegration. Pre-BRICS, at least one cointegrating vector is present; post-BRICS, evidence suggests two cointegrating vectors, indicating more complex long-run relationships after BRICS entry. - Granger causality: Pre-BRICS, trade openness (LTRD) Granger causes economic growth (LGDP) unidirectionally (p≈0.047), with no reverse causality. Post-BRICS, LTRD continues to Granger cause LGDP (F=3.559; p=0.027), and LGDP Granger causes LHDI (p=0.016), again unidirectionally. - VECM estimates: Trade openness has a positive and significant impact on LGDP. In pre-BRICS, a one-unit increase in LTRD is associated with an approximately 0.206 increase in LGDP. Post-BRICS, LTRD remains a positive significant driver of LGDP; LGDP positively affects LHDI. Error-correction terms indicate convergence to long-run equilibrium in both periods (adjustment speeds are small, implying gradual correction). - Impulse responses: Pre-BRICS, a positive HDI shock initially reduces growth and trade openness (suggesting short-run resource reallocation toward social sectors), while growth shocks raise HDI and openness with effects that diminish slowly. Post-BRICS, an HDI shock initially boosts growth in subsequent periods before a correction; growth shocks exhibit volatility and can dampen trade openness in the short run. - Variance decomposition: Pre-BRICS, LGDP variance is mainly driven by exchange rate shocks (~74% by period 10) and its own shocks (~22%); LTRD variance is dominated by its own shocks (~65%) and exchange rate (~27%). Post-BRICS, exchange rate remains the dominant driver of LGDP variance (~76% by period 10), with HDI’s contribution increasing modestly (~9%). For LTRD, FDI explains a large share early on (~64%) but declines over time (~49% by period 10) as exchange rate influence rises (~24%). - Overall: Trade openness significantly supports economic growth, especially post-BRICS, and growth increasingly supports development (HDI) in the post-BRICS era. The openness–growth–development nexus has strengthened and become more intricate after BRICS membership.

The findings directly address the research questions. First, trade openness is shown to be a significant driver of South Africa’s economic growth, with robust long-run cointegration and short-run causality from openness to growth both before and after joining BRICS. Second, the post-BRICS period exhibits an enhanced and more complex interrelationship: growth increasingly contributes to development (HDI), indicating that some openness-led growth has translated into broader welfare gains, albeit with lags and short-run trade-offs. Third, dynamic analyses reflect that investments in human development can have short-run costs for output and trade but are consistent with longer-term gains in growth and development, aligning with endogenous growth and human capital theories. Exchange rate shocks are central to growth and trade fluctuations, underscoring macroeconomic stability’s importance for leveraging openness benefits. The results suggest that BRICS-related integration intensified South Africa’s economic interdependencies, elevating the roles of exchange rate dynamics and human capital in shaping the openness–growth–development nexus.

The study contributes by jointly analysing trade openness, economic growth, and development (using HDI) for South Africa across pre- (1991–2010) and post-BRICS (2011–2021) periods with a comprehensive time-series framework (ADF, Johansen cointegration, VECM, Granger causality, IRFs, variance decomposition). Evidence indicates cointegrated long-run relationships, unidirectional causality from openness to growth in both eras, and post-BRICS causality from growth to HDI. VECM results show openness positively affects growth and, post-BRICS, growth supports development. Policy-wise, reducing trade barriers, managing exchange rate volatility, catalysing high-quality employment, improving the investment climate, and aligning fiscal outlays with productivity-enhancing social investment can strengthen the openness–growth–development pathway. Future research should: (i) examine technology and innovation as channels linking openness to development; (ii) conduct regional/provincial analyses within South Africa; (iii) assess COVID-19’s effects on the nexus; and (iv) explicitly model structural breaks.

- Data constraints required converting annual data to quarterly for certain post-BRICS procedures to satisfy minimum observations, which may introduce frequency-related artefacts. - The ADF unit root approach does not account for potential structural breaks, which could bias integration and cointegration inferences. - Development is proxied by HDI and openness by total trade (% GDP); alternative measures (e.g., multidimensional development indicators, tariff/non-tariff barriers, trade in value-added) were not explored. - Potential endogeneity and omitted-variable issues (e.g., productivity, sectoral composition, institutional quality) may affect causality results despite the multivariate VECM framework.