Political risk, export credit insurance and trade: a gravity model analysis of South Africa.
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Date
2020
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Abstract
This study adds to the literature on political risk, export credit insurance, and trade.
Specifically, the study aims to consider the effect political risk and export credit
insurance may have on South African exports using an extended gravity model
framework and regression analysis from 1996 - 2018. Gravity models and estimation
techniques differ in the literature. Methods include the Fixed Effects (FE), Random
Effects (RE), and more recently, using the Poisson-Pseudo Maximum Likelihood
(PPML). The PPML is the preferred estimation technique of this study as it reduces
the bias problems resulting from zero trade flows and potential heteroscedasticity
(Santos Silva and Tenreyro, 2006). In addition, this is further justified as Santos Silva
and Tenreyro (2011) and Martin and Pham (2020) argue that the PPML estimation
technique is also more appropriate than the traditional FE and RE estimation
techniques. Thus, considering these limitations, using the preferred PPML estimation
technique, this study finds that political risk significantly undermines trade. However,
the export credit insurance variable is insignificant and does not play an influential
role in South Africa’s bilateral trade. Additionally, other attributes, including the role
of market power as measured by Gross Domestic Product (GDP), distance, and the
regional groupings of African states through SADC, have important bearings. An
important implication is that African countries' inability to harness the gains from
trade might be rooted in factors beyond trade finance constraints and more related to
political risks and geographical constraints.
Description
Masters Degree. University of KwaZulu-Natal, Pietermaritzburg.