Measuring the economic costs of trade protection in South Africa.

Abstract

This dissertation investigates the economic cost of trade protection on South Africa's economy through a panel analysis from 2010 to 2022, focusing on South Africa’s trade with 127 partner countries. The Gravity model serves as the main estimation framework for the study as it provides a detailed observation of international trade. The Poisson Pseudo Maximum Likelihood (PPML) and Ordinary Least Squares (OLS) estimation approaches serve as the main methods used to measure the effectiveness of the gravity model in the study. Through comparisons between OLS and PPML the study observes the elasticities of the determinants of trade across the OLS and PPML and affirms the need to focus on the PPML which reveals more reliable estimates which are neither underestimated nor overestimated the study confirms that trade protection leads to less trade activity, it will result to a reduction in gains from exports which is important in influencing the economic growth of South Africa. The research includes an in-depth analysis of tariffs, both as a standalone measure and as a variable within the gravity model as the main form of protectionism in international trade. The study highlights the evolving role of tariffs in trade protection and concludes that tariffs may have been overstated as a standalone measure of trade protection in studies of international trade. The study shows that tariffs have a more significant influence on trade in the PPML model as opposed to the OLS and the study shows that the PPML explains a larger degree of the effects on trade flows than the OLS does. The findings in the study suggest that the PPML method should be used for South Africa’s gravity model simulations due to the reliable elasticities that the model returns.