Trade, growth and distribution in the South African economy

Abstract

This article examines the impact of changes in the volume and structure of trade on major macroeconomic variables, including growth in GDP, inflation, interest rates and the distribution of income. Five-year projections are made using a nine-sector, dynamic, computable general equilibrium (CGE) model. Two simulations are considered, one in which growth in the mining sector is autonomously increased by 1% and a second in which the nominal exchange rate is devalued by 3%. CGE evidence supports the conclusion that an export-oriented growth strategy which does not promote traditional exports will fail. Collaborative macroeconomic policies are also necessary to ease the balance of payments constraint, but must be combined with more direct intervention in order to avoid significant deterioration in the distribution of income.