THE IMPACT OF APARTHEID AND INTERNATIONAL SANCTIONS ON SOUTH AFRICA'S IMPORT DEMAND FUNCTION: AN EMPIRICAL ANALYSIS

In this paper we ascertain South Africa’s aggregate import demand function over the period 1950 to 2008 utilizing the bounds testing approach to cointegration, and the unrestricted error-correction model. Our study empirically investigates the impact of apartheid (1950-1994), in particular the period of international sanctions (1981-1994) against the apartheid government, on South Africa’s imports. Further, we utilize the autoregressive distributed lag model to estimate short-run and long-run import elasticities. Our results reveal that imports depend positively on the levels of domestic economic activity and foreign exchange reserves but negatively on relative prices. In addition, apartheid has had a significant short-run negative impact on import demand, but is insignificant in the long-run. Furthermore, international sanctions affected import demand positively in the short-run, but negatively in the long-run We argue that appropriate public policy is necessary to reduce the economy’s reliance on imports of capital and intermediate goods, especially oil, while simultaneously diversifying its exports base. Strengthening trade relations with other developing countries will give it an exchange rate advantage, improve its balance of payments, create macroeconomic stability, growth, and with that, alleviate unemployment and poverty in South Africa.