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Lecture 4b summary
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Summary of 8 pages for the course EKN 320 at UP (Lecture 4b summary)
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Lecture 4(b)Balance of payments
Foreign Trade Statistics:
SA’s biggest trade partners (2019):
- Exports:
o China (10.5%)
o Germany (9.8%)
o United States (7.5%)
o India (4.9%)
o Netherlands (4.6%)
- Imports:
o China (17.9%)
o Germany (9.9%)
o United States (7.3%)
o India (5.4%)
o Saudi Arabia (5.3%)
Main composition of SA foreign trade:
- Imports
o Capital and intermediate goods
- Exports
o Mainly primary goods (mining and agricultural)
- Benefits of beneficiation before exporting goods:
o Creates jobs
o Increases export revenue
NOTE! SA has a high cost of labour compared to countries in the East (China, India etc)
→ issue for SA that feeds into export prices
In order to remain competitive → must have competitively priced labour and sufficient
raw materials issue for SA that feeds into export prices
Measure of openness:
- Openness → an open economy = signals rest of world → attract more lucrative
trade deals into the country
- Also can show that a country is vulnerable to international shocks
o Trade figures impacted → negative effect of a shock if your country
doesn’t have the domestic purchasing power to absorb excess production
not being exported anymore
- Calculation methods:
o (𝑋 + 𝑍)/𝐺𝐷𝑃
o 𝐴𝑉𝐸 [(𝑋/𝐺𝐷𝑃), (𝑍/𝐺𝐷𝐸)]
▪ This is the purer method
▪ Average of X/GDP → X is included in GDP but excluded in GDE →
RHS NIPA account 1
▪ Average of Z/GDP → Z is included in GDE, but excluded from GDP →
RHS NIPA account 1
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, ▪ According to the above method, SA’s openness is “average”
• However → marginal import ratio (imports/output) may be
relatively high → indicating a vulnerability to developments in
the international sphere
- See the openness of economies calculated according second method.
- Interpretation:
o Higher value = more open the economy is to trade
o Lower value = less open the economy is to trade
- Open Market Index (OMI) 2018 – initiative of International Chamber of Commerce
(ICC)
o Started in 2012
o Measures relative openness of major markets
o Index created for 75 countries
o Comprises > 90% of international trade
o The Open Market Index (OMI) measures:
▪ Observed openness to trade
▪ Trade policy
▪ Foreign direct investment (FDI) openness
▪ Infrastructure for trade
o OMI scores:
▪ SA is in the average openess category
Notes can only be purchased through the following details:
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