Do Remittances Influence Trade in South Africa?

The South African economy is characterized by hardships such as high levels of income inequality, poverty, slow growth rate, and high currency volatility for trade, to name a few. External financial flows such as remittances have been documented to play a role in the development process of host countries, as they represent a major financial vehicle for poverty alleviation, particularly in the low- and middle-income economies. It is on that note that this paper seeks to find out if remittances can influence trade in the South African economy. An econometric methodology that includes an autoregressive distribution lag (ARDL) and Granger causality techniques were employed to test for this relationship. The ARDL bounds test confirmed the existence of a long-run cointegration between the set of variables. Evidence from the results show that in the long run, migrant remittances are positively related to trade and significant at 1% level of significance. The short-run results show that remittances are negatively related to trade in South Africa and statistically significant at less than a 5% level of significance. The Granger causality test confirmed a one-way causality link between remittances and trade. This implies that encouraging remittances promote trade which can assist in correcting the ills of the economy and ultimately boosting the economy. This study recommends that the South African government should engender more openness, enact laws to promote remittances, lower costs of remitting money, and create remittance policies for everyone (domestic and foreign) to live together.