An Econometric Analysis on the Role of Commodity-Based Industrial Exports on Economic Growth (1970-2022): Evidence from Zambia and South Africa

Abstract

In fostering inclusive and sustainable growth for many developing nations, there is an urgent need to re-engineer the industrial sector towards one that promotes value addition, particularly on export commodities. Zambia and South Africa’s major economic challenges revolve around the persistent economic dependence on copper and gold. Within the context of their broader goals to diversify their economies, Zambia has struggled to reduce its reliance on copper despite various initiatives, while South Africa faces declining gold production and the need to adapt to global sustainability trends and changing resource demands. Using a dynamic Panel ARDL model, the study analyzed the effects of Commodity-based Industrialization on growth using panel data from 1970-2022 for South Africa and Zambia. The results showed that the effect of Commodity-based industrial exports (manufactured exports) on growth was the most significant and positive in the long run. In the short run, however, this variable was negative and significant. Furthermore, the effect of ores, metal and food exports was established to be negative and non-significant in the long run. In the short run, however, these were negative and significant. In the same vein, Foreign direct investment also exhibited a positive and significant effect on economic growth in the long run while its effect being negative was insignificant in the short run. The study concluded that while extractive and low-value exports are the most feasible in the case of most developing countries, to be able to accelerate economic growth through industrial exports, these nations will have to re-engineer their industrial sector towards a more commodity-aligned approach that puts value addition through regional value chains at its pinnacle.