Abstract

The aim of this study was to measure the impact of liberalisation on the South African agricultural economy, particularly the impact on trade flow of the exchange rate, trade liberalisation and distance of trading partners using the gravity model. The model found that all variables were significant at one percent and carried the expected sign. Only the EU dummy variable had an inverse relationship, implying that the EU trade agreement has a negative impact on the export capacity of the South African farmers. This result has important policy implications for the South African agricultural sector in selecting and strengthens the regional block agreement. Given the importance of distance to markets, South Africa should emphasise efforts to reduce transaction costs. It is also important to protect and advocate productivity growth within the era of globalisation challenges Secondly, from an export promotion standpoint, distance in the model result showed that per capita income in importing countries is elastic and significant when it comes to determining exports. Therefore, it is important for South Africa to revise all the existing trade links and extend further to countries or regions with a high per capita income in order to realise export potential.

Key words: Trade liberalisation, distance of trading partners, gravity model.