The effect of policy uncertainty on South Africa, SADC, and beyond
The principal contribution of this paper is to investigate the relationship between policy uncertainty, caused by recent developments in international markets, and firms’ trade margins for the largest economy in Africa: South Africa. In particular, using a unique database on the population of traders, we investigate the exogenous result of the Brexit referendum and assess its impact on South African exporters’ and importers’ participation in the global market.
Furthermore, we provide evidence of how this shock has had heterogeneous effects across different firm sizes, as well as across different product-specific tariffs, preferential trade agreements, and gravity model variables. We provide evidence of how the potential increase in trade barriers—through an increase in tariffs—has had a negative impact on the trade activity from uncertain markets, especially for small firms.