South African Exporters and the Global Crisis: Intensive Margin Shock, Extensive Margin Hangover

• Published date: 01 June 2016
• Author: Neil Rankin,Tasha Naughtin,Thomas Farole,Marianne Matthee
• Date: 01 June 2016
• DOI: http://doi.org/10.1111/saje.12094

SOUTH AFRICAN EXPORTERS AND THE GLOBAL CRISIS:

INTENSIVE MARGIN SHOCK, EXTENSIVE

MARGIN HANGOVER

MARIANNE MATTHEE

†,

THOMAS FAROLE

‡,

TASHA NAUGHTIN

§

AND NEIL RANKIN

*

Abstract

This paper examines how changes at the intensive (established exporters exporting existing

products to established markets) and the extensive (new exporters, products or markets) margins

contribute to South African export growth and how this was affected by the global financial

crisis. We find that the intensive margin is the more important contributor to export growth,

contributing more than three quarters of observed growth. The intensive margin contracted

significantly during the global financial crisis of 2009 but bounced back to pre-crisis levels quickly.

However, the impacts on the extensive margin persisted after the crisis with lower levels of entry

of firms, new products and new destinations. The short-term impact of the crisis was mitigated by

the concentration of South African exports among larger, more productive super-exporters.

However,the fall in entr y of new firms, products and destinations as a resultof the crisis may mean

that this concentration persists, and, at least over the next few years, South Africa does not diversify

and broaden its exports.

JEL Classification: F10, F14

Keywords: Exports, firm-level, intensive margin, extensive margin, global financial crisis

1. INTRODUCTION

South Africa is a relatively open economy and vulnerable to global events. Since

re-entering the global economy after the democratic elections of 1994, it has been

buffered by a number of external shocks. In 1998 and 2001, it experienced currency crises

(Bhundia and Ricci, 2006) and most recently has, like many other countries, been

affected by the global financial crisis. The South African economy began to be affected by

the crisis in 2008 as portfolio capital flowed out (Kavli et al., 2013). By 2009, exports had

fallen dramatically, unemployment was rising and the economy, for the first time in 17

years, entered a recession.

* Corresponding author: Associate Professor, Department of Economics, Stellenbosch

University, Stellenbosch Central, Stellenbosch, Western Cape 7602, South Africa.

E-mail: neilrankin@sun.ac.za

†School of Economics, North-West University, Potchefstroom, South Africa.

‡The World Bank, Washington, DC, USA.

§Department of Economics, Stellenbosch University, Stellenbosch, South Africa.

This work is based on the research supported in part by the National Research Foundation of

South Africa (Grant Number 90709). Any opinion, finding and conclusion or recommendation

expressed in this material is that of the authors and the NRF does not accept any liability in this

regard.

South African Journal of Economics Vol. ••:•• •• 2015

© 2015 Economic Society of South Africa. doi: 10.1111/saje.12094

1

V

C2015 Economic Society of South Africa. doi: 10.1111/saje.12094

183

South African Journal of Economics Vol. 84:2 June 2016

South African Journal

of Economics

South Africa is particularly vulnerable to external crises since it has run a current account

deficit, funded by capital inflows, for a relatively long period. Furthermore, comparedwith

similar natural resource exporters, South Africa’s export performance has been poor since

it began trade liberalisation in 1994 (Hausmann and Klinger, 2006). The World Bank

(2014b) estimates an average annual growth rate in exports of only 0.6% during 2005 and

2011, which is considerably less than the middle-income country average of 6.4% and

suggests that exports have stagnated. More specifically, the small pool of super-exporters

which contribute the bulk of exports is stagnating, large numbers of smaller firms only

export on an occasional basis (World Bank, 2014b), and the majority of exporters export

less than 20% of their output (Edwards et al., 2008). It also seems as if South Africa is not

diversifying in terms of the products exported and markets exported to. The majority of

South African export growth is due to growth in the intensive margin – the exporting of

existing products to existing markets (World Bank, 2014b), despite government’s

industrial policy framework which attempts to encourage export diversification by

“improving our non-traditional export performance – particularly in more sophisticated,

value added products...”(department of Trade and Industry (DTI), 2007:23).

If the government is to design policies to increase the growth of exports in line with the

National Development Plan’s (NDP) vision, it needs to know more about the behaviour

of exports, and exporters, at a micro-level and how external crises such as the global

financial crisis affect these. The aim of this paper is to provide insight into South Africa’s

trade margins, in order to contribute to the limited literature on this matter in South

Africa, and to specifically examine how the global financial crisis affected these margins.

This paper uses two unique data sources to examine how the intensive margin (the

export of existing products to existing markets by existing exporters) and the extensive

margin (entry and exit of new exporters, products or markets) contribute to South

African exports. The first source of data is customs transaction data at the firm-product-

destination level provided by the South African Revenue Service. The second is data from

Statistics South Africa’s the Large Sample Survey (LSS) of manufacturing. Together, these

datasets provide a more nuanced view of South African export behaviour at a micro-level

than previously undertaken. The paper focuses on three periods: the pre-crisis period

(2002-2008), the crisis period (2009) and the post-crisis period (2010-2012) to

determine how South Africa’s export growth composition changed as a result of the global

financial crisis. The paper is similar to Bricongne et al. (2012) who investigate French

exporters’ response to the global financial crisis. They find that the crisis affected the

intensive margin for large firms and reduced their portfolio of products exported. Smaller

firms reduced the number of destinations served or exited exporting altogether.

The paper has three key findings. First, over the past 15 years, South Africa’s exports

are driven by the intensive margin, and the global financial crisis negatively affected

export growth through this margin – more than three quarters of the contraction in

exports happened at the intensive margin. However, post-crisis the intensive margin

rapidly expanded again and returned to similar growth rates as before 2009. Second, the

longer lasting effects of the crisis have occurred at the extensive margin. Entry (or

diversification) of firms, countries and products has not recovered to the pre-crisis levels.

This has differed across export destination, e.g. prior to the crisis, much of the export

growth in African markets stemmed from the extensive margin but since the crisis,

most export growth in Africa has been at the intensive margin. Third, the crisis had

different effects across exporters of different size. South African exporting is highly

South African Journal of Economics Vol. ••:•• •• 20152

© 2015 Economic Society of South Africa.

184 South African Journal of Economics Vol. 84:2 June 2016

V

C2015 Economic Society of South Africa.