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References

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1

The authors are division chiefs respectively in the Western Hemisphere and African Departments. This paper has benefited from the comments of a number of Fund colleagues, including, David Coe, José Fajgenbaum, Dalia Hakura, Gunnar Jonsson, Michael Nowak, and participants at the African Department Research Seminar. We are also grateful to the participants at seminars held in the University of Stellenbosch and in the South African Reserve Bank and Ministry of Finance for helpful contributions.

2

See Jonsson and Subramanian (2001). The removal of these trade distortions contributed significantly to the growth of economic efficiency.

3

All the analysis in this study is based on a detailed input-output table with 45 sectors (defined at ISIC 3-digit level) and five primary factors of production (capital plus four types of labor-highly skilled, skilled, unskilled and informal sector workers) provided by Quantec (formerly WEFA), South Africa. The study focuses on the 32 nonservice, or commodity sectors, of which 28 are manufacturing and four are natural resources. For the purposes of this study, the four labor categories were aggregated into two: skilled labor and unskilled labor. Bilateral trade data were available for 12 groups of partner countries, which were combined into three categories: the high-income countries, made up of the EU (including the rest of western Europe), North America (including Mexico) and East Asia and Pacific; the low-income countries, made up of sub-Saharan Africa and South Asia; and the middle-income countries, comprising South Africa’s remaining trading partners.

4

See the footnote to Table 3 for a definition of the commodity groups. In 1997, trade in natural resources constituted 33 percent of total trade, while trade in basic manufactured goods and sophisticated manufactured goods constituted 38 percent and 29 percent, respectively.

5

In the case of natural resource trade with the middle-income countries, South Africa’s surplus is relatively small because of offsetting petroleum imports.

6

The significant reduction in the magnitudes of ratios since 1989 may simply reflect a large increase in the value of total trade with the low-income countries.

7

For example, how can goods be ranked by factor intensities when there are more than two factors?

8

These results can be obtained by manipulating the inequality in (12).

9

Because the factor shares sum to unity, the regression equation has no constant term.

10

It is clear—at least for nontraded inputs—that the factors used in producing them should be accounted for in assessing the potential for trade in a good that uses these inputs. This is so because the costs of these factors will be passed through to the goods.

11

Product categories are classified as capital intensive, intermediate, or labor intensive depending on whether the capital-labor ratio (rand/employment) is greater than 15, between 5 and 15, or less than 5, respectively. Similarly, a sector is classified as resource intensive if it uses a minimum of 20 percent of inputs from natural resource sectors.

12

South Africa is a net exporter of factor services to low-income countries but a net importer from high-income countries. The appropriate test condition to determine relative factor abundance is therefore different, but in both cases the conclusion is similar.

13

This test was carried out at the aggregate level only because data on intermediate and final good imports from individual trading partners were not available.

14

For trade with middle-income countries, the results are more ambiguous. The logit analysis suggests that, when resource intensity is accounted for, the capital-labor ratio loses its significance as an explanatory variable. However, the OLS regression indicates that the capital-labor ratio is significant even after controlling for resource intensity.

15

The dummy variable was set equal to 1 in 1989 and 0 in 1997.

What Does South Africa's Pattern of Trade Say About its Labor Markets?
Author: Mr. Arvind Subramanian and Mr. Trevor Serge Coleridge Alleyne