Who Benefits from SA's Bilateral Trade Agreements

Trade liberalisation is a key component of South Africa's post-Apartheid development strategy, aimed at accelerating growth and creating employment. There is evidence suggesting that multilateral reforms over the last decade have been successful. However, the government's emphasis has shifted in favor of bilateral free trade agreements, thus raising concern that rapid increases in competition in the domestic market may overwhelm any gains from preferential access into foreign markets. This paper estimates the impact of these bilateral trade agreements on growth, employment and poverty in South Africa. This is achieved using a dynamic applied general equilibrium and microsimulation model. The findings suggest that free trade agreements encourage growth and employment. However, while the gains from future reforms are positive, they will not have large effects on the country's high levels of poverty and unemployment. Furthermore, bilateral agreements may worsen inequality, especially if they involve more developed trading partners. There are also adjustment costs associated with reforms, and these fall more heavily on lower-skilled female and African workers. Therefore, while trade liberalisation should remain part of the country's development strategy, we caution against an over-emphasis of its potential benefits and offsetting interventions may be necessary.