Co-Movement Between South Africa and SADC: Is Trade a Predominant Factor?

This paper uses a novel dynamic factor model a la Forni et al. (2003) to investigate the impact of increasing trade on the co-movement of the business cycle between South Africa and the Southern African Development Community (SADC) countries. The results show a moderate but increasing synchronization between South Africa and SADC countries, in contrast with the already existing high correlation between the South African business cycle with the G-7 countries and most emerging market countries. This is evidence of the increasing importance and spread of the forces of globalization, reflected in the increasing integration of goods and services through international trade. The striking result is that South Africa, justified by its geographical location and increased trade integration in the SADC, cannot isolate itself from its SADC neighbours, and that regional policy coordination is of the utmost importance.