EuroEconomica, Vol 38, No 1 (2019)

Abstract

The study investigate the relationship between crude oil prices and the trade balance of South Africa using the Autoregressive Distributed Lag model. The bounds cointegration test was employed to determine the long-run relationship between oil prices and the trade balance of South Africa. The results prove that there is one cointegration vector between the trade balance and real oil prices, real exchange rate, domestic income, real interest rate and the inflation rate. Our results provide evidence that oil price changes have a significant and negative impact on the balance of trade. The negative sign and significance of the Error Correction Term and diagnostic tests have approved the reliability of the results.