Asymmetric Effect of Trade Openness and Exchange Rate on Economic Expansion

Understanding the complex interplay between trade openness and fundamental economic factors is essential for promoting sustainable economic development. The current study analyses the asymmetric impact of trade openness and exchange rate on South Africa’s economic expansion. The study applied the Nonlinear Autoregressive Distributed Lag (NARDL) and Error Correction Model (ECM) approaches to time-series data covering 1995–2025. The results confirmed the existence of an asymmetric relationship between trade openness, exchange rate, and economic expansion. While economic growth is positively affected by currency appreciation and improvement in trade openness, both currency depreciation and a decline in trade openness negatively influence long-term economic growth. In contrast, the short-run findings reveal that any shocks in the exchange rate (positive or negative) impede economic growth. However, positive changes in trade openness enhance economic growth, even in the short run. Based on these findings, South African policymakers and monetary authorities should ensure the stability of the country’s currency to maintain benefits from trade openness and exchange-rate expansion. Though domestic markets should remain open to global markets, better management of exports/imports is crucial to prevent the country from being an economic dumping site.