The impact of economic globalisation on the South African auto industry

Abstract

This paper assesses the impact of economic globalisation on the South African auto industry. First, a duopoly model of differentiated products is used, which allows the determination of the free trade and protection dividing line. This determines the stay-exit function, which shows the profitability level of the domestic industry. Second, to determine the relationship between employment, profitability and export in the auto industry, a log-linear equation is estimated in which the logarithm of employment is expressed as a function of the logarithm of the distance between the stay-exit function and the trade line and the logarithm of export. These estimates suggest that policy makers take measures to either prevent the destruction of the domestic industry and the decrease in employment in the auto industry, or increase its profitability and employment.