The impact of globalisation on industrial development in South Africa: the mediating role of institutional quality

Background Globalisation has brought significant benefits to countries’ industrialisation, but its impact has not been uniform. Policymakers in developing countries have increasingly focused on sound institutions’ role in offsetting the potential negative effects of an integrated economic structure. However, evidence of the mediating role of institutional quality in South Africa’s unique economic globalisation and industrial development relationship has been limited. Objective This study had the primary objective to assess the mediating role of institutional quality within the globalisation and industrialisation nexus in South Africa. Method The analysis used a quantitative research approach through a time series analysis, based on secondary data from 1980 to 2021. The long-run relationships between the variables were assessed through novel cointegration tests, while three different cointegration regression estimation techniques were employed to estimate the elasticities. Moreover, Toda-Yamamoto causality tests were utilised to evaluate the causal linkages between the variables. Results The findings suggest that South Africa’s unique integration path has benefited industrial output significantly since its move to a more liberal and democratic structure. However, the level of institutional quality has contributed to a diminishing effect in this regard. This emanates primarily from a misalignment between institutional frameworks and the demands of globalisation, including increased competition and regulatory challenges. Conclusion Based on this, the study recommends that policymakers prioritise developing a comprehensive industrial policy to promote key strategic sectors, regional integration, and public–private partnerships. Moreover, they should improve the business environment and infrastructure by means of reducing the costs of doing business, enhance the rule of law, ensure a stable financial system to attract foreign investment and foster sound regional partnerships.