The role of agricultural trade and policy complementarities in poverty reduction in South Africa

Although South Africa exhibits an increasing positive trend in agricultural exports, poverty still remains a considerable challenge in the country. This study sought to determine whether South Africa’s increasing trend in agricultural export performance translated into lower poverty levels between 1996 and 2014. Specifically, the study evaluated the effects of export intensity of agricultural goods disaggregated by end-use category on poverty outcomes with the help of the concept of ‘policy complementarities”. Rather than the commonly used poverty measures such as poverty head count ratio and poverty gap, relative poverty is used in this study. Export intensity is individually interacted with proxies of access to credit, educational and governance systems to capture the role of policy complementarities. To address the reverse causality problem associated with exports and poverty, a Two Stage Squares (2SLS) estimator was used. Results suggest that South Africa’s agricultural trade performance exhibits significant poverty reducing effects. In presence of supportive complementary domestic policies (e.g. increased access to credit), increasing exports of household consumption goods and intermediate goods reduces poverty outcomes by 21% and 15.2%, respectively. Results also suggest that imports of household consumables significantly reduce poverty levels by 9.5-22%, depending on the model used. Conclusively, South Africa’s good performance in agricultural trade translated into poverty reduction. Policy wise, there is need to further enhance the populace’s education levels, increase people’s confidence in public institutions of governance, as well as boost the depth of the financial sector. It is also necessary to promote importation of household consumables, particularly those that are not necessarily produced in the country.