April 12, 2022

Botswana mainly exports primary products to China and imports intermediate and capital goods, which are mainly used as inputs for infrastructure development in the country. The increase in imports from China into Botswana`s domestic market has mainly replaced imports from other countries, and China`s exports of textiles, clothing and footwear (TCF) have gained market share relative to Botswana`s TCF exports in third markets, namely South Africa. Current bilateral trade amounts to about $300 million per year. The theory of intra-industrial trade assumes that each country, due to specialization within the industry, will also import certain products into industries where it is a net exporter, and vice versa; that is, there will be intra-industrial trade (Krugman 1983:344). Countries that export and import items of the same product classification engage in intra-industrial trade (IIT) (Appleyard et al. 2010: 186). According to Appleyard et al. (2010:185), IIT was also an aspect of linder`s theory, as it argues that a country may have a comparative advantage and comparative disadvantage over the same product due to product differentiation. This theory helps us show whether trade agreements between China and South Africa are effective.

The effectiveness of trade agreements shows the presence of the IIT. To introduce international trade, suppose the country of origin is country X and the other country is country Y. Country Y is identical to country X in terms of taste, technology and other characteristics of the factors of production (country Y could be of the same size) (Appleyard et al. 2010: 188). Traditional theories could conclude that the two countries with the same general conditions of supply and demand (and therefore the same relative prices) would have no incentive to trade with each other; However, Krugman (and Linder) disagree (Appleyard et al. 2010:188). Ricard`s comparative advantage challenged Smith`s claims that there is no trade when a country has an absolute advantage in the production of both commodities. This theory clearly shows that even if a country is absolutely more or less efficient in the production of all commodities, there is still a basis for trade if there is a difference in the degree of relative efficiency between products (Appleyard et al. 2010: 39).

A comparative advantage always exists when the relative demand for labour is different between two countries; This means that the internal opportunity cost of the two commodities for the two countries before trade is different and that both countries can benefit if they commit to trading on this basis (Appleyard et al. 2010: 33). Ricardian`s comparative advantage showed that countries could trade based on comparative advantage and the benefits of trade (Appleyard et al. 2010:40). According to Kilic (2002), if one country or person is relatively more efficient in producing a good than another country or individuals, we say that they have a comparative advantage in the production of that good. David Ricardo`s theory provided solutions to Adam Smith`s shortcomings. This theory is important for this research because it fosters a theoretical discussion of what has determined trade in recent decades. This theory also shows the flow of goods between two countries, triggered by the principle of comparative advantage. The theory also shows that trading is a mutually beneficial transaction in which all parties involved in trading benefit from it.

The coefficient can be interpreted as follows: if South Africa`s GDP increases by 1% in year t (Yit) or China`s GDP in year t (Yjt), the volume of trade (Tijt) will increase by one percent, everything else will be kept constant. Similarly, GDP and demographic variables have a positive coefficient, which shows that if the population or GDP between South Africa and China increases by 1%, trade flows will increase by one percent, ceteris paribus. According to the Presidency (2014), South Africa has signed several strategic agreements with the PRC government aimed at strengthening bilateral relations, trade cooperation and the creation of sustainable investment opportunities between the two countries. Nevertheless, these are diplomatic issues rather than more problematic issues to be resolved. China has certainly kept an eye on Africa, and for now, SACU remains the most viable and organized African free trade bloc to work with. SaCU works very well in terms of facilitating interregional trade and the movement of goods between the five countries of this subcontinent. Cross-border trade is carried out with minimal obstruction, bureaucracy or red tape. Khumalo, S.A., Mishi, S.

& Dlolo, 2013, Influence of Trade Agreements on South Africa`s Business Models, view of March 14, 2017, from www.essa2013.org.za/fullpaper/essa2013_2678.pdf The size of the countries` market has an influence on international trade. The market size of a particular country is measured by the size of the country`s population. The higher the population, the higher the productivity and the lower the cost of production, because there will be a lot of work. As a result, countries with large populations tend to trade more with other countries. According to Matha (2000), one of the main implications is that differences in the size of countries are also one of the factors that determine the emergence of international trade. Matha goes on to say that the total variable trading costs incurred in trade are lower for sole proprietorships in the large country. Economic Watch (2010) argues that although the model in its basic form consists of factors more related to geography and spatiality, the gravitational model is used to test hypotheses that are also rooted in purer economic theories of trade. The gravitational model estimates the structure of international trade. The gravitational equation of international trade is often driven by new models of trade theory, which are models of increasing returns (Economic Watch 2010). Nowadays, there is more trade between countries. The study uses this model to show trade flows between South Africa and China.

This is important for modeling and understanding international trade flows. World Trade Report, 2009, Flexibility in Trade Agreements, accessed 09. March 2017, by www.wto.org/english/res_e/booksp_e/anrep_e/wtr09-2b_e.pdf The main trading theory relevant to the study is the trade gravity model. According to Weckstrom (2013), the gravitational model was first discovered in physics when Newton discovered that gravity between two objects correlates with the masses of these objects and the distance between objects. The same principle was established in 1962 by Jan Tinbergen in international economics; He was interested in the international trade flows that would prevail if no barriers to trade were used (wake-up stream 2013). Figure 4 shows that the volume of trade between South Africa and China increased from 1995 to 2015. Matha, T., 2000, Factor endowments, country size, and economic integration: The effects on structure of trade and industry, seen February 18, 2016, from www.snee.org/filer/papers/46.pdf According to Lipsey and Lancaster (1956-1957) in Snorrason (2012:15), the general theory of the second best states that when a restriction is introduced within a general equilibrium framework that prevents the achievement of one of the Pareto conditions, other Pareto conditions are still feasible, but generally more desirable. Free trade means that there are no distortions in trade. Snorrason (2012:15) shows that Pareto`s optimality is achieved exclusively in free trade, so other cases where distortions occur, such as tariffs, subsidies, taxes, or monopolies, are suboptimal.

Inequality shows that the capital-to-labour ratio in country A exceeds the capital-to-labour ratio in country B. Therefore, Appleyard et al. (2010:128) argued that if inequality is so, country A will produce and export capital-intensive goods, while importing labor-intensive goods from country B. This model is important for this research because it explains the basis of trade. It modifies Ricardo`s comparative theory of advantage and shows the flow of goods between two countries. Wake-up current (2013) used the gravitational model of trade to test Russia`s exports to its major trading partners. The results showed that the distance between Russia and its trading partners does not really affect Russian exports; The population of the export market seems to be a bad variable to explain Russian exports (wake-up stream 2013). There is a strong correlation between the Russian population and Russian exports, but there is still no reason to believe that a decline in the Russian population would lead to an increase in Russian exports (wake-up stream 2013). South Africa`s bilateral trade with China increased from R205 billion in 2012 to R270 billion in 2014, an increase of 32%, but the composition of trade was a concern as South African exports included mainly raw materials (Ensor 2014). According to Ensor (2014), China became South Africa`s largest trading partner in 2009, but the trade balance was in China`s favor. South Africa and China have worked together under various trade agreements that, to some extent, have led to increased trade between the two countries. .

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