Impact of Trade Openness and Exchange Rate Volatility on South Africa’s Industrial Growth: Assessment Using ARDL and SVAR Models

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

This manuscript explores the relationship between trade openness, exchange rate volatility, and South Africa’s industrial growth using a hybrid ARDL–SVAR model over the period 1980–2024. The topic is timely and policy-relevant, especially in the context of developing economies facing global uncertainties. The study is generally well-structured, with a strong methodological framework and clear empirical execution. However, several issues should be addressed to improve the academic rigor, clarity, and policy relevance of the paper. The comments below are intended to guide the authors in refining their work.

1. The authors should better highlight what is novel about their study compared to prior work. Is it the hybrid methodology, the extended time frame, or the focus on South Africa? The contribution should be positioned more explicitly.

2. The literature review is informative but lacks coverage of the latest (post-2022) empirical studies from comparable Sub-Saharan African economies. Adding these would strengthen the contextual relevance and comparative insights of the paper.

3. The paper does not make it clear how exchange rate volatility is quantified (e.g., standard deviation, GARCH-based measure, etc.). This is critical for reproducibility and interpretation of the results.

4. Beyond ARDL and SVAR, no robustness tests are reported. Consider including alternative specifications (e.g., inclusion of FDI, commodity prices, or structural breaks) or testing with different lag lengths to confirm model stability.

5. The finding that trade openness and exchange rate volatility have limited impact on industrial growth is interesting. However, the discussion lacks depth in explaining why—structural constraints? weak absorptive capacity? The authors should elaborate.

6. The policy implications are currently broad. Rather than general suggestions like "invest in technology" or "ensure stability," consider naming specific instruments (e.g., industrial subsidies, FX hedging tools, regional trade agreements) for practical relevance.

7. Impulse response and variance decomposition graphs would benefit from clearer axis labels and inclusion of confidence intervals. Readers should be able to assess the statistical significance of the responses visually.

8. The analysis uses aggregate industrial data. This masks sectoral heterogeneity (e.g., manufacturing vs. mining). The authors should acknowledge this as a limitation and consider it as a future research direction.

9. The Cholesky ordering (IVAD → TROP → EXCH) assumes industrial value added contemporaneously affects exchange rates, which may not be plausible. The justification should be strengthened or alternative orderings tested.

10. The manuscript is generally well-written but contains repeated use of certain terms (e.g., “resilience,” “sustainability”). Editing for conciseness and variation in wording would enhance readability.

11. The reference section appears truncated, and some citations (e.g., #713 onward) are incomplete. Please ensure all cited works are listed in full and conform to the journal’s formatting guidelines.

Author Response

Comments were addressed.

Author Response File: Author Response.docx

Reviewer 2 Report

Comments and Suggestions for Authors

The manuscript can only be published after major modifications. My opinion is as follows:

1、While the study highlights the limited direct effects of trade openness and exchange rate volatility on industrial growth, it emphasizes the importance of GDP and macroeconomic stability. Could the authors clarify how their findings meaningfully advance current debates in sustainable industrialization, particularly in the context of South Africa’s unique vulnerabilities (e.g., commodity dependence, global value chain integration)? 

2、The ARDL-SVAR hybrid approach is well-justified, but the lag selection process for the SVAR model lacks transparency. The author should further improve it.

3、The manuscript’s structure is logical but dense. For instance, the discussion of SVAR results (Section 4.5) could be streamlined to emphasize key policy-relevant insights.

4、 The conclusion effectively summarizes key findings but repeats points from earlier sections. The authors should distill actionable recommendations into a concise policy framework.

5、The manuscript calls for structural transformation and green technologies but lacks concrete examples of how these align with South Africa’s existing industrial policies (e.g., National Development Plan). 

Author Response

The reviewer's comments were addressed.

Author Response File: Author Response.docx

Reviewer 3 Report

Comments and Suggestions for Authors

This study presents an empirical analysis of the effects of trade openness and exchange rate volatility on industrial growth in South Africa, using ARDL and SVAR models. The analysis is based on a long time-series dataset spanning from 1980 to 2024, and offers insightful findings.

I would like to ask the authors for clarification on the following points related to the data and model specifications used in the study.

1. Temporal frequency and sample size of the dataset
The manuscript does not clearly state whether the data used for the variables (IVAD, TROP, EXCH, INFL, DUM1994, DUM2008, DUM2020, etc.) are based on annual, monthly, or daily observations. This information is particularly important for understanding the construction of the volatility and dummy variables, and is essential for assessing the research design.
In addition, it would enhance the clarity of the analysis if the number of observations were explicitly stated. For instance, if annual data were used, is it correct to assume that there are 45 observations?

2. Definition and interpretation of dummy variables
The dummy variables such as DUM2008 and DUM2020 appear to represent structural shocks in the corresponding years. However, if, for example, DUM2008 is coded as 1 for all periods from 2008 onward and 0 otherwise, it assumes that the impact of the 2008 global financial crisis persists uniformly through to 2024. This assumption seems rather strong from an empirical perspective.
A more plausible approach might be to use a time-limited dummy (e.g., 2008–2010) to better capture the transitory nature of the shock. I would appreciate it if the authors could clarify how these dummy variables were defined and provide justification for their chosen specification.

3. Use of GDP as an explanatory variable alongside IVAD
In the current model, Industry Value Added (constant LCU) is used as the dependent variable, while GDP is included as an explanatory variable. However, since IVAD is a component of GDP, using GDP as a regressor is conceptually problematic, as it introduces a definitional relationship that may lead to issues of endogeneity and multicollinearity.
In fact, from a theoretical standpoint, it might be more natural to treat GDP as the dependent variable and IVAD as one of its explanatory components. Alternatively, the authors might consider excluding GDP or replacing it with a more exogenous proxy. I would appreciate the authors' views on this matter and how they justify the use of GDP in the model.

Author Response

Please see the attachment. The reviewer's comments were addressed.

Author Response File: Author Response.docx

Reviewer 4 Report

Comments and Suggestions for Authors

This article focuses on the impact of trade openness and exchange rate volatility on industrial growth in South Africa, using a combination of ARDL and SVAR models for the period 1980 to 2024. However, there are shortcomings in data source selection and model construction that require further revision.

1. in constructing the ARDL model, how was the lag order of the variables in the model determined? Has consideration been given to the use of other information criteria (e.g., Akaike information criterion, Schwartz criterion, etc.) to further validate the reasonableness of the chosen lag order?
2. For the identification of the SVAR model, a short-term recursive identification strategy is used and the causal order of the variables is set. On what economic theory or empirical basis is this setting based? Are there other reasonable causal orders possible and how would they affect the results?
3. In the empirical analysis, domestic GDP was found to be the main driver of industrial growth. Is there then a potential endogeneity issue, i.e., does industrial growth also affect domestic GDP growth? And how should this issue be tested and addressed?
4. The article considers dummy variables for external shocks such as the 2008 global financial crisis and the 2020 New Crown Epidemic, but have more nuanced quantitative approaches been considered for the values of these dummy variables, such as setting weights based on the extent to which the crisis affects the South African economy, in order to more accurately measure its impact on industrial growth?
5. Although the article analyzes the overall impact of trade openness and exchange rate volatility on industrial growth in South Africa, there may be heterogeneity in the sensitivity of different industrial sectors in South Africa to trade openness and exchange rate volatility. Can this heterogeneity be further explored and the reasons behind it?
6. In analyzing the impact of exchange rate volatility, the article focuses mainly on the direct effects of exchange rate volatility on industrial output, but exchange rate volatility may also affect industrial growth indirectly by affecting other macroeconomic variables (e.g. import prices, export competitiveness, etc.). Has the article provided an in-depth analysis of these indirect effects?
7. Are the effects of trade openness and exchange rate volatility on industrial growth in South Africa time-varying, given the changing global economic environment? Can time-varying parametric models be introduced to further characterize their dynamic evolution?

Author Response

The comments were addressed. Please see the attachment.

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

The manuscript has significantly improved as compared to the previous version. Indeed, the authors tried to improve it, and the main weaknesses are solved.

Thus, in my opinion, the manuscript is recommendable for publication.

Reviewer 2 Report

Comments and Suggestions for Authors

The author answered my question point-to-point, and the quality of the article has been improved. It is suggested to accept this study.

Reviewer 4 Report

Comments and Suggestions for Authors

Author replied to my query, this manuscript can be accepted