European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.7, No.25, 2015 234 An Empirical Trade Intensity Analysis of South Africa - BRIC Economic Relations Maxwell Ekor 1 Jimoh Saka 2 Oluwatosin Adeniyi 3 1.Preston Consults, Abuja, Nigeria 2.Department of Economics, Lagos State University, Nigeria 3.Department of Economics, University of Ibadan, Nigeria Abstract The study broadly focused on examining the trade and investment relationship between South Africa and the BRIC, using both descriptive and vector autoregressive estimation approaches. Specifically, the key objective is to investigate the impact of trade shocks between South Africa and the individual countries of the BRIC bloc. The findings illustrate that South Africa’s trade was more intense with India in the review period followed by trade with China. The impulse-response outcome showed that South Africa’s GDP reverts faster to equilibrium in the event of a shock in exports to and imports from Brazil. Also, when there is a shock to GDP, South Africa’s imports from Brazil reverts faster to equilibrium. The results of the variance decomposition indicate that inflation accounted for the highest variation in South Africa’s exports to and imports from both Brazil and China. Similarly, inflation explained the greatest variation in the GDP, while the greatest variation in the domestic inflation rate is explained by its own shock. JEL Codes: C32; C51; F5; F33 Keywords: Trade flows; Impulse response; Variance decomposition; BRIC; South Africa 1. Introduction The idea of the BRIC (Brazil, Russia, India and China) started in 2001 but it was not until 10 years later that South Africa became involved in the activities of the group, resulting in the new acronym BRICS. The highlight of the country’s participation in the group was the hosting of the 5 th BRICS Summit in Durban, South Africa, in March 2013 where far reaching proposals such as the setting up of a development bank were put on the table. Therefore, both policy makers and analysts have been watching activities around the group with keen interest. These countries account for about 43 percent of global population, 18 percent of international trade and 25 percent of the world’s gross domestic product (GDP) in purchasing power parity terms. Besides, the relevance of the group in global economic governance has not gone unnoticed with its view that there is need for a more equitable global order, especially with respect to the running of the international multilateral institutions such as the International Monetary Fund (IMF) and the World Bank. Apart from global governance issues, the involvement of South Africa in the BRICS setting has also been seen in some quarters as boosting the group’s relevance to the sub-Saharan African (SSA) continent. This view is premised on the rising importance of South-South relationships as against the traditional North–South model of development. This is because more South–South cooperation is expected to continue to play a key role in the future development of poor nations through partnerships, knowledge exchange, and finance. Given South Africa’s involvement in the group and the expectation in some quarters that this will rob off positively on the entire SSA, this study attempts to probe the country’s trading relationship with the individual BRICs. The rationale for this is to present evidence of the bilateral relationships which may be important for South Africa within the group. It is important to note that most of the initial studies on the group’s relationship included only the original BRICs, leaving out South Africa, and this is understandable given that the country joined the group only in 2011. Following from the above, the research questions of interest are as follows: (i) what is the level of trade intensity between South Africa and the individual BRICs? (ii) How does South Africa’s gross domestic product (GDP) respond to shocks to its exports to and imports from the individual BRICs? (iii) How do South Africa’s exports to the BRICs and imports from the BRICs respond to shocks to the country’s GDP? The rest of the study is organized as follows: Section 2 presents the literature review and section 3 discusses the methodology. Section 4 presents the data and empirical analysis, while section 5 concludes and provides policy implications of the findings. 2. Review of the literature Most studies in the literature initially included only the original BRICs, leaving out South Africa as the country only joined the group in 2011. While some of these studies dwell on the relationship between the BRICs and the European Union (EU), others focused on the relationship with Low Income Countries (LICs) while others analyzed the linkages among the BRICs. Leal-Arcas (2008) applied interdisciplinary qualitative approach of law, international political economy