The Determinants of Regional Manufactured Exports from a Developing Country

In this paper, the question of the location of exporters of manufactured goods within a country is investigated. Based on insights from new trade theory, the new economic geography (NEG) and gravity-equation modelling, an empirical model is specified with agglomeration and increasing returns (the home market effect) and transport costs (proxied by distance) as major determinants of the location decision of exporters. Data from 354 magisterial districts in South Africa are used with a variety of estimators (OLS, Tobit, RE-Tobit) and allowances for data shortcomings (bootstrapped standard errors and analytical weights) to identify the determinants of regional manufactured exports. It is found that the home-market effect (measured by the size of local GDP) and distance (measured as the distance in km to the nearest port) are significant determinants of regional manufactured exports. This paper contributes to the literature by using developing country data, and by adding to the small literature on this topic. This paper complements recent work on the determinants of exports from European regions and finds that the home market effect is relatively more important in the developing country context (South Africa), a finding consistent with theoretical NEG model.