Most recent papers:

• Income and Price Elasticities of Demand in South Africa: An Application of the Linear Expenditure System.
  Rulof Paul Burger, Lodewicus Charl Coetzee, Carl Friedrich Kreuser, Neil Andrew Rankin.
  South African Journal of Economics. October 12, 2017
  This paper investigates the expenditure patterns of South African households using detailed cross‐sectional expenditure and price data that varies across region and time. Linear expenditure system parameter estimates are used to calculate income and price elasticities for a number of product categories at different points of the income distribution. We find substantial variation in the price and income elasticities of demand for items across the income distribution, with the bottom quartile being extremely sensitive to increases in the price of food and clothing items, and the top quartile being as sensitive as households in developed countries.

  October 12, 2017   doi: 10.1111/saje.12167   open full text
• Peer Networks and Tobacco Consumption in South Africa.
  Alfred Kechia Mukong.
  South African Journal of Economics. August 02, 2017
  This paper deepens the empirical analysis of peer networks by considering their effects on both smoking participation and smoking intensity in South Africa, a country where majority initiate smoking at adolescent age. Peer networks are key in determining the smoking behaviour of youths, but the magnitude of the effects is still debated, questioned and inconclusive. I used a control function approach, a two‐stage least square and the fixed effect method to address the potential endogeneity of peer network. The results suggest positive and significant peer effects on smoking participation and smoking intensity. While the network effects are consistently positive and significant, the magnitude of the estimates varies across methodological approaches with the instrument variable estimates generally lower. Including older adults in the peer reference group increases the peer effect estimates. Finally, using clusters as an alternative measure of network size in wave one, I show that peer effects are independent on network size but rather on network quality. Relative to the results of this paper, previous literature has documented larger peer effects on the decision to smoke. The findings suggest that policies (excise tax) that directly affect the decision to smoke and the smoking intensity of the peer reference group are likely to affect own smoking behaviour.

  August 02, 2017   doi: 10.1111/saje.12166   open full text
• Is Poverty in the African DNA (Gene)?
  Simplice A. Asongu, Oasis Kodila‐Tedika.
  South African Journal of Economics. July 07, 2017
  A 2015 World Bank report on attainment of Millennium Development Goals concludes that the number of extremely poor has dropped substantially in all regions with the exception of Sub‐Saharan Africa. We assess if poverty is in the African gene by revisiting the findings of Ashraf and Galor and reformulating the “Out of Africa Hypothesis” into a “Genetic Diversity Hypothesis” for a “Within Africa Analysis.” We motivate this reformulation with five shortcomings largely drawn from the 2015 findings of the African Gerome Variation Project, notably: limitations in the conception of space, an African dummy in genetic diversity, linearity in migratory patterns, migratory origins and underpinnings of genetic diversity in Africa. Ashraf and Galor have concluded that cross‐country differences in development can be explained by genetic diversity in a Kuznets or inverted U‐shaped pattern. Our results from an exclusive African perspective partially confirm the underlying hypothesis in a contemporary context, but not in the historical analysis. From a historical context, the nexus is U‐shaped for migratory distance, mobility index and predicted diversity while for the contemporary analysis; it is hump shaped for ancestry‐adjusted predicted diversity. Hence from a within‐Africa comparative standpoint, poverty is not in the African gene.

  July 07, 2017   doi: 10.1111/saje.12165   open full text
• Transmission of China's Shocks to the BRIS Countries.
  Mustafa Çakir, Alain Kabundi.
  South African Journal of Economics. July 07, 2017
  This paper investigates the effects of China on the BRIS countries, namely Brazil, Russia, India and South Africa. We identify Chinese supply and demand shocks and assess their transmission to BRIS in a structural dynamic factor model framework estimated over the period 1995Q2‐2009Q4. The findings show that Chinese supply shocks are more important than its demand shocks. Supply shocks produce positive and significant output responses in all BRIS countries. And while these supply shocks have a permanent impact on the BRIS countries, the effects of demand shocks are short‐lived. Both supply and demand shocks are transmitted through trade rather than financial linkages. However, the responses of the BRIS countries are heterogeneous and therefore require country‐specific policy responses.

  July 07, 2017   doi: 10.1111/saje.12164   open full text
• Impact of Macroeconomic Announcements on Foreign Exchange Volatility: Evidence from South Africa.
  Tseke Maserumule, Paul Alagidede.
  South African Journal of Economics. June 22, 2017
  This study focuses on scheduled macroeconomic news announcements and evaluates their impact on the volatility of the South African rand (ZAR) and US dollar (USD) exchange rate using high frequency data. The following asymmetries are studied: news items by geographical location, no‐news vs. surprise news announcements and positive vs. negative news announcements. We make the following findings in our empirical study: (i) After the release of a news announcement, the level of foreign exchange volatility rises. This is independent of whether the news item surprised the market or not. (ii) Both South African and US news items significantly impact USD/ZAR volatility, suggesting that the news items are being used to formulate investor expectations regarding the future prospects of the currency pair. (iii) Negative news appears to have a greater impact on exchange rate volatility relative to positive news. This result is also state dependent, as investors tend to behave differently to news depending on the economic climate at that point in time. Investor cognitive biases give rise to the asymmetric news effects on exchange rate volatility. Finally, investors do not always act in rational manner, especially when faced with multiple news items that are contradictory to each other.

  June 22, 2017   doi: 10.1111/saje.12160   open full text
• The Impact of Health on Labour Force Participation in South Africa.
  Chijioke O. Nwosu, Ingrid Woolard.
  South African Journal of Economics. June 22, 2017
  This paper estimates the effect of self‐assessed health (SAH) on labour force participation (LFP) in South Africa. This is motivated by a high disease burden and declining LFP in South Africa during the study period. Data is sourced from the four waves of the National Income Dynamics Study. The results indicate a positive and significant effect of self‐reporting excellent, very good or good health on LFP (relative to fair or poor health). The effect is more pronounced for men relative to women. The result indicates that health policy can be a tool for significantly improving LFP in South Africa.

  June 22, 2017   doi: 10.1111/saje.12163   open full text
• The Effectiveness of aid in Improving Regulations: An Empirical Assessment.
  Matthias Busse, Ruth Hoekstra, Robert Darko Osei.
  South African Journal of Economics. May 25, 2017
  The paper empirically assesses the impact of foreign aid on the change in economic freedom, which is closely related to the quality of regulations. We build on a relatively large panel of 77 developing countries and examine the period 2002–2012 using different econometric methods. In addition to standard country fixed‐effects regressions as well as estimations in first differences, we apply the system Generalised Method of Moments estimator. We, therefore, control for the potential endogeneity of foreign aid. We find that highly targeted aid can be a driver of change: Sectorspecific Aid for Business has a significantly positive impact on regulations across developing countries, but we do not find any effects for overall aid or aid directed at broad governance areas. The result that Aid for Business drives improvements in regulatory quality is robust using different model specifications and country samples. The strongest results are found for low‐income countries and for subsamples that exclude outliers. This outcome could partly explain the inconclusive evidence from the previous literature and it confirms our hypothesis that targeted, sector‐specific aid matters.

  May 25, 2017   doi: 10.1111/saje.12159   open full text
• Tax(i)ing the Poor? Commuting Costs in South African Cities.
  Andrew Kerr.
  South African Journal of Economics. May 25, 2017
  In this paper, I describe the monetary and time costs of commuting to work in South African cities, and how these have changed in the post‐Apartheid era. I interpret these results in light of a paper by Brueckner, who used a simple urban model to suggest that location and commuting patterns by race could change as a result of the repeal of Apartheid era legislation such as the Group Areas Act that made it impossible for black South Africans to live near the centre of cities. A key finding is that monetary and time costs of commuting in South African cities are high and have increased in the post‐Apartheid period. Journey times are much higher than the OECD country average and a sample of developing country cities. Part of the explanation for increasing average commute times is population growth in South African cities, which has been substantial. Both the population and number of commuters doubled between 1993 and 2013 in the six metropolitan municipalities (metros) analysed in this paper. Since commuting costs a substantial amount and generates negative externalities through congestion I also explore the financing of public transport.

  May 25, 2017   doi: 10.1111/saje.12161   open full text
• Remittance, Institutions and Investment Volatility Interactions: An Intercontinental Analysis.
  Kazeem B. Ajide, Oluwatosin Adeniyi, Ibrahim D. Raheem.
  South African Journal of Economics. May 25, 2017
  Generating massive investment for growth and development has been one of the main policy goals of most economies around the globe. Countries, most especially developing ones, are highly susceptible to investment volatility owing largely to the fragile nature of their economies as well as weaknesses in terms of dysfunctional institutions. Therefore, sound economic management suggests the need to better understand possible sources for mitigating the adverse effects of investment volatility. Remittances have been identified as important capital flows which do a good job of dousing macroeconomic volatilities. It is on this basis that the study sought to uncover the causal relationship between remittances and investment volatility via the intermediating role of institutions. Using a panel of 70 countries and the system Generalized Method of Moments (GMM) estimator, three insightful outcomes come to the fore. First, remittances played countercyclical roles across the estimated regressions. Second, institutional quality had no significant role in mitigating investment volatility and lastly, the interactive terms of both remittances and institutions significantly mitigated the negative impacts of investment volatility with the exception of the political component of the institutional architecture. Policy suggestions are drawn based on our results.

  May 25, 2017   doi: 10.1111/saje.12162   open full text
• Hiring and Separation Rates Before and after the Arab Spring in the Tunisian Labour Market.
  Almas Heshmati, Ilham Haouas, Kazi Sohag, Muhammad Shahbaz.
  South African Journal of Economics. May 15, 2017
  We seek to explore the hiring and separation rates in Tunisia before and after the Arab Spring based on quarterly business level data for 503 firms over the span of January 2007 to December 2012. Furthermore, we examine whether employers are willing to dismiss older workers to trigger an effective increase in mobility that will open new opportunities for the youth community. We build our analysis upon six main empirical models to study employment decisions reflected by major indicators such as the number of hiring, number of separations, total employment effects, male‐female ratio, age cohorts, labour mobility and net employment. The results show that the Arab Spring has created structural unemployment trends. In addition, we note that the 2008 global turmoil has fostered the firing level of employment. Our conclusions also indicate that the response of Tunisia's government to high unemployment rates caused by the financial meltdown in 2008 and the events in 2011 was not sufficient to remove the attached lingering effects that still distress the country's labour market. In addition, our findings emphasize the significant challenges faced by Tunisian youth that could be mitigated by efficient policy actions to incentivize training and development geared towards the private sector.

  May 15, 2017   doi: 10.1111/saje.12157   open full text
• Importing and Firm Export Performance: New Evidence from South Africa.
  Lawrence Edwards, Marco Sanfilippo, Asha Sundaram.
  South African Journal of Economics. March 05, 2017
  This article uses firm‐level data from company income tax and customs declarations from South Africa to analyse the complementary relationship between direct access to imported intermediate inputs and firm exports in the manufacturing industry. There are two main findings. The first is on firm heterogeneity, showing that firms that import and export consistently demonstrate premiums in terms of productivity, employment, wages and capital intensity in production compared to firms that do not trade, or only export or import. The second supports the hypothesis that importing raises exports, especially if inputs are sourced from advanced economies.

  March 05, 2017   doi: 10.1111/saje.12154   open full text
• Monetary Policy Implementation and Volatility Transmission Along the Yield Curve: The Case of Kenya.
  C. Emre Alper, R. Armando Morales, Fan Yang.
  South African Journal of Economics. March 02, 2017
  This paper analyses the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g. T‐bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward‐looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forwardlooking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short‐term yields significantly by smoothing out the overnight interest rates around the policy rate.

  March 02, 2017   doi: 10.1111/saje.12155   open full text
• Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub‐Sahara Africa.
  Joseph Ato Forson, Ponlapat Buracom, Guojin Chen, Theresa Yaaba Baah‐Ennumh.
  South African Journal of Economics. February 14, 2017
  In this paper, we argue that the answer to the question of whether the impact of corruption on development is homogenous, is no. Our optimism rest on how development may be conceptualised. When equated to a narrow measure in economic‐wise which fundamentally ignores critical issues, then there is a possibility the outlook could be positive. But when conceptualised using a broad‐based approach such as sustainable development, then the outlook could be negative. We assess a panel of 22 economies in Sub‐Sahara Africa with the most recent dataset (1996–2013) from the World Bank and other reputable agencies. Our finding is quite robust. It holds in pooled OLS, Fixed effects and GMM within IV settings; and it also holds for different measures of institutions and different measures of development using growth per capita GDP and genuine wealth per capita, respectively. Taking stock of major policy blue‐prints of selected countries in the region on the fight against corruption, we are able to point out that institutions play important role in insulating citizens against the devastation caused by corruption. Overall, through this comparison, we are able to signal that both incidental and systematic corruption poses a long‐term threat to sustainable development.

  February 14, 2017   doi: 10.1111/saje.12152   open full text
• Estimating South Africa's Output Gap and Potential Growth Rate.
  Johannes W. Fedderke, Daniel K. Mengisteab.
  South African Journal of Economics. February 14, 2017
  This paper estimates the potential output of the South African economy using several filters. We demonstrate that potential output measures are very sensitive to the different methodologies. We also provide estimates of South Africa's potential growth rate over the 1960–2015 period. Current estimates of the potential growth rate fall in the 1.9%–2.3% range. However, the evidence suggests that the rate is under considerable downward pressure. South African potential growth may be headed toward the 1% range. The strongest decline is in the real sectors of the economy (Manufacturing, Mining), the greatest resilience in the service sectors (financial in particular).

  February 14, 2017   doi: 10.1111/saje.12153   open full text
• The Macroeconomics Effects of Government Spending Under Fiscal Foresight.
  Charl Jooste, Ruthira Naraidoo.
  South African Journal of Economics. January 25, 2017
  Consumption and output responses to fiscal shocks are studied in a model with fiscal foresight. Fiscal foresight reduces both output multipliers and consumption. However, key features such as sticky wages, credit constrained households and elastic labour supply, are able to generate both sizeable output multipliers and positive consumption, in effect preserving key Keynesian effects. This model fits a developing economy like South Africa well since it is able to capture transparent communication of government as well as control for credit constrained consumption and sticky wages.

  January 25, 2017   doi: 10.1111/saje.12151   open full text
• Assessing Nonlinear Dynamics of Central Bank Reaction Function: The Case of Mozambique.
  Gerson Nhapulo, João Nicolau.
  South African Journal of Economics. January 09, 2017
  This paper sheds some light on the elements governing monetary policy‐making during the period 2000Q1–2015Q1 in Mozambique. We estimate a time‐varying Taylor‐type rule for the BM, using a Markov‐switching (MS) model and a Threshold model. The general finding is that the behaviour of the BM can be characterised by two regimes. In regime 1, only changes in inflation trigger a reaction by the monetary authority. This behaviour is prominent after the establishment of the monetary policy committee in 2007 (CPMO). In regime 2, the BM reacts aggressively both to cool off the economic activity and to curb inflationary pressures. Regime 2 occurred most frequently during 2000–2006, when the fiscal policy might have played an important role in output stabilization. After the establishment of the CPMO, regime 2 occurred in the context of a steep rise in fuel and food prices in 2007–2008 and in 2010. Both the MS model and the Threshold model show similar asymmetric effects. We find evidence that inflation is viewed more seriously by the monetary authorities when it is accompanied by a high output‐gap in the previous period, which triggers a more aggressive response from the monetary authorities.

  January 09, 2017   doi: 10.1111/saje.12149   open full text
• Evaluating South Africa's Open Economy.
  Yashvir Algu, Kenneth Creamer.
  South African Journal of Economics. January 09, 2017
  The competing theories of the macroeconomic trilemma and dilemma are empirically tested for South Africa. The empirical findings show evidence of the trilemma theory being applicable to South Africa, supporting the country's ability to maintain monetary independence (MI). An empirical puzzle, however, emerged as South Africa's MI index decreased during the country's 2000–2014 inflation‐targeting period. A possible explanation, and subject for further research, is that the increasing opening of South Africa to international flows since 1995 may have caused South Africa to be more exposed to international business cycles and shocks, resulting in a reduction in measured MI.

  January 09, 2017   doi: 10.1111/saje.12145   open full text
• Are Determinants of Portfolio Flows Always the Same? ‐ South African Results from a Time Varying Parameter Var Model.
  Haakon Kavli, Nicola Viegi.
  South African Journal of Economics. January 05, 2017
  The literature on determinants of cross‐border capital flows has consistently assumed the determinants of such flows to be constant throughout the sample. This paper investigates this notion by estimating the time varying relationship between portfolio flows to South Africa and two widely accepted determinants of such flows: the sovereign spread and global risk (measured by the CBOE Volatility Index, henceforth VIX). The results show that the time variation is highly significant and a constant parameter model will give biased estimates of the effects of risk on capital flows. The paper also gives important insights to South African policy makers and financial practitioners: Bond flows (non‐resident purchases of South African bonds) have become more sensitive to the VIX after 2010. Share flows were particularly sensitive at the peak of the 2008 global financial crisis, but have at other times not responded in a statistically significant manner to changes in global risk. The relationships are estimated using a time varying parameter vector autoregressive (TVP VAR) model with stochastic volatility.

  January 05, 2017   doi: 10.1111/saje.12137   open full text
• User Fee Abolition and the Demand for Public Health Care.
  Steven F. Koch.
  South African Journal of Economics. January 05, 2017
  This research examines the effect of the abolition of user fees in South Africa, a policy implemented in 1994 for uninsured children under the age of six and the elderly uninsured, as well as pregnant and nursing mothers. The analysis focuses on the implementation of the policy and the use of curative public healthcare services by children following strict and fuzzy regression discontinuity designs. The estimates point to statistically insignificant average and local average policy effects, even though the policy appears to have been implemented reasonably effectively, albeit imperfectly. In other words, the policy did not, on average, affect the use of curative public healthcare, at least for those children who should have benefited from the policy.

  January 05, 2017   doi: 10.1111/saje.12146   open full text
• Wages and Wage Inequality in South Africa 1994–2011: Part 1 – Wage Measurement and Trends.
  Martin Wittenberg.
  South African Journal of Economics. December 29, 2016
  We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.

  December 29, 2016   doi: 10.1111/saje.12148   open full text
• Wages and Wage Inequality in South Africa 1994–2011: Part 2 – Inequality Measurement and Trends.
  Martin Wittenberg.
  South African Journal of Economics. December 27, 2016
  We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.

  December 27, 2016   doi: 10.1111/saje.12147   open full text
• Enhancing Industrial Cluster Formation Through the Realistic Export Opportunities of the TRADE‐DSM.
  Noleen Pisa, Wilma Viviers, Riaan Rossouw.
  South African Journal of Economics. October 05, 2016
  This paper explores the natural synergies between industrial cluster formation and the identification of realistic export opportunities (REOs), using the TRADE‐DSM for a resource‐dependent region, the North West Province of South Africa. The structural path analysis and power of pull methods were applied to a provincial social accounting matrix to identify the top industrial clusters. Ten industrial clusters were identified and matched to the results of the TRADE‐DSM. Six of the industrial clusters analysed had REOs. These results provide a basis for focused export market development and for the formalisation of the cluster initiative as a strategy for sustained economic and export growth.

  October 05, 2016   doi: 10.1111/saje.12138   open full text
• Examining the Performance of the South African Economics Departments, 2005‐2014.
  Derek Yu, Atoko Kasongo, Mariana Moses.
  South African Journal of Economics. October 05, 2016
  This study examines the teaching and research activities of 17 Economics Departments in 2005‐2014 by consulting the information from each university's faculty prospectus, publication in accredited local and international peer‐reviewed journals, Economic Society of South Africa conference participation, Economic Research Southern Africa working paper series and the National Research Foundation. The results indicate there is big variation in the departments’ teaching and research activities during the period. Nonetheless, research output increased, in particular publication in accredited international journals in both absolute and proportional terms.

  October 05, 2016   doi: 10.1111/saje.12139   open full text
• Measuring the Real and Financial Connectedness of Selected African Economies with the Global Economy.
  Jonathan E. Ogbuabor, Anthony Orji, Gladys C. Aneke, Oyun Erdene‐Urnukh.
  South African Journal of Economics. September 07, 2016
  We examine the real and financial connectedness of selected African economies with the global economy using a network approach. We find that the connectedness of African economies with the global economy is quite sizable, with the global financial crisis increasing the connectedness measures above their pre‐crisis levels. The results show that U.S., EU and Canada dominate Africa's equity markets, while China, India and Japan dominate Africa's real activities. Our results suggest that African economies are predominantly small open economies, deeply interconnected but systemically unimportant and vulnerable to headwinds emanating from the dominant economies in the overall global economy.

  September 07, 2016   doi: 10.1111/saje.12135   open full text
• Citizens' support for Economic Reforms in Sub‐Saharan Africa.
  Heather Congdon Fors.
  South African Journal of Economics. August 08, 2016
  The objective of this paper is to investigate the factors that influence citizens' support for costly economic reforms in sub‐Saharan Africa. This is relevant for several reasons, but the most obvious perhaps is that economic reform will be difficult if faced by strong resistance from citizens. In this paper, individual data from Round 4 of the Afrobarometer surveys is used to investigate how support for economic reforms is influenced by factors falling under the following broad categories: (i) Economic variables; (ii) group identity and fairness variables; (iii) Institutional and state/government variables; (iv) Demographic and control variables. An individual's trust in the president and the belief that the government manages the economy well are two of the most significant and robust factors. This is in keeping with the results found in Williamson (The Political Economy of Policy Reform, Institute for International Economics, Washington, DC, ). Another robustly significant variable is satisfaction with how democracy works in the country. Variables related to ethnic identity and community membership also play a significant role in support for costly economic reforms, which is in line with the theories put forward by van de Walle (African Economies and the Politics of Permanent Crisis, 1979–1999. Cambridge University Press, New York, ). Females are less likely to support economic reforms, while individuals with higher levels of education are more likely to support economic reforms.

  August 08, 2016   doi: 10.1111/saje.12136   open full text
• The Invisible Hand of Rain in Spending: Effect of Rainfall‐Driven Agricultural Income on Per Capita Expenditure in Ghana.
  Eric Akobeng.
  South African Journal of Economics. July 01, 2016
  This paper uses a nationally representative household pseudo‐panel dataset for Ghana, a rain‐fed agriculture economy, to investigate whether there is a positive relationship between rainfall‐driven agricultural income and household per capita expenditure. By using the Two Stage Least Squares Instrumental Variable (2SLS‐IV) estimator, it is found that a fall in rainfall‐driven agricultural income leads to a decrease in per capita expenditure. The results show that the gender and the locality of the household head matter in the response of per capita expenditures to rainfall‐driven agricultural income. Female‐headed and rural households are more vulnerable to rainfall‐driven agricultural income changes. The expenditure disaggregation indicates that female‐headed households significantly reduce per capita non‐food expenditure in times of rainfall‐induced agricultural income decrease whilst the response of male‐headed households focuses more on reducing per capita food and remittance expenditures.

  July 01, 2016   doi: 10.1111/saje.12131   open full text
• Trade Effects of the East African Community Customs Union: Hype Versus Reality.
  Steven Buigut.
  South African Journal of Economics. July 01, 2016
  This study uses a theoretically consistent gravity model to assess the average trade effect of the East African Community customs union implemented in 2005. The estimation is carried out using a framework that controls for endogeneity. Country‐pair fixed effects are included to control for time constant factors while importer‐year and exporter‐year fixed effects account for time varying multilateral resistance variables. To check for robustness a Poisson pseudo‐maximum likelihood estimation is used. The study covers the period 2000 to 2013 with a total of forty nine trading partners. The results suggest that the EAC customs union has produced a moderate positive effect on intra‐EAC trade of about 22.1%.

  July 01, 2016   doi: 10.1111/saje.12133   open full text
• Tax Evasion and the Business Environment in Uganda.
  Joseph Mawejje, Ibrahim Mike Okumu.
  South African Journal of Economics. June 21, 2016
  This paper examines the interaction between the different indicators of the business environment and tax evasion. First, we develop a simple theoretical model linking tax evasion to the business environment. Second, we test the model predictions using the World Bank Enterprise Survey data for Uganda. Findings indicate that the extent of tax evasion is associated with bureaucratic bribery, the quality and efficiency of the legal systems, and the inadequate provision of public capital. Our results are robust to alternative estimation strategy, choice of instruments, treatment of outliers, and missing data.

  June 21, 2016   doi: 10.1111/saje.12132   open full text
• Impact of Malaria Control on Late and Early Infant Mortality in Senegal.
  Rayner Tabetando, Aloysius Mom Njong.
  South African Journal of Economics. June 21, 2016
  One of the greatest achievements of the twenty‐first century has been the dramatic decline in malaria prevalence notably in endemic developing countries. In this study, we estimate the impact of recent scale up in malaria control in Senegal on neonatal, postnatal and infant mortality. We exploit natural preintervention variation in malaria prevalence to estimate the impact of recent malaria control policy in Senegal. In a difference in differences design, we find a negative and significant effect on neonatal and infant mortality in malaria endemic regions while the impact on postnatal mortality is inconclusive. We rule out competing explanations such as contemporaneous health campaigns, general improvement in health care delivery and pre‐existing regional time trends. We identify a 26.9% and 16.3% reduction in neonatal and infant mortality, respectively, in malaria endemic regions during 2005–2014. We argue that increase in donor funding for malaria control as well as greater involvement of local communities and civil society organization has proven to be effective. However, the impact of malaria control on mortality may vary substantially depending on early or late infant mortality.

  June 21, 2016   doi: 10.1111/saje.12134   open full text
• Public Revenue‐Expenditure Nexus in South Africa: Are there Asymmetries?
  Ahmad Zubaidi Baharumshah, Aliyu Alhaji Jibrilla, Abdalla Sirag, Hamisu Sadi Ali, Ibrahim Muye Muhammad.
  South African Journal of Economics. May 30, 2016
  This paper re‐examines the government revenue and expenditure relationship in South Africa using Enders and Siklos' Threshold adjustment and Granger causality tests. The paper allows for structural breaks in the unit root and cointegration tests. The results indicate the absence of any asymmetries in both the threshold autoregression and momentum threshold autoregression specifications of adjustments in the South African's budgeting process. The estimated symmetric error‐correction models provide support for the fiscal synchronization hypothesis of government revenues and expenditures for long‐run and short‐run dynamic equilibrium. These findings indicate that the South African fiscal authorities should try to maintain or even improve the control of their fiscal policy instruments to sustain the prudent budgetary process.

  May 30, 2016   doi: 10.1111/saje.12130   open full text
• Concepts and Measures of Saving: Selected Issues for South Africa.
  Anna Orthofer.
  South African Journal of Economics. May 04, 2016
  South African household savings rates have been declining steadily over the last five decades, raising concerns that the population structurally under‐saves. Against the background of new saving‐enhancing policy initiatives, this paper asks to what extent the concern is founded, and whether the measurement of saving is really appropriate to guide economic policy. Comparing different macroeconomic concepts and measurements of saving, we show that the measure of saving in the national accounts (the residual between income and expenditure) understates the household savings rate compared to other measures. Specifically, an alternative measure from the balance sheets (the change in wealth) yields a significantly higher and non‐declining figure. While households have not been “putting aside” their incomes, they have nevertheless grown richer, driven largely by the appreciation of asset valuations. We also examine the impact of taking non‐financial saving and wealth into account, and conclude that household sector saving on the aggregate is significantly higher than the national accounts suggest. However, these adjusted measures are most relevant for the upper tail of the income and wealth distribution, raising important distributional concerns.

  May 04, 2016   doi: 10.1111/saje.12129   open full text
• Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda.
  Joseph Mawejje, Ezra Francis Munyambonera.
  South African Journal of Economics. May 03, 2016
  This paper contributes to a growing strand of literature on the determinants of tax revenue performance in developing countries, particularly in Sub‐Saharan Africa. More specifically we estimate the tax elasticities of sectoral output growth and public expenditure. The unique features of this paper are twofold: First, we develop a simple analytical model for tax revenue performance taking into account some structural features pervasive in most developing countries with large informal sectors. Second, we test the model predictions on Ugandan time series data using ARDL bounds testing techniques. Results indicate that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance. In addition development expenditures, trade openness, and industrial sector growth are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.

  May 03, 2016   doi: 10.1111/saje.12127   open full text
• Major International Information Flows Across the Safex Wheat Market.
  Chris Motengwe, Angel Pardo.
  South African Journal of Economics. April 28, 2016
  We study information flows across four wheat futures markets on four continents: Zhengzhou Commodity Exchange (ZCE), South African Futures Exchange (SAFEX), Euronext/Liffe and Kansas City Board of Trade (KCBT). Three approaches for studying information flows among non‐synchronous markets are applied: cointegration techniques, vector autoregressive analysis and multiple regression proposed. Although comparable underlying assets are traded in the four markets, our results indicate that no long‐run links exist among them. ZCE is by far the most endogenous market, and Euronext/Liffe is the most exogenous one. Finally, the model points to KCBT as the most influential and sensitive wheat market. Our findings indicate that the relative openness of the SAFEX wheat market supports information flows and linkages from KCBT and Euronext/Liffe. Therefore, our results suggest that more supportive policies to incentivise higher wheat production in South Africa are required to mitigate the impact of price shocks emanating from the global wheat markets.

  April 28, 2016   doi: 10.1111/saje.12128   open full text
• A Bayesian Efficiency Analysis of Angolan Banks.
  Carlos Pestana Barros, Emanuel Reis Leão, Nkanga Pedro João Macanda, Zorro Mendes.
  South African Journal of Economics. April 26, 2016
  This article studied the technical efficiency of Angolan banks from 2005 to 2012 using a Bayesian stochastic frontier model. The intermediation approach to banking was adopted. The results revealed that Angolan banks were very efficient and that efficiency varies little among the banks analysed. Furthermore, the differences in efficiency between foreign banks, public banks, large‐sized banks and banks that belong to a local conglomerate were examined. It was concluded that the greatest efficiency was to be found in the case of foreign banks. Since size and conglomerate membership do not seem to lead to greater bank efficiency, it was proposed that Angolan policymakers should promote competition in the banking sector.

  April 26, 2016   doi: 10.1111/saje.12124   open full text
• How does a Change in the Excise Tax on Beer Impact Beer Retail Prices in South Africa?
  Caitlan Russell, Corne van Walbeek.
  South African Journal of Economics. April 12, 2016
  This article uses price data, collected by Statistics South Africa, to estimate the effect of a change in the excise tax on the retail price of beer. We find strong evidence that the excise tax on beer is overshifted to consumers. The pass‐through coefficient is estimated at 4.83 (95% CI: 4.02; 5.64) for lager, and at 4.77 (95% CI: 4.04; 5.50) for all beer (which includes dark beer). This implies that for every R1/unit increase in the excise tax, the retail price increases by about R4.80/unit. Of the 23 brand‐packaging combinations considered, the pass‐through coefficients vary between 2.39 and 10.05 (median = 5.30). The majority of the price change in response to a tax change occurs immediately, and prices have fully adjusted two months after the excise tax increase becomes effective. Pass‐through differs substantially across packaging types. The pass‐through coefficient on 750 ml bottles is substantially lower than that of 330 ml (or 340 ml) cans and 6 × 330 ml (or 6 × 340 ml) “six‐packs.” The overshifting of the excise tax has positive implications for public health policy, since they increase the effectiveness of alcohol taxes as a tool to reduce the (excessive) consumption of beer.

  April 12, 2016   doi: 10.1111/saje.12123   open full text
• Fiscal Consolidation and the Public Sector Balance Sheet in South Africa.
  Philippe Burger, Krige Siebrits, Estian Calitz.
  South African Journal of Economics. March 24, 2016
  Between 1994 and 2008 the South African government reduced its debt/GDP ratio from almost 50% to 27%. Unfortunately this reduction was accompanied by a significant decrease in government's fixed capital/GDP ratio from 90% to 55% – fiscal sustainability might have been restored, but government's balance sheet did not improve. A similar story can be told for State Owned Enterprises. Since the Great Recession the fiscal situation worsened markedly – the public debt ratio again approaches 50%. To restore fiscal sustainability this article suggests that the government faces two options: (1) to create room for future countercyclical policy, the government must cut current expenditure and reduce the public debt/GDP ratio to its pre‐crisis level, or (2) substitute much‐needed infrastructure capital expenditure for current expenditure while stabilising the debt/GDP ratio at its post‐crisis level. Given that the much lower fixed capital/GDP ratio inhibits economic growth, the latter option might be more sensible.

  March 24, 2016   doi: 10.1111/saje.12126   open full text
• JJI Middleton Award.
  
  South African Journal of Economics. March 03, 2016
  There is no abstract available for this paper.

  March 03, 2016   doi: 10.1111/saje.12125   open full text
• Estimating the Short Run Effects of South Africa's Employment Tax Incentive on Youth Employment Probabilities using A Difference‐in‐Differences Approach.
  Vimal Ranchhod, Arden Finn.
  South African Journal of Economics. February 15, 2016
  South Africa's Employment Tax Incentive (ETI) came into effect on the 1st of January 2014, with the objective of reducing the substantial national youth unemployment rate. Under the ETI, firms are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilise several waves of nationally representative data and implement a difference‐in‐differences methodology at the individual level, in order to identify the effects of the ETI on youth employment probabilities in the short run. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is −0.005 and the 95% confidence interval is from −0.017 to 0.006. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. Thus, any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed as many youth even in the absence of the ETI.

  February 15, 2016   doi: 10.1111/saje.12121   open full text
• Revisiting Growth‐Poverty Relationship: A Medium‐Term Causality Approach.
  Salvador Pérez‐Moreno.
  South African Journal of Economics. February 08, 2016
  This article examines the potential medium‐term causal relationship between changes in Gross Domestic Product (GDP) per capita and poverty in developing countries during the 1970s–1990s. For this purpose, we use panel data model evaluation techniques to test the out‐of‐sample forecasting performance of competing models. We conclude that the evidence supports the hypothesis that increases in GDP per capita cause unidirectional poverty reduction, measured by the $1/day poverty rate, in the period 1970s–1980s. The results are similar when analysing low‐ and middle‐income countries and mid‐high‐ and very high‐inequality countries separately. However, in the period 1980s–1990s, it is only statistically significant for low‐income countries.

  February 08, 2016   doi: 10.1111/saje.12120   open full text
• Equity, Bonds, Institutional Debt and Economic Growth: Evidence from South Africa.
  Ashenafi Beyene Fanta, Daniel Makina.
  South African Journal of Economics. February 05, 2016
  We examine the finance‐growth nexus in South Africa accounting for the role of bond markets, stock markets, and bank and non‐bank financial intermediaries using a vector autoregressive technique. Extant empirical literature has largely accounted for only banks and stock markets, ignoring bond market and non‐bank financial intermediaries. We find that bond market development affects economic growth in South Africa, and no similar effect is observed for the bank and non‐bank financial intermediaries and the stock market. Our finding shows that examination of individual elements of the financial system is important in understanding the unique effect of each on growth. The observation that the bond market rather than stock market, bank and non‐bank institutions promote economic growth in South Africa induces an intriguing question as to what unique roles bond markets play that the intermediaries and equity market are unable to play.

  February 05, 2016   doi: 10.1111/saje.12122   open full text
• Measuring Persistence in Inflation: Evidence For angola.
  José Manuel Belbute, Leonardo Dia Massala, Júlio António Delgado.
  South African Journal of Economics. December 22, 2015
  The purpose of this paper is to examine the degree of persistence in five inflation indicators for Angola, and to identify the implications for decision making. Our results suggest that when structural breaks are accounted for, all five inflation indicators are stationary. Second, our findings suggest that persistence is not too high. Moreover, the degree of persistence is similar among the five inflation indicators and throughout the sample period. Finally, our results also show that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original. These results have important policy implications as the National Bank of Angola is preparing to change its monetary policy focus to a more inflation‐targeting regime.

  December 22, 2015   doi: 10.1111/saje.12118   open full text
• The Political Economy of Middle‐Income Traps: Is South Africa in a Long‐Run Growth Trap? The Path to “Bounded Populism”.
  John M. Luiz.
  South African Journal of Economics. October 18, 2015
  The current literature on middle‐income traps has been dominated by economists who have relied on economic explanations mainly around stages of development and the structural transformation of economies. But there is an equally vigorous literature from political science which speaks to the political economy of transitions. We look at the dynamics of how economic modernisation triggers structural changes with winners and losers and how this is reflected in the polarisation of the political sphere amongst middle‐income countries. This paper asks the question of whether South Africa is an archetypical example of a country stuck in a trap and how this has affected the policy choices that it has made. South Africa needs to move up the value chain with a viable value proposition, and this requires a very different policy set and human capital plan.

  October 18, 2015   doi: 10.1111/saje.12117   open full text
• On Determinacy and Learnability in a New Keynesian Model with Unemployment.
  Mewael F. Tesfaselassie, Eric Schaling.
  South African Journal of Economics. October 18, 2015
  We analyse determinacy and stability under learning (E‐stability) of rational expectations equilibria in a new Keynesian model of inflation and unemployment, where labour market frictions due to costs of hiring workers play an important role. We derive results for alternative specifications of monetary policy rules and alternative values of hiring costs as a percentage of gross domestic product. We find that in general the region of indeterminacy and E‐instability in the policy space increases with hiring costs. Thus, higher hiring costs – consistent with European and South African “sclerotic” labour market institutions – seem to play an important part in explaining inflation and unemployment instability. Moreover, under lagged data‐based rules, the area where monetary policy delivers both determinacy and E‐stability shrinks. These rules also perform worse according to these two dimensions when hiring costs go up. Finally, under expectations‐based rules an additional explosive region is introduced. For South Africa, a rule based on current data – not unlike the original Taylor rule – works better than a forward‐looking rule.

  October 18, 2015   doi: 10.1111/saje.12107   open full text
• Asset Price Bubbles: Existence, Persistence and Migration.
  Jose E. Gomez‐Gonzalez, Jair N. Ojeda‐Joya, Juan P. Franco, Jhon E. Torres.
  South African Journal of Economics. September 13, 2015
  Econometric tests are performed for the detection and migration of asset‐price bubbles in the housing, currency and stock markets of seven countries. This set of countries includes both developed and emerging economies that have good historical data on housing prices. Our empirical results suggest that this type of exuberant behaviour in prices occurs more frequently in the housing market than in the currency and stock markets. Additionally, we find significant evidence of bubble migration across markets within some of the studied countries.

  September 13, 2015   doi: 10.1111/saje.12108   open full text
• The Short‐Term Economic Impact of Levying E‐Tolls on Industries.
  Francois Jacobus Stofberg, Jan Van Heerden.
  South African Journal of Economics. September 11, 2015
  TERM is used to analyse the short‐term regional economic impact of an increase in industries' transport costs when paying E‐Tolls. Market‐clearing and accounting equations allow regional economies to be represented as an integrated framework, labour adjusts to accommodate increasing transportation costs, and investments change to accommodate capital that is fixed. We concluded that costs from levying E‐Tolls on industries are small in comparison to total transport costs, and the impact on economic aggregates and most industries are marginal: investments (−0.404%), gross domestic product (GDP) (−0.01) and consumer price inflation (−0.10%). This is true even when considering costs and benefits on industries as well as consumers. Industries that experienced the greatest decline in output were transport, construction and gold. Provinces that are closer to Gauteng and have a greater share of severely impacted industries experienced larger GDP and real income reductions. Mpumalanga's decrease in GDP was 17% greater than Gauteng's.

  September 11, 2015   doi: 10.1111/saje.12106   open full text
• Public Debt, Economic Growth and Inflation in African Economies.
  José Augusto Lopes da Veiga, Alexandra Ferreira‐Lopes, Tiago Neves Sequeira.
  South African Journal of Economics. August 24, 2015
  We analyse the relationship between public debt, economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt are negatively related to economic growth and exhibit, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. Briefly, the high levels of public debt are coincident with reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the gross domestic product (GDP) and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio of public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. An identical behaviour of the GDP growth rates and inflation also appears in Sub‐Saharan countries until the third interval (60–90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30–60%). For the countries of the Southern Africa Development Community, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. A number of robustness analyses were performed and the great majority of them confirm the general analysis.

  August 24, 2015   doi: 10.1111/saje.12104   open full text
• Predicting Efficiency in Angolan Banks: A Two‐Stage TOPSIS and Neural Networks Approach.
  Peter Wanke, Carlos Barros, Nkanga Pedro João Macanda.
  South African Journal of Economics. August 14, 2015
  This paper presents an efficiency assessment of the Angolan banks using Technique for Order Preference by Similarity to the Ideal Solution (TOPSIS). TOPSIS is a multi‐criteria decision‐making technique similar to data envelopment analysis, which ranks a finite set of units based on the minimisation of distance from an ideal point and the maximisation of distance from an anti‐ideal point. In this research, TOPSIS is used first in a two‐stage approach to assess the relative efficiency of Angolan banks using the most frequent indicators adopted by the literature. Then, in the second stage, neural networks are combined with TOPSIS results as part of an attempt to produce a model for banking performance with effective predictive ability. The results reveal that variables related to cost structure have a prominent negative impact on efficiency. Findings also indicate that the Angolan banking market would benefit from higher level of competition between institutions.

  August 14, 2015   doi: 10.1111/saje.12103   open full text
• Current Account Deficit in Mauritius: Risks and Prospects.
  Ahmad Jameel Khadaroo.
  South African Journal of Economics. August 03, 2015
  Mauritius is often cited by international institutions, including the International Monetary Fund and World Bank, as a success story in economic development. The island has, since the early 1970s, adopted an export‐led growth strategy to power its economy. However, a constant decline over the last decade in the exports to gross domestic product (GDP) ratio has resulted in a worsening current account to GDP ratio, which is now a cause for concern. Using a three‐regime, self‐exciting threshold autoregressive (SETAR) model, this paper finds that the Mauritian economy may converge to either of two current account equilibria, namely a deficit of 9% or a surplus of 2.5% on a seasonally adjusted basis. A dynamic simulation exercise suggests that the Mauritian current account is more likely to switch from surplus to deficit equilibrium than from deficit to surplus equilibrium. Given that the prevailing deficit is in the vicinity of the deficit equilibrium, structural policies aiming to boost productivity and efficiency are indispensable for pulling Mauritius out of the “deficit trap,” the more so since the island has been experiencing a continuous erosion of trade preferences, which formerly enabled it to have privileged access for its exports to the EU market.

  August 03, 2015   doi: 10.1111/saje.12102   open full text
• The Effects of Remittances on Output per Worker in Sub‐Saharan Africa: A Production Function Approach.
  John Ssozi, Simplice A. Asongu.
  South African Journal of Economics. August 03, 2015
  This paper uses a production function to examine the channels through which remittances affect output per worker in 31 Sub‐Saharan African countries from 1980 to 2010. Lagged remittances increase physical capital per worker, average years of schooling and total factor productivity, but the effectiveness of remittances varies with the income level of the recipient nation. Although remittances have increased both physical capital and total factor productivity among the upper middle income nations, among the lower middle income, they have increased only the physical capital. Meanwhile a reduction in institutional risk has encouraged investment and efficiency, but its relationship to the effectiveness of remittances has been inconclusive.

  August 03, 2015   doi: 10.1111/saje.12100   open full text
• The Economic Value of Time: Evidence from Africa.
  Kifle Wondemu.
  South African Journal of Economics. July 22, 2015
  When excessive and inefficiently implemented, government interventions can result in significant economic losses for citizens. These include the often‐significant cost of lost time. This paper thus aims to estimate the potential economic welfare benefit of reducing public office waiting times. Based on data from Johannesburg, Lagos and Addis Ababa, we show that a one‐hour reduction in waiting time improves welfare by 66‐74% of the average local wage. High‐income earners, college graduates and private‐sector employees enjoy higher gains. Moreover, we note that the proxies currently used to quantify time‐saving benefits diverge significantly from the rate at which individuals substitute time for money. Our analysis also indicated a substantial delay‐induced citywide efficiency loss. Introducing public–private partnership and charging premium fees for faster service delivery are justifiable both on grounds of equity and efficiency.

  July 22, 2015   doi: 10.1111/saje.12098   open full text
• Private Sector Participation in the Provision of Quality Drinking Water in Urban Areas of Ghana: What Do Households Want and Can Afford?
  Godwin K. Vondolia, Francis Mensah Asenso‐Boadi.
  South African Journal of Economics. July 22, 2015
  This study conducts a survey among households in three cities in Ghana on how water delivery should be managed. The contingent valuation method was used to estimate the willingness to pay for improved water delivery under private sector participation. Results indicate that most households will remain connected to their current water supplies if private sector is engaged to improve water delivery at higher monthly water bills. Given that the mean household monthly water bill of GH¢10.82, the results indicate that there is demand for water quality improvement, and private sector engagement is likely to provide these services. However, this policy measure marginalises the poor in terms of access to water. Therefore, private sector participation in water delivery may require a complementary programme to promote access to water.

  July 22, 2015   doi: 10.1111/saje.12099   open full text
• Undervaluation of Real Estate Properties in Disadvantaged Areas in the City of Johannesburg.
  Mahlape Mohale, Hermanus Stephanus Geyer, Hermanus Stephanus Geyer.
  South African Journal of Economics. July 22, 2015
  Since the end of apartheid, the growth of the real estate market in the historically disadvantaged residential areas of South African cities has been quite remarkable. Transactions in this property market, which can take on several forms of exchange of ownership or occupation, in many respects defy de Soto's definition of dead capital. Yet, despite this booming market, large parts of these residential areas are still regarded by local government as having no capital value. Although the titling of properties cannot be regarded as the only or even the main immediate solution to alleviating poverty within these communities, it certainly presents a real and immediate potential opportunity to many of them. This paper attempts to determine the potential size of this market. It starts with perspectives on land values, the property market and the titling of informal properties and examines different methods used in the evaluation of properties both in the formal and informal residential sectors. Drawing on empirical literature and research findings, the paper makes an attempt at establishing the form and value of what is regarded as the degree of undervaluation of real estate capital by the local authority.

  July 22, 2015   doi: 10.1111/saje.12097   open full text
• Stock Returns and Exchange Rate Nexus in Ghana: A Bayesian Quantile Regression Approach.
  Gideon Boako, Maurice Omane‐Adjepong, Joseph Magnus Frimpong.
  South African Journal of Economics. July 22, 2015
  This paper presents analysis of the relationship and dependence structure between stock returns and exchange rates in Ghana using data of daily periodicity from January 4, 2011 to July 31, 2014. Analyses are conducted by means of Bayesian quantile regression (QR) technique and multiple causality tests. Our findings suggest high dependence of the equity market on the foreign exchange market in Ghana, and that the link between the two markets follows the international trade‐oriented model more than the portfolio balance theory. We report that among the six exchange rates used, only the cedi–dollar registers instantaneous effect on the equity market.

  July 22, 2015   doi: 10.1111/saje.12096   open full text
• Institutional Quality and CO2 Emission–Trade Relations: Evidence from Sub‐Saharan Africa.
  Mansor H. Ibrahim, Siong Hook Law.
  South African Journal of Economics. June 15, 2015
  This paper examines the roles of trade, institutional quality and their interactions in explaining carbon dioxide emissions in a panel sample of 40 Sub‐Sahara African countries using the system generalised method of moments. We find that institutional reforms are unequivocally environmental improving. Meanwhile, the impacts of trade on the environment tend to depend on the institutional setting of a country. More specifically, trade openness is harmful to the environment in countries with low institutional quality and beneficial to the environment in countries with high institutional quality. This means that institutional reforms are a perquisite for the countries with low institutional quality to actualise the beneficial environment effect of trade. As for the countries with adequate institutional quality, trade and institutions are reinforcing each other in bringing down pollution. From these results, we conclude that trade openness implemented in a sound institutional setting potentially brings better trade, more growth and better environment.

  June 15, 2015   doi: 10.1111/saje.12095   open full text
• South African Exporters and the Global Crisis: Intensive Margin Shock, Extensive Margin Hangover.
  Marianne Matthee, Thomas Farole, Tasha Naughtin, Neil Rankin.
  South African Journal of Economics. May 26, 2015
  This paper examines how changes at the intensive (established exporters exporting existing products to established markets) and the extensive (new exporters, products or markets) margins contribute to South African export growth and how this was affected by the global financial crisis. We find that the intensive margin is the more important contributor to export growth, contributing more than three quarters of observed growth. The intensive margin contracted significantly during the global financial crisis of 2009 but bounced back to pre‐crisis levels quickly. However, the impacts on the extensive margin persisted after the crisis with lower levels of entry of firms, new products and new destinations. The short‐term impact of the crisis was mitigated by the concentration of South African exports among larger, more productive super‐exporters. However, the fall in entry of new firms, products and destinations as a result of the crisis may mean that this concentration persists, and, at least over the next few years, South Africa does not diversify and broaden its exports.

  May 26, 2015   doi: 10.1111/saje.12094   open full text
• Food Demand Characteristics in Uganda: Estimation and Policy Relevance.
  Ole Boysen.
  South African Journal of Economics. May 20, 2015
  Uganda was highly successful in reducing poverty over the past two decades but made little progress towards household food security. This underlines the need for designing food security interventions customised for household‐specific needs and behaviours. This study estimates Ugandan household demand behaviour with a focus on food consumption paying particular attention to household‐specific characteristics. The results show that preferences to increase calorie‐dense staple consumption, likely associated with food energy deficiency, extend far beyond the percentage of rural Ugandans officially deemed poor. Price elasticities indicate that poor rural households are largely well positioned to compensate staple price increases by substitution as long as they are not already concentrated on the cheapest foods. This flexibility applies less to urban households. The estimated demand elasticities generally vary widely between rural and urban households and depend on expenditure levels. Household‐specific characteristics have significant, sometimes pronounced, influences on demand, as do seasons and regions. The results reflect highly differentiated demand behaviour, which can be utilised to improve the design and evaluation of food security interventions.

  May 20, 2015   doi: 10.1111/saje.12093   open full text
• A Diagnostic on the West African Monetary Union.
  Chee‐Heong Quah.
  South African Journal of Economics. May 06, 2015
  Deploying the classical optimum currency areas (OCA) theory and recent developments in the monetary literature, this paper evaluates the appropriateness of West African Monetary Union (WAEMU) as a monetary zone. Nine macroeconomic dimensions are investigated under which the first four items are quantified against a reference economy, namely the United States, the eurozone or China, while the rest are measured in absolute terms for time periods before and after the 2008‐2009 global financial crisis. Results could signify relative dominance of the three world's largest economies to the West African region. In addition to inherent asymmetries across the union, findings suggest the emerging Chinese yuan as an alternative to the euro as the monetary anchor.

  May 06, 2015   doi: 10.1111/saje.12089   open full text
• The Effect of Land Restitution on Poverty Reduction among the Khomani San “Bushmen” in South Africa.
  Johane Dikgang, Edwin Muchapondwa.
  South African Journal of Economics. April 09, 2015
  This paper looks at the impact of land restitution involving the Khomani San “bushmen” in the Kgalagadi area of South Africa. It seeks to investigate the effect of land restitution on poverty reduction among the beneficiaries. We run two‐stage least squares models of access to nature, per capita income and poverty status on the use of restituted land, among other variables. Our results suggest that the Khomani San beneficiaries have gotten more access to natural resources but that the use of restituted land has neither increased per capita income nor reduced poverty. In fact, the use of restituted land has contributed to increased poverty. Therefore, land restitution should become part of a broader, carefully crafted rural developmental strategy for it to be effective in reducing poverty. Otherwise, land restitution risks enabling indigenous communities to continue with their “traditional” way of life, and in fact thereby keep them poor.

  April 09, 2015   doi: 10.1111/saje.12088   open full text
• Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies.
  Seedwell Hove, Albert Touna Mama, Fulbert Tchana Tchana.
  South African Journal of Economics. April 02, 2015
  Emerging market economies (EMEs) have persistently experienced different waves of commodity terms of trade disturbances, generating macroeconomic instabilities. The adoption of inflation targeting (IT) by many EMEs has raised questions about its relative suitability in dealing with these shocks compared with other monetary policy regimes. This paper tests the robustness of IT compared with monetary targeting and exchange rate targeting regimes in coping with commodity terms of trade shocks using the panel vector autoregressive technique. The results show that in general, IT countries respond better to commodity terms of trade shocks especially with respect to inflation and output gap. However, exchange rates are more volatile in IT countries than in exchange rate targeting countries. The results suggest that EME countries can reduce the adverse effects of commodity terms of trade fluctuations when they adopt IT, but they also need to pay attention to exchange rate movements.

  April 02, 2015   doi: 10.1111/saje.12086   open full text
• What Are the Drivers of Fiscal Performance Gaps between Anglophone and Francophone Africa? A Blinder–Oaxaca Decomposition.
  Babacar Sarr.
  South African Journal of Economics. April 02, 2015
  In this paper, we make use of the Blinder–Oaxaca decomposition to examine how the quality of budget institutions affects fiscal performance – primary balance and public debt – in sub‐Saharan Africa. To organise our approach, we categorise sub‐Saharan Africa countries according to the two main systems of budgetary institutions: the English‐based system and the French‐based system. The quality of budget institutions is measured through five criteria: centralisation, comprehensiveness, fiscal and procedural rules, sustainability and credibility, and transparency. Our findings show that, on average, Anglophone Africa countries have better budgetary institutions than their Francophone counterparts, and this difference is the main determinant of the fiscal performance gaps between the two groups. These performance gaps are mostly due to the characteristics effect, meaning that the relative poor fiscal performance of Francophone countries is not due to the French‐based system itself but rather to the environment in which it operates. The budget process and procedures in these countries are relatively less comprehensive, sustainable and transparent and that adversely affects their fiscal performance.

  April 02, 2015   doi: 10.1111/saje.12084   open full text
• The Political Economy of Public Expenditures in Agriculture: Applications of Concepts to Mozambique.
  Tewodaj Mogues, Domingos Rosario.
  South African Journal of Economics. February 11, 2015
  This paper undertakes an investigation of agricultural public investments in Mozambique, drawing on insights from qualitative field interviews conducted in Mozambique, secondary data analysis and examination of the existing empirical literature, and by situating these insights within a political economy conceptual framework. We explore the driving factors behind the amount and allocation of public funds to agriculture, and behind the differential attention that various types of public investments receive in the process of making decisions on resource allocation. Agricultural public investments are more likely to be made that have two key features: higher attributability to politicians and donors of the output of public spending, and a shorter lag time between expenditures incurred and outputs produced. Evidence on geographical targeting of agricultural public funds corresponds more closely with theories suggesting that resources are used to sway communities opposed to the ruling party, rather than to reward political supporters. Examination of the effect of actors' and organisations' incentives and constraints on resource allocation in agriculture points to the importance of not treating “government,” “the ruling party” and other institutions as monolithic bodies; the paper instead highlights how differentiated interests within seemingly coherent institutions drive what gets public expenditure attention in the agricultural sector.

  February 11, 2015   doi: 10.1111/saje.12076   open full text
• Quantifying Inefficient Expenditure in Local Government: A Free Disposable Hull Analysis of a Sample of South African Municipalities.
  Jugal Mahabir.
  South African Journal of Economics. May 21, 2014
  Municipalities in South Africa play a pivotal role in the provision of basic services to communities. However, local government as a sphere in the country is notorious for its spending inefficiency, which is cited as a major factor in service delivery failure. This paper quantifies inefficient expenditure at the local government level by estimating efficiency scores for a sample of 129 municipalities in South Africa from the 2005/2006 to the 2009/2010 municipal financial years. In essence, this paper examines the technical efficiency of municipalities by using the nonparametric free disposable hull approach and finds that 10 municipalities are constantly efficient over the period. On average, input efficiency scores range from 42% to 46%, suggesting that, in general, municipalities can achieve the same output levels with over 50% less resources. Quantitatively for the 2009/2010 financial year, this amounts to a total of R80 billion being spent inefficiently, which equates to R220 million being “wasted” per day.

  May 21, 2014   doi: 10.1111/saje.12050   open full text
• The Unintended Consequences of Education Policies on South African Participation and Unemployment.
  Rulof Burger, Servaas Berg, Dieter Fintel.
  South African Journal of Economics. May 21, 2014
  In the late 1990s, the South African Department of Education implemented two policies that were meant to reduce the large number of over‐aged learners in the school system: schools were no longer allowed to accept students who were more than two years older than the correct grade age, and students could not be held back more than once in each of four schooling phases. Our analysis uses school administrative data and household survey data to show that these policies coincided with a decrease in school enrolment of at least 400,000 and possibly more than 900,000 learners. These policies appear to have pushed many students into the labour market at earlier ages than was observed for previous generations, which explains much of the sudden increase in labour force participation and unemployment during this period. However, since these individuals would probably have entered the labour market sooner if not for their poor employment prospects, we argue that the resulting increase in unemployment signifies a more accurate reflection of disguised unemployment that already existed in the mid‐1990s rather than a deterioration of labour market conditions.

  May 21, 2014   doi: 10.1111/saje.12049   open full text
• The Impact of Political Instability on Inflation Volatility in Africa.
  Florence Barugahara.
  South African Journal of Economics. May 12, 2014
  This paper investigates whether political instability leads to volatile inflation using a panel of 49 African countries. The study uses novel measures of political instability, particularly the state failure index and state fragility index. In the field of political instability and inflation volatility, this is the first study to measure inflation volatility as the conditional variance of inflation estimated from GARCH (1, 1) model. Adopting the system‐generalized method of moments estimator for linear dynamic panel models for the sample period 1985‐2009, the study documents a positive statistically significant effect of political instability on inflation volatility.

  May 12, 2014   doi: 10.1111/saje.12046   open full text
• A Flexible Neuro‐Fuzzy Approach for Improvement of Seasonal Housing Price Estimation in Uncertain and Non‐Linear Environments.
  Ali Azadeh, Mohammad Sheikhalishahi, Ali Boostani.
  South African Journal of Economics. May 12, 2014
  Changes in housing price affect both individuals and government since they have substantial influence on the socio‐economic conditions. Valuations of housing are necessary in order to assess the benefits and liabilities in housing sector. This study presents a flexible meta‐modelling approach for improvement of housing price estimation in ambiguous and complex environments. It is composed of artificial neural network (ANN) and fuzzy linear regression (FLR). Seven FLR models are considered to cover latest approaches and viewpoints. Also, ANN is applied to data sets. The preferred FLR model is selected via mean absolute percentage of error (MAPE) for further considerations, and then the preferred FLR model and the best structure of ANN are applied to the data set. Finally, the preferred model is selected based on MAPE. The intelligent approach of this study is applied for estimation and forecasting housing price in Iran. The housing price in Iran mainly is based on eight economic indices including currency, oil income, general index, house service pricing index, rate of informal market, gross domestic production in basic price, added value of oil group and construction materials price. FLR is identified as the preferred model with lowest MAPE for housing price forecasting in Iran. This shows that the housing market of Iran is associated with severe environmental fuzziness and ambiguity. This is the first study that introduces a flexible neuro‐fuzzy approach for improved estimation and forecasting of housing price in noisy, complex and uncertain environments.

  May 12, 2014   doi: 10.1111/saje.12047   open full text
• Liberalisation and Financial Sector Competition: A Critical Contribution to the Empirics with an African Assessment.
  Simplice Asongu.
  South African Journal of Economics. May 12, 2014
  This paper investigates how financial, trade, institutional and political liberalisation policies have affected financial sector competition in Africa using updated data to appraise second‐generation reforms. The “freedom to trade” and “economic freedom” indices are employed. Hitherto, unexplored financial sector concepts of formalisation, semi‐formalisation, informalisation and non‐formalisation are also introduced. The following findings are established. First, relative to money supply, (i) with the exception of the economic freedom mechanism, liberalisation policies have generally decreased the growth of the formal financial sector to the benefit of other financial sectors; (ii) apart from the foreign direct investment and economic freedom channels, liberalisation policies have been fruitful for semi‐formal financial development at the cost of other financial sectors and; (iii) with the exception of economic freedom, both the informal and non‐formal sectors have developed owing to liberalisation to the detriment of the formal financial sector. Second, relative to gross domestic product, the semi‐formal, informal and/or non‐formal financial sectors have also generally improved as a result of liberalisation. Policy implications are discussed.

  May 12, 2014   doi: 10.1111/saje.12048   open full text
• Empirical Analyses of Extreme Value Models for the South African Mining Index.
  Knowledge Chinhamu, Chun‐Kai Huang, Chun‐sung Huang, Jahvaid Hammujuddy.
  South African Journal of Economics. May 12, 2014
  While the classical normality assumption is simple to implement, it is well known to underestimate the leptokurtic behaviour demonstrated in most financial data. After examining properties of the Johannesburg Stock Exchange Mining Index returns, we propose two extreme value models to fit its negative tail with a higher degree of accuracy. The generalised extreme value distribution (GEVD) is fitted using the block maxima approach, while the generalised Pareto distribution (GPD) is fitted using the peaks‐over‐threshold method. Numerical assessment of value‐at‐risk (VaR) estimates indicates that both GEVD and GPD increasingly outperform the normal distribution as we move further into the lower tail. In addition, GEVD produces lower estimates relative to that of the historical VaR, and GPD provides slightly more conservative estimates for adequate capitalisation.

  May 12, 2014   doi: 10.1111/saje.12051   open full text
• Capital Flows: The South African Experience.
  Logan Rangasamy.
  South African Journal of Economics. April 22, 2014
  There has been a significant rise in the empirical work distinguishing between episodes of sharp slowdowns and surges in capital inflows. Much of this analysis has centred on gaining a better understanding of the cyclical behaviour of capital flows. This paper continues in this vein by identifying capital flow episodes for South Africa and analyses the nature and main drivers of cross‐border flows during these episodes. This paper makes two major contributions to the empirical work on South African capital flows. First, specific attention is given to some pertinent measurement issues in the identification of capital flow episodes for South Africa. The post capital account liberalisation period (post‐1995‐period) is delineated into a “normal” period (when capital inflows were close to historical averages) and an “abnormal” period (when capital inflows deviated significantly from the historical average). Second, the paper identifies some defining characteristics during these two periods. In this regard, the behaviour of domestic and foreign agents as drivers of capital flows and the probability of capital flow reversals across asset classes are given particular attention. Although these issues have significant policy implications, they have, to date, been given limited attention in the empirical work on South African capital flows.

  April 22, 2014   doi: 10.1111/saje.12044   open full text
• Measuring Multi‐Membership in Economic Integration and Its Trade Impact: A Comparative Study of ECOWAS and SADC.
  Sylvanus Kwaku Afesorgbor, Peter A. G. Bergeijk.
  South African Journal of Economics. April 22, 2014
  One of the intriguing aspects of African regional trade agreements (RTAs) is the extent of multi‐membership, where many African countries are members of more than one RTA. Using a gravity model for 25 countries and the years 1980‐2006, we measure the extent of multi‐membership and compare its impact in two major African regional blocs, Economic Community of West Africa States (ECOWAS) and Southern Africa Development Community (SADC). We find that the impact of multi‐membership critically depends on the characteristics of the multi‐membership of regional integration initiatives. We find a positive impact if an additional membership complements the integration process of the original regional integration initiative: overlapping memberships had a much stronger and significant positive effect on bilateral trade within ECOWAS compare with an insignificant impact within the SADC.

  April 22, 2014   doi: 10.1111/saje.12045   open full text
• SADC Trade with the European Union from a Preferential to a Reciprocal Modality.
  Rehab O. M. Osman.
  South African Journal of Economics. April 01, 2014
  This study employs a global computable general equilibrium (CGE) model to examine the potential impacts of the Economic Partnership Agreements (EPAs) between the European Union (EU) and the Southern African Development Community (SADC). The simulation results suggest that a comprehensive EPA scenario is welfare‐improving for many SADC members. SADC preferential access to the EU markets is the key source for the prospective welfare and terms of trade gains. Overall, SADC production structures become more concentrated in export‐oriented sectors. These structural changes are accompanied by a high degree of adjustment and substantial fiscal losses.

  April 01, 2014   doi: 10.1111/saje.12043   open full text
• How to Model a Child in School? A Dynamic Macrosimulation Study for Tanzania.
  Hannah Schuerenberg‐Frosch.
  South African Journal of Economics. March 13, 2014
  Universal primary education is regarded as one of the key pillars of sustainable development. The positive influence of education on growth is supported by many empirical studies. However, the effects of education on labour supply, poverty reduction and welfare as well as subsistence agriculture are hardly traceable in an econometric set‐up, given the complex interactions and the long‐term nature of education. An economy‐wide dynamic simulation model provides a well‐suited toolkit to analyse the effects of increased school provision in these aspects and provides insights into the intertemporal aspects of the schooling decision of children. We develop a macroeconomic model that explicitly includes education and human capital allocation, and takes into account that the possibility of child labour increases the opportunity costs of human capital formation. In an application for Tanzania, we find that a large‐scale investment programme in education might have a negative effect on both gross domestic product (GDP) growth and high‐skilled labour supply in the short term but leads to higher GDP and welfare as well as significantly reduced child labour supply in the medium to long term.

  March 13, 2014   doi: 10.1111/saje.12042   open full text
• A Case for Economic Capital as a Pillar 1 Regulatory Tool.
  Johann Jacobs, Gary Vuuren.
  South African Journal of Economics. March 06, 2014
  Regulatory capital – as a tool for financial regulation – has come under scrutiny following the financial crisis of 2007‐2010 in terms of its ability to achieve the major objectives of financial regulations, namely contributing to financial stability; the provision of equally competitive regulatory conditions for financial institutions; and aiming to ensure that regulatory capital requirements are risk‐sensitive. This article investigates and compares the risk‐sensitivity of economic capital and regulatory capital requirements empirically from a systemic and institution‐specific perspective. The results are assessed to determine whether current regulatory capital requirements are representative of the relevant risks financial institutions face. Given these results as well as calls to strengthen Basel's Pillar 2 disciplines in the aftermath of the crisis, it also presents a case for regulators to place a heavier reliance on economic capital – rather than regulatory capital numbers.

  March 06, 2014   doi: 10.1111/saje.12041   open full text
• Resource utilisation Efficiency: A South African Provincial Evaluation.
  Chris Heerden, Riaan Rossouw.
  South African Journal of Economics. February 13, 2014
  The objective of this paper is to analyse the utilisation of production capacity and total under‐utilisation in order to identify weak‐performing industries across the nine South African provinces. Detecting inefficiencies within the different provinces will help to identify where sound managerial or government intervention is required, which can contribute to the future success of the New Growth Path Framework and the Strategic Integrated Projects. Using a multistage data envelopment analysis model at the subnational level, several categories of production factors are explored: intermediate demand, labour, capital, as well as taxes and subsidies. The results emphasise South Africa's weak infrastructure and the failure to effectively promote stability in managing factor inputs. The results further illustrate that industry scale efficiency for water and electricity are poorest across all provinces, highlighting the current water and energy supply concerns in South Africa and problem areas associated with the National Development Program.

  February 13, 2014   doi: 10.1111/saje.12037   open full text
• Is System Dynamics Modelling of Relevance to Neoclassical Economists?
  Douglas J. Crookes, Martin P. De Wit.
  South African Journal of Economics. February 13, 2014
  System dynamics modelling is a technique that is widely used in business, environmental and ecological applications. In the field of economics, however, it is less frequently used, and those that do use it are usually not professionally trained economists. One of the reasons for this is the perceived ideological differences between system dynamics modelling and neoclassical economics. System dynamics is classified in the literature as a heterodox approach. This article utilises a reputable framework from social theory to compare system dynamics modelling and neoclassical economics on ontological and epistemological grounds. This is the first known study to find congruency between these two approaches on this basis. System dynamics modelling has the potential to increase the range of modelling tools at the disposal of neoclassical economics, so long dominated by econometric and general equilibrium modelling approaches.

  February 13, 2014   doi: 10.1111/saje.12038   open full text
• REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union.
  Simplice Asongu.
  South African Journal of Economics. February 13, 2014
  With the spectre of the euro crisis hunting embryonic monetary unions, we use a dynamic model of a small open economy to analyse real effective exchange rate (REER) imbalances and examine whether the movements in the aggregate real exchange rates are consistent with the underlying macroeconomic fundamentals in the proposed West African Monetary Union (WAMU). Using both country‐oriented and WAMU panel‐based specifications, we show that the long‐run behaviour of the REERs can be explained by fluctuations in the terms of trade, productivity, investment, debt and openness. While there is still significant evidence of cross‐country differences in the relationship between underlying macroeconomic fundamentals and corresponding REERs, the embryonic WAMU has a stable error correction mechanism, with four of the five cointegration relations having signs that are consistent with the predictions from economic theory. Policy implications are discussed, and the conclusions of the analysis are a valuable contribution to the scholarly and policy debate over whether the creation of a sustainable monetary union should precede convergence in macroeconomic fundamentals that determine REER adjustments.

  February 13, 2014   doi: 10.1111/saje.12039   open full text
• Job Creation and Destruction in South Africa.
  Andrew Kerr, Martin Wittenberg, Jairo Arrow.
  South African Journal of Economics. January 14, 2014
  Analysts of the South African labour market have mainly used household surveys to analyse the labour market. It has been more difficult to explore the labour demand of firms, as a result of limited data availability. We use the Quarterly Employment Statistics survey, an enterprise survey conducted by Statistics South Africa, to explore how South African firms create and destroy jobs, thereby shedding light on many of the policy questions that are relevant in a high unemployment society like South Africa. We find that job creation and destruction rates are similar to those found in Organisation for Economic Co‐operation and Development countries. There is little evidence that labour legislation creates rigidities that prevent firms from hiring or firing workers. We also find that larger firms are better net creators of jobs than small firms and that net job creation rates are negative in manufacturing. Our research has important policy implications – particularly for the South African National Planning Commission's 2030 plan, in which new jobs are envisaged to come mainly from small‐ and medium‐sized firms. Our research suggests that this scenario is not likely without changes to policy or legislation.

  January 14, 2014   doi: 10.1111/saje.12031   open full text
• Technical Efficiency in the Angolan Banking Sector with the B‐convexity Model.
  Carlos P. Barros, Qi Bin Liang, Nicolas Peypoch.
  South African Journal of Economics. January 03, 2014
  This paper analyses technical efficiency in Angolan banks from 2005 to 2010 with an innovative production frontier model, the B -convexity model. The intermediate approach is adopted. It is observed that the efficiency increases over the observation period, according to the international experience, market share and local markets. Policy implications indicate that competition and governance should be promoted in order to increase efficiency.

  January 03, 2014   doi: 10.1111/saje.12034   open full text
• Income Convergence in African Countries: Evidence from a Stationary Test With Multiple Structural Breaks.
  Omid Ranjbar, Chien‐Chiang Lee, Tsangyao Chang, Mei‐Ping Chen.
  South African Journal of Economics. December 17, 2013
  This paper examines the catching‐up (stochastic convergence in real per capita income) hypothesis for 52 African countries with respect to the USA. over the 1969‐2011 period, using a highly flexible stationarity test. The empirical results show (i) that all African countries experienced at least one break, switching between catching‐up and divergence paths during the sample period; (ii) that structural breaks tend to coincide with political instability, trade liberalisation policies and terms of trade shocks; (iii) that among the 52 African countries studied, only five lie on the catching‐up path, while the remaining 47 diverge from the USA. Our results show that the economic performance of African countries fall far behind those of the USA and that the economic growth tragedy of Africa continues.

  December 17, 2013   doi: 10.1111/saje.12036   open full text
• Job Search and the Measurement of Unemployment in South Africa.
  Dorrit Posel, Daniela Casale, Claire Vermaak.
  South African Journal of Economics. December 11, 2013
  We interrogate the distinction between searching and non‐searching unemployment in South Africa using data from the first national panel survey that tracks the individual. In particular, we test whether the non‐searching unemployed display a weaker commitment to the labour market than the searching unemployed, and we investigate what counts as search activity. We find that over the panel, the search status of the unemployed does not predict their subsequent employment status, a result that is robust also for subsamples that vary by age cohort, gender and location. Moreover, social networks are the most important job‐finding strategy of the employed. These findings challenge the exclusion of the non‐searching unemployed from the measure of “genuine” work seekers.

  December 11, 2013   doi: 10.1111/saje.12035   open full text
• Global Financial Crises and Time‐Varying Volatility Comovement in World Equity Markets.
  Andrew S. Duncan, Alain Kabundi.
  South African Journal of Economics. November 29, 2013
  This paper studies volatility comovement in world equity markets between 1994 and 2008. Global volatility factors are extracted from a panel of monthly volatility proxies relating to 25 developed and 20 emerging stock markets. A dynamic factor model (FM) is estimated using two‐year rolling‐window regressions. The FM's time‐varying variance shares of global factors map variations in volatility comovement over time and across countries. The results indicate that global volatility linkages are significantly stronger during financial crisis periods in Asia (1997‐1998), Brazil (1999), Russia (1998) and the United States (2000, 2007‐2008). Emerging markets are weakly synchronised with world volatility in comparison with developed markets. In particular, emerging market comovement is significantly lower than developed market comovement during the Asian and US sub‐prime crises. This suggests a degree of decoupling of emerging markets from the global drivers of volatility during these periods.

  November 29, 2013   doi: 10.1111/saje.12033   open full text
• Economic Convergence in the African Continent: Closing the Gap.
  Faiza A. Khan.
  South African Journal of Economics. November 28, 2013
  The paper attempts to analyse the conditional β‐convergence and its sources for 32 African countries over the period 1960‐2008. The augmented Solow model with both gross domestic product (GDP) per worker and per capita income is estimated using the dynamic system generalized methods of moments (GMM) technique with the panel data. This is the first study on the sources of conditional β‐convergence for African countries. According to the results of the augmented Solow model, income convergence rates are lower than those of GDP per worker. Moreover, total factor productivity convergence, human capital convergence and capital labour convergence are contributing towards the convergence of GDP per worker in Africa. This means that growth in the poorest African countries is being augmented by “catch‐up factor,” which is good news for them. However, convergence in terms of GDP per worker is not being fully translated into income per capita convergence. The demographic structure in the African continent with its record of persistent population growth has played an important role in lowering the income convergence of its countries.

  November 28, 2013   doi: 10.1111/saje.12032   open full text
• Does Human Capital Protect Workers against Exogenous Shocks? Evidence from Panel Data on South Africa during the 2008‐2009 Crisis.
  Ronald Leung, Marco Stampini, Desire Vencatachellum.
  South African Journal of Economics. November 20, 2013
  The financial and economic crisis of 2008 and 2009 took a heavy toll on the South African economy. The economy contracted for the first time since 1998 and entered recession during the fourth quarter of 2008. The gross domestic product contraction was soon transmitted to the labour market. Between the second quarters of 2008 and 2009, employment fell by 3.8%. However, not all individuals were hit with the same intensity. Using panel data from a quarterly labour force survey unique in the African context, we find that human capital (i.e. education as years of schooling and workforce experience) provided a buffer against the shock. After controlling for observable characteristics, education and experience showed the potential to entirely offset the effect of the recession on the likelihood of employment. This has important policy implications, as it strengthens the case for strategic investments in human capital and helps identify the unskilled as having the greatest need for social safety net interventions during a recession.

  November 20, 2013   doi: 10.1111/saje.12029   open full text
• Facing the Conundrum: How Useful Is the “Developmental State” Concept in South Africa?
  Philippe Burger.
  South African Journal of Economics. November 20, 2013
  Developmental states are often associated with high economic growth. Japan, South Korea, China and Brazil are all examples, most of which grew at phenomenal rates. The National Development Plan in South Africa sets out the intention of the South African government to transform the government into a “capable and developmental state able to intervene to correct our historical inequities …” However, what the South African government means by the term “developmental state” is not entirely clear. To help bring some clarity, this paper distinguishes between the East Asian developmental state and the Scandinavian developmentalist welfare state. The paper furthermore draws on Bernard and Boucher's distinction between a “social investment state” and a “transfer welfare state.” The former is a more precise description of the Scandinavian developmentalist welfare state. Subsequently, the paper discusses the applicability of the developmental state framework to South Africa. Specifically, it argues that the East Asian model neither is a model that would work in South Africa, nor is it a model that South Africa would wish to apply. South Africa currently resembles more a transfer welfare state than the Scandinavian–Brazilian social investment state. The social investment state, though, is closer to what South Africa needs.

  November 20, 2013   doi: 10.1111/saje.12030   open full text
• Inflation Targeting in ASEAN‐10.
  Wai Ching Poon, Yong Shen Lee.
  South African Journal of Economics. November 05, 2013
  The paper addresses the empirical question of whether economies that do not systematically target inflation (non‐inflation targeters) experience higher exchange rate volatility as compared with inflation targeters in 10 countries of the Association of Southeast Asian Nation (ASEAN) from 1990 to 2010. The paper examines the role of real exchange rate, exchange rate volatility and the reaction functions of central banks using dynamic panel estimation techniques. The results indicate that the output gap offers more useful information than the inflation gap in setting interest rates for inflation targeters, implying that the real term is more important than the nominal term. In turn, this suggests that an increase in interest rate can be wielded swiftly to reduce real gross domestic product and suppress inflation. The real exchange rate appears as a weaker determinant in setting interest rates for non‐inflation targeters. Inflation targeters experienced lower exchange rate volatility compared with non‐targeters in the ASEAN, which implies that implementation costs to their domestic economies may be marginally lower. Meanwhile, the non‐targeters follow a mixed strategy as both the inflation and real exchange rate are used as instruments to set the interest rates.

  November 05, 2013   doi: 10.1111/saje.12028   open full text
• Monetary policy and inflation in South Africa: A VECM augmented with foreign variables.
  Annari Waal, Reneé Eyden.
  South African Journal of Economics. November 03, 2013
  We develop a structural cointegrated vector autoregressive (VAR) model with weakly exogenous foreign variables, known as an augmented VECM or VECX*, suitable for a small open economy like South Africa. This model is novel for South Africa in two ways: it is the first VECX* developed to analyse monetary policy and the first model that uses time‐varying trade weights to create the foreign series. We impose three significant long‐run relations (augmented purchasing power parity, uncovered interest parity and Fisher parity) to investigate the effect of a monetary policy shock on inflation. The results suggest the effective transmission of monetary policy.

  November 03, 2013   doi: 10.1111/saje.12027   open full text
• An Evaluation of the Determinants and Implications of Panel Attrition in the National Income Dynamics Survey (2008‐2010).
  Nic Baigrie, Katherine Eyal.
  South African Journal of Economics. October 28, 2013
  Panel surveys offer a valuable tool for researchers to explore the dynamics underlying individual and household behaviours. The Achilles heel of panel data is attrition. This paper examines the determinants and implications of attrition in the first two waves of South Africa's National Income Dynamics Survey. Multivariate tests in labour market and health specifications show that there is some moderate evidence of attrition bias in estimated coefficients based on the non‐attriting sample. This bias can be seen in labour market specifications, in particular for men, and for Africans, and to a much lesser degree in health specifications, in particular for small samples of Whites. Researchers should take care when using the panel data set to generalise to the overall population.

  October 28, 2013   doi: 10.1111/saje.12024   open full text
• Are Real GDP Levels Stationary in African Countries?
  Zheng Ying, Chang‐Rui Dong, Hsu‐Ling Chang, Chi‐Wei Su.
  South African Journal of Economics. October 25, 2013
  In this study, we apply flexible Fourier stationary unit root test proposed by Enders and Lee (2012) to assess the non‐stationary properties of the per capita real gross domestic product (GDP) for 32 African countries. We find that Fourier stationary unit root test has higher power than linear method if the true data‐generating process of per capita real GDP is in fact a stationary nonlinear process of an unknown form with structural change using the low frequency components. We investigate the stationarity of per capita real GDP from the nonlinear point of view and provide robust evidence that clearly indicates that real output is well characterised by a nonlinear, mean‐reverting process, namely Benin, Botswana, Burundi, Cameroon, Senegal, Sierra Leone and South Africa. Our evidence points that these seven countries are nonlinear stationary, implying that per capita real GDP follows a steady rate of growth, and policy innovations then have temporary effects. These results have important policy implications for African countries.

  October 25, 2013   doi: 10.1111/saje.12026   open full text
• Foreign Investment and Technological Spillovers in Kenya: Extent and Mode of Occurrence.
  Geoffrey G. Gachino.
  South African Journal of Economics. October 15, 2013
  This paper uses a uniquely designed analytical framework based on technological learning and capability development to examine the extent of multinational company spillover occurrence in the Kenyan manufacturing industry. Using a firm‐level survey data, we examined the kind of spillovers occurring, extent of occurrence as well as the channels through which such spillovers occurred. The results obtained showed that the main kinds of spillovers occurring were product and process spillovers followed by marketing, management and organisation. Results of t‐tests analysis showed significant differences between competition and demonstration, and linkage and labour mobility implying that the first two mechanisms were extremely important in spillover occurrence compared with the latter two in the Kenyan context. These have implications that linkage and labour mobility have weaker learning effects, hence weak in stimulating capability building. T‐test analysis showed that more spillovers occurred from foreign firms than from locally owned firms. The results also showed that spillovers were likely to occur due to foreign presence, firm and machine age, skill level, research and development, training and participation in imports. Based on the results generated, the paper portends that foreign direct investment can play an important role in the country's manufacturing industry by stimulating learning and capability development via spillover occurrence.

  October 15, 2013   doi: 10.1111/saje.12025   open full text
• Spillovers in Exchange Rates and the Effects of Global Shocks on Emerging Market Currencies.
  Haakon Kavli, Kevin Kotzé.
  South African Journal of Economics. September 04, 2013
  This paper provides an investigation into the spillover effects of exchange rate returns and volatility for developed and emerging market currencies, using data from 1997 to 2011. The results suggest that spillovers in exchange rate returns have increased steadily over time, in moderate reaction to economic events. In contrast, spillovers in total observed volatility (measured by squared returns) react more strongly to economic events, and this transmission has remained at a relatively high level since the global financial crisis. Furthermore, over the course of time, global shocks would appear to account for a larger proportion of aggregate exchange rate volatility (and the relative importance of domestic shocks has declined). The paper also considers whether the increase in volatility spillover is due to sudden shocks, or whether it is due to changes in the stochastic trend of the underlying volatility process. The results suggests that in most cases, this increase is due to sudden shocks, however, in certain instances country‐specific events may perpetuate changes to the trend of the underlying volatility spillover.

  September 04, 2013   doi: 10.1111/saje.12023   open full text
• African Development: Beyond Income Convergence.
  Simplice Asongu.
  South African Journal of Economics. August 06, 2013
  In examining some big questions on African development, I provide evidence that the dynamics of some development indicators could support both endogenous and neoclassical growth theories in the convergence debate. This paper investigates convergence in real per capita gross domestic product and inequality‐adjusted human development in 38 African countries, disaggregated into 10 homogenous panels based on regions (Sub‐Saharan and North Africa), income levels (low, middle, lower middle and upper middle), legal origins (English common law and French civil law) and religious dominations (Christianity and Islam). The main finding is that the income component of the Human Development Index moves slower than others in the convergence process, and thus requires a more focused policy intervention. As a policy implication, looking beyond income convergence can provide a concrete agenda for development involving all aspects of economic, institutional and social life.

  August 06, 2013   doi: 10.1111/saje.12021   open full text
• Foreign Direct Investment and Trade Openness in Sub‐Saharan Economies: A Panel Data Granger Causality Analysis.
  Mebratu Seyoum, Renshui Wu, Jihong Lin.
  South African Journal of Economics. August 06, 2013
  This study uses annual balanced panel data for 25 sub‐Saharan African economies over the period 1977‐2009 to investigate the Granger causality relationship between trade openness and foreign direct investment (FDI) for the region. We took advantage of recent developments in econometric testing techniques for Granger noncausality heterogeneous panels that takes into consideration the effects of cross section dependence across the units of the panel data set to analyse the trade–FDI nexus in the region. The empirical result of this study reveals a bidirectional causal relationship between trade openness and foreign direct investment in sub‐Saharan economies. Concurrently, African countries should devote more emphasis for the promotion and attraction of FDI in order to expand their productive capacity to produce and export; in this way, by addressing supply‐side constraints, FDI will have positive multiplier effects on trade.

  August 06, 2013   doi: 10.1111/saje.12022   open full text
• Law and Finance Revisited: Evidence from African Countries.
  Babajide Fowowe.
  South African Journal of Economics. July 16, 2013
  The law and finance theory essentially states that legal origins are a significant determinant of financial development. The conclusion from the law and finance theory is that countries whose legal traditions derived from British Common Law have better developed financial markets than countries following French Civil Law. This study conducted an empirical investigation of the law and finance theory for African countries. Our empirical results showed that legal origins are insignificant in explaining financial development but rather, legal effectiveness significantly explains cross‐country differences in financial development in Africa. We concluded that the law and finance theory does not hold in African countries.

  July 16, 2013   doi: 10.1111/saje.12020   open full text
• Modelling Intercontinental Tourism Consumption in South Africa: A Systems‐of‐Equations Approach.
  Andrea Saayman, Isabel Cortés‐Jiménez.
  South African Journal of Economics. July 02, 2013
  This paper investigates the pattern of inbound tourists' consumption in South Africa, examining four main intercontinental markets and five different tourism goods. The empirical investigation develops an almost ideal demand system (AIDS) model and it extends recent research by allowing tourists to base their spending decision on the real effective price differences between South Africa and their home country. The results show that tourist spending in South Africa is a luxury good, and tourists react normally to a change in the relative price of goods. The cross‐price elasticities suggest that the preferences of different markets influence their view of substitutability and complementary effects between various products in South Africa.

  July 02, 2013   doi: 10.1111/saje.12018   open full text
• Ethnic Diversity, Political Stability and Productive Efficiency: Empirical Evidence from the African Countries.
  Alexandre Repkine.
  South African Journal of Economics. June 27, 2013
  While ethnic diversity has been shown to produce numerous negative effects on the economic performance due to disagreement on the production of the public good, nepotism in making employment decisions, increased corruption and rent‐seeking behaviour, its positive effects appear to have received much less attention. We hypothesise and test several explanations why higher levels of ethnic diversity may be associated with better socio‐economic outcomes. We find that productive efficiency will be higher in the societies where ethnicities can benefit from the complementarity of skills. Incentives to engage in an ethnic conflict will be lower and the extent of political stability higher in those countries where the opportunity costs of ethnic conflict are more substantial. We also find some evidence in support of the political aspirations hypothesis that attributes the negative effects of ethnic diversity to the strife by ethnic groups for more political influence.

  June 27, 2013   doi: 10.1111/saje.12019   open full text
• Reweighting South African National Household Survey Data to Create a Consistent Series Over Time: A Cross‐Entropy Estimation Approach.
  Nicola Branson, Martin Wittenberg.
  South African Journal of Economics. June 26, 2013
  In the absence of established longitudinal panel surveys in South Africa, national cross‐sectional household survey data are frequently used to analyse change. When these data are stacked side by side, however, inconsistencies both in time trends and between household‐ and person‐level data are found. This study uses a new set of weights calibrated to the Actuarial Society of South Africa 2003 model projected totals using a cross‐entropy estimation approach. These weights are favoured because they produce consistent demographic and geographic trends. The calculated weights are similar to the initial sample weights (and hence retain the survey design benefits) but match to a series of age‐sex‐race and province marginal totals that are consistent over time. The weights are publicly available for the 14‐year period between 1994 and 2007.

  June 26, 2013   doi: 10.1111/saje.12017   open full text
• An Integrated Corporate Governance Framework And Financial Performance In South African‐Listed Corporations.
  Collins G. Ntim.
  South African Journal of Economics. June 20, 2013
  This paper investigates the relationship between an integrated corporate governance (CG) index and financial performance using a sample of 169 South African (SA)‐listed corporations between 2002 and 2007. We find a statistically significant and positive association between a broad set of good CG practices and financial performance. In a series of sensitivity analyses, we find that our results are robust to endogeneity, different financial performance proxies, alternative CG weighting scheme and firm‐level fixed effects. We further distinctively examine the link between complying with SA context‐specific stakeholder CG provisions and financial performance. In line with political cost and resource dependence theories, our results reveal a statistically significant and positive nexus between compliance with stakeholder CG provisions and financial performance.

  June 20, 2013   doi: 10.1111/j.1813-6982.2011.01316.x   open full text
• Monetary Integration In Eastern And Southern Africa: Choosing A Currency Peg For Comesa.
  Carlos Vieira, Isabel Vieira.
  South African Journal of Economics. June 20, 2013
  African countries involved in monetary integration projects have been advised to peg their currencies against an external anchor before the definite fixing of exchange rates. In this study, we estimate optimum currency area indices to determine, between four alternatives, which international currency would be the most suitable anchor for Common Market for Eastern and Southern Africa (COMESA) members and for a set of other selected African economies. We conclude that the euro and the British pound prevail over the US dollar or the yen; that the euro would be the best pegging for most, but not all, COMESA members; and that some of these economies display evidence of more intense integration with third countries, with which they share membership in other (overlapping) regional economic communities, than within COMESA.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01318.x   open full text
• Measuring The Carbon Intensity Of The South African Economy.
  Channing Arndt, Rob Davies, Konstantin Makrelov, James Thurlow.
  South African Journal of Economics. June 20, 2013
  We estimate the carbon intensity of industries, products and households in South Africa using data from a high resolution supply‐use table. Direct and indirect carbon usage is measured using multiplier methods that capture inter‐industry linkages and multi‐product supply chains. Carbon intensity is found to be high for exports but low for major employing sectors. Middle‐income households are the most carbon‐intensive consumers. These results suggest that carbon pricing policies (without border tax adjustments) would adversely affect export earnings, but should not disproportionately hurt workers or poorer households. Seven percent of emissions arise through marketing margins, implying that carbon pricing should be accompanied by supporting public policies and investments.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01324.x   open full text
• Will The Sarb Always Succeed In Fighting Inflation With Contractionary Policy?
  Guangling (Dave) Liu.
  South African Journal of Economics. June 20, 2013
  The conventional view is that a monetary policy shock has both supply‐side and demand‐side effects, at least in the short run. Barth and Ramey show that the supply‐side effect of a monetary policy shock may be greater than the demand‐side effect. We argue that it is crucial for monetary authorities to understand whether an increase in expected future inflation is due to supply shocks or demand shocks before applying contractionary policy to forestall inflation. We estimate a standard New Keynesian dynamic stochastic general equilibrium model with the cost channel of monetary policy for the South African economy to show that whether the South African Reserve Bank should apply contractionary policy to fight inflation depends critically on the nature of the disturbance. If an increase in expected future inflation is mainly due to supply shocks, the South African Reserve Bank should not apply contractionary policy to fight inflation, as this would lead to a persistent increase in inflation and a greater loss in output. Our estimation results also show that with a moderate level of cost‐channel effect and nominal rigidities, a New Keynesian dynamic stochastic general equilibrium model with the cost channel of monetary policy is able to mimic the price puzzle produced by an estimated vector autoregressive model.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01327.x   open full text
• Modelling The Regional Heterogeneity Of South Africa's Trade.
  Koen Smet.
  South African Journal of Economics. June 20, 2013
  This paper develops a three‐dimensional Heckscher–Ohlin trade framework to discuss the regional heterogeneity of South Africa's trade pattern. First, a general analysis of trade data for the period 1993‐2006 displays significant differences in the South African trade pattern with the EU and China. Second, a symmetrical three‐dimensional trade model is constructed to explain trade among South Africa, the EU and China by means of differences in the endowment with skilled labour, less skilled labour and capital. The discussion of the actual trade model is visualised by means of the concept of the endowment triangle. Third, a detailed descriptive analysis that uses and combines three different classification measures supports the theoretical predictions of the developed trade model. The paper shows that the three‐dimensional model can be used to model South Africa's basic trade relationship.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01332.x   open full text
• GDP in the Dutch Cape Colony: The National Accounts of a Slave‐Based Society.
  Johan Fourie, Jan Luiten Zanden.
  South African Journal of Economics. June 20, 2013
  New estimates of the gross domestic product of the Dutch Cape Colony (1652‐1795) suggest that the Cape was one of the most prosperous regions during the eighteenth century. This stands in sharp contrast to the perceived view that the Cape was an “economic and social backwater,” a slave economy with slow growth and little progress. Following a national accounts framework, we find that Cape settlers' per capita income is similar to the most prosperous countries of the time – Holland and England. We trace the roots of this result, showing that it is partly explained by a highly skewed population structure and very low dependency ratio of slavery, and attempt to link the eighteenth‐century Cape Colony experience to twentieth‐century South African income levels.

  June 20, 2013   doi: 10.1111/saje.12010   open full text
• Internal Migration of Blacks in South Africa: An Application of the Roy Model.
  Chung Choe, E. LaBrent Chrite.
  South African Journal of Economics. June 20, 2013
  This study investigates the internal migration of black males in South Africa over the period after the formal end of Apartheid using the 1996 census data. The two issues of our primary interests are the following: (i) whether migration patterns of black individuals are consistent with the income‐maximising hypothesis as related to the destination choice; and (ii) whether the redistribution of human capital is detected in internal migration. The results from conditional logit regressions on choices among individuals in 318 districts show that individuals prefer districts with higher expected wages, conditional on other regional characteristics. In addition, there exist differing preferences on the share of population with post‐secondary education by individuals with commensurate educational attainments. Black individuals with post‐secondary education tend to migrate into areas with a higher share of population with post‐secondary education and vice versa, which confirms the divergence of human capital levels across districts.

  June 20, 2013   doi: 10.1111/saje.12011   open full text
• Imported Capital Goods and Manufacturing Productivity: Evidence from Botswana's Manufacturing Sector.
  Alexis Habiyaremye.
  South African Journal of Economics. June 20, 2013
  This article examines the effects of imported capital goods on manufacturing productivity growth in Botswana. Despite consistent efforts aimed at diversification, Botswana's economy has remained heavily dependent on diamond exports, and the country's productivity remains a point of concern. The ability to apply foreign technologies to increase productivity and spur diversification is limited by the foreign exchange gap. This study uses an imported input growth model to analyse how the importation of capital goods contributes to enabling productivity growth and export diversification. With a panel of 340 manufacturing firms, the study also analyses the effects of imported capital goods on firm productivity growth and skills development. The results show that imported machines and equipment have increase manufacturing productivity after 1‐2 years following the investment. Additionally, foreign‐owned firms were found to enjoy more productivity growth than their domestic counterparts.

  June 20, 2013   doi: 10.1111/saje.12015   open full text
• Measuring Exchange Market Pressure and Its Contagion in the East African Community.
  Scott W. Hegerty.
  South African Journal of Economics. June 20, 2013
  As the members of the East African Community seek to further integrate their economies, issues of compatibility arise. How interlinked are these countries' exchange markets, and which currencies are most likely to influence their neighbours? This study constructs monthly indices of exchange market pressure (EMP) for Burundi, Kenya, Rwanda, Tanzania and Uganda over the past decade. Two methods of constructing these indices are shown to exhibit large differences. Vector autoregressive approaches are then applied to the main EMP series and a set of global stock price proxies. Kenya, the dominant economy, is shown to have the largest effect on the region but is not itself affected by other regional currencies. Foreign stock price declines increase EMP for all countries except Tanzania, which is also the least integrated in terms of trade. This suggests that financial integration in the region is uneven – with implications for a successful common currency.

  June 20, 2013   doi: 10.1111/saje.12016   open full text
• The Impact of Social Housing Developments on Nearby Property Prices: a Nelson Mandela Bay Case Study.
  Mario Du Preez, Michael Sale.
  South African Journal of Economics. June 20, 2013
  Social housing projects often face substantial “Not‐in‐my‐backyard” (NIMBY) sentiment and, as a result, are frequently plagued by local opposition from communities who argue that nearby property prices will be affected adversely by these developments. International hedonic pricing studies conducted have, however, produced mixed results with some concluding that social housing developments may in fact lead to an improvement in surrounding property values. There is, however, a paucity of South African evidence. This study considers the validity of the most pervasive NIMBY argument, the claim that social housing developments negatively affect nearby property values, by considering the property prices of 170 single‐family homes in the Walmer neighbourhood, Nelson Mandela Bay, as a function of their proximity to an existing low‐cost housing development. The results of this study indicate that in the case of one Nelson Mandela Bay low‐cost housing development, a negative impact is exerted on the property values of nearby houses.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01337.x   open full text
• Finding the Benefits: Estimating the Impact of The South African Child Support Grant.
  Marisa Coetzee.
  South African Journal of Economics. June 20, 2013
  This paper estimates the impact of the South African Child Support Grant (CSG) on child health, nutrition and education. Data from the 2008 South African National Income Dynamics Study are used to estimate the impact of the CSG on six different outcomes measuring child well‐being. We find a positive treatment effect of the CSG on children's height‐for‐age, progress through the school system, as well as household expenditure on food items using a continuous treatment estimator developed by Hirano and Imbens. Robustness analysis using the inverse probability weighting approach by Flores and Mitnik is also implemented. Although these estimates provide some evidence of a positive impact resulting from the CSG, they are not conclusive in showing that the cash transfers are spent mainly on improving the lives of beneficiary children, as the treatment effects are quite small.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01338.x   open full text
• An Alternative Business Cycle Dating Procedure for South Africa.
  Adél Bosch, Franz Ruch.
  South African Journal of Economics. June 20, 2013
  This paper applies a factor‐augmented Markov‐switching model to the South African economy to provide an alternative classification of the business cycle and its turning points. In the principal components step, 123 variables are used to establish the aggregate cyclicality in all sectors of the economy with the number of factors chosen using a modified Bai and Ng method. By exploiting the rich nature of the dataset, we provide a model with well‐defined statistical properties that compares favourably with the South African Reserve Bank (SARB) dating points. Combining the results of the parametric approach followed in the Markov‐switching model and the non‐parametric approach followed by the SARB should allow for a robust turning point analysis. A Markov‐switching model of real gross domestic product is also estimated because this variable is commonly used in the literature and provides a benchmark for the factor models.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01339.x   open full text
• Towards a Measure of Core Inflation using Singular Spectrum Analysis.
  Franz Ruch, Dirk Bester.
  South African Journal of Economics. June 20, 2013
  This paper constructs a number of possible core measures of inflation using singular spectrum analysis (SSA). Annual changes in monthly inflation are decomposed into its trend, oscillatory and noise components in order to develop an understanding of the trend and cyclicality in South African headline inflation. Three cyclical components with differing amplitude and frequency are identified. The trend and cyclical components of inflation are found to be a good approximation of core inflation, the inertial part of inflation. These core measures are compared with other candidate core measures based on the properties of a good core inflation measure. Generally, the SSA measures outperform commonly used measures of core inflation based on both in‐ and out‐of‐sample performance.

  June 20, 2013   doi: 10.1111/j.1813-6982.2012.01340.x   open full text
• An Index‐Based Model for Determining the Investment Benchmark of Renewable Energy Projects in South Africa.
  John Fay, Umesh Kumar.
  South African Journal of Economics. June 20, 2013
  In a globalised world, financial markets observe the optimal level of asset allocation and returns based on risk inherent in the economies. Whether public or private investors, they need to have an optimal return on their investment given the finite resources. In relatively new sectors like grid‐connected renewable energy, many investors face difficulty in assessing proper return, making them more averse to financing such projects, affecting transborder project development opportunities. In developing countries like South Africa, which has tremendous potential for renewable energy projects, an arbitrary choice of the required rate of return for project evaluations can negatively affect funding decisions. This paper explores an index‐based model to make fair estimates of the required equity benchmark internal rate of return (IRR) using financial markets observation for renewable energy projects in South Africa. The index‐based model is parsimonious and captures common macroeconomic factors. More specifically, it provides a simple and effective mechanism to calculate IRR for renewable energy projects given different gestation periods.

  June 20, 2013   doi: 10.1111/saje.12003   open full text
• The Consistency of Merger Decisions at the South African Competition Commission.
  Sunel Grimbeek, Steve Koch, Richard Grimbeek.
  South African Journal of Economics. June 20, 2013
  The South African Competition Commission's merger decisions for fiscal year (FY) 2002 through FY2009 are analysed to empirically identify the factors historically influencing prohibition, conditional approval and unconditional approval, as well as the factors historically influencing whether merger applications are deemed non‐complex, complex or very complex. The focus of the analysis is on whether or not the historical process has remained consistent through time, and whether or not that process can be obviously linked to the provisions of the 1998 Competition Act. Initial results point to behaviour that is not consistent over the time period considered; however, those inconsistencies are removed, once additional measures of market contestibility, associated with the 1998 Competition Act are included in the analysis. The final results suggest that the commission is less likely to approve mergers that they link to markets that are less contestable. In addition to protecting competition, the commission is simultaneously protecting other public interests. Therefore, our research supports the hypothesis that the commission consistently applies its legislative remit.

  June 20, 2013   doi: 10.1111/saje.12005   open full text
• Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly.
  Ya‐Chin Wang.
  South African Journal of Economics. June 20, 2013
  The paper investigates the optimal research and development (R&D) policy in a vertically differentiated market with managerial delegation. We consider not only discriminatory R&D policy but uniform R&D policy as well. It shows that R&D policy can vary depending on the regulator's objective: social welfare, consumer surplus or producer surplus; however, the outcomes are invariant to the nature of market competition. Undoubtedly, the relative‐performance contract plays a crucial role for elaborating policy effects. The government prefers discriminatory R&D policy to uniform policy under a consumer‐oriented objective. On the contrary, under a producer‐oriented objective, the government would prefer to choose uniform R&D policy rather than discriminatory policy.

  June 20, 2013   doi: 10.1111/saje.12006   open full text
• Inflation and Inflation Expectations in South Africa: an Attempt at Explanation.
  Alain Kabundi, Eric Schaling.
  South African Journal of Economics. June 20, 2013
  This paper examines the relationship between inflation and inflation expectations in South Africa. We use inflation expectations derived from the quarterly surveys conducted by the Bureau of Economic Research from 2001Q1 to 2011Q4 . Using these data, we estimate the model assuming that private sector expectations are a linear function of the inflation target and lagged inflation. The results indicate that economic agents' expectations largely depend on lagged inflation. This suggests that the South African Reserve Bank (SARB) has not been successful in anchoring expectations of the private sector since the adoption of the inflation targeting (IT) regime in 2000. We also find evidence indicating that the SARB's implicit inflation target lies above the upper bound of the official IT band. Finally, it appears that the SARB has been more concerned about output stabilisation than inflation stabilisation.

  June 20, 2013   doi: 10.1111/saje.12007   open full text
• African Stock Markets: Efficiency and Relative Predictability.
  Graham Smith, Aneta Dyakova.
  South African Journal of Economics. June 20, 2013
  The weak form of the efficient markets hypothesis is tested for eight African stock markets using three finite‐sample variance ratio tests. A rolling window captures short‐horizon predictability, tracks changes in predictability and is used to rank markets by relative predictability. These stock markets experience successive periods when they are predictable and then not predictable; this is consistent with the adaptive markets hypothesis. The degree of predictability varies widely: the least predictable African stock markets are those located in Egypt, South Africa and Tunisia, while the most predictable are in Kenya, Zambia and Nigeria.

  June 20, 2013   doi: 10.1111/saje.12009   open full text
• Africa's Money in Africa.
  Evans Stephen Osabuohien, Uchenna Rapuluchukwu Efobi.
  South African Journal of Economics. June 03, 2013
  Workers' remittance and compensation of employees received in Sub‐Sahara Africa (SSA) increased from USD 1.398 billion in 1980 to USD 4.834 billion in 2000 and soared to USD 21.101 billion in 2010. The impact of remittance on recipient economy requires further empirical investigation as there has not been consensus on whether remittance induces “financial prodigality” or investment in Africa. Differing from extant studies, this study employed rule of law, regulatory quality and government effectiveness as indicators of institutional quality. This is with a view to exploring how institutional quality and financial depth interact with remittance to influence investment in 44 African countries (1995‐2010). The major finding from the study, inter alia, is that institutional quality and financial depth play complimentary role in influencing remittance for investment in Africa. This study concludes that the impact of Africa's money in Africa will be enhanced in the presence of reliable institutional quality and viable financial sector. Thus, the side effect of “financial prodigality” that might be associated with remittance can be ameliorated.

  June 03, 2013   doi: 10.1111/saje.12012   open full text
• Modelling Monetary Union in Southern Africa: Welfare Evaluation for the CMA and SADC.
  Xavier Debrun, Paul R. Masson.
  South African Journal of Economics. June 03, 2013
  This paper proposes a quantitative assessment of the welfare effects arising from the Common Monetary Area (CMA) and an array of broader groupings among Southern African Development Community (SADC) countries. Model simulations suggest that (i) participating in the CMA benefits all members; (ii) joining the CMA individually is beneficial for all SADC members except Angola, Mauritius and Tanzania; (iii) creating a symmetric CMA‐wide monetary union with a regional central bank carries some costs in terms of foregone anti‐inflationary credibility; and (iv) SADC‐wide symmetric monetary union continues to be beneficial for all except Mauritius, although the gains for existing CMA members are likely to be limited.

  June 03, 2013   doi: 10.1111/saje.12008   open full text
• Volatility Spillovers between the Equity Market and Foreign Exchange Market in South Africa in the 1995‐2010 Period.
  Lumengo Bonga‐Bonga, Jamela Hoveni.
  South African Journal of Economics. June 03, 2013
  This paper attempts to assess the extent of volatility spillovers between the equity market and the foreign exchange market in South Africa. Multistep family of the General Autoregressive Conditional Heteroskedasticity models are used for this end, whereby volatility shocks obtained from the mean equation estimation in each market are included in the conditional volatility of the other market, respectively. The paper selects the appropriate volatility models for each market following criteria such as covariance stationarity, persistence in variance and leverage effects. The finding of the paper indicates that there is a unidirectional relationship in terms of volatility spillovers from the equity market to the foreign exchange market. The paper supports the view that the extent of foreign participation in the South African equity market possibly contributes to this phenomenon.

  June 03, 2013   doi: 10.1111/saje.12001   open full text
• Trade‐Induced Unemployment: The Case of Post‐Apartheid South Africa.
  Koen Smet.
  South African Journal of Economics. June 03, 2013
  This paper analyses the link between changes in trade flows and labour demand in post‐apartheid South Africa (1994–2006). Although this is not the first research with regard to this topic, it is one of the few that uses a consistent trade framework. Based on a three‐dimensional Heckscher–Ohlin trade model, a theoretical framework is constructed to analyse this link. Whereas it is impossible to test the theoretical link directly because of data limitations, an indirect econometric test supports the findings of the model. This implies that the combination of increased trade and labour market rigidities was unfavourable for labour opportunities.

  June 03, 2013   doi: 10.1111/saje.12004   open full text
• Transportation and The International Trade of Eastern and Southern Africa.
  Craig Macphee, Peter Cook, Wanasin Sattayanuwat.
  South African Journal of Economics. June 03, 2013
  We use new data on transportation to determine its effect on the international trade of eastern and southern Africa (ESA). The effects were estimated with gravity models using alternative techniques to check for robustness. Freight forwarders provided information on freight charges (price), average duration of shipment (time) and variability in time. The new transportation variables and the more commonly used distance variable appear to have smaller effects overall than some previous research indicated, although our distance coefficient is identical to that of Coulibaly and Fotagné for West Africa. In contrast to other research critical of distance as a proxy for transport impediments, we find similar effects from distance and our measure of transport time, but both of these variables have significantly larger coefficients than price and variability. Landlocked ESA countries are twice as dependent on trade as the whole region after accounting for control variables, but they are not significantly more affected by changes in price and time, and they are less affected by distance and variability. The relative size of the time coefficients suggests that measures to lessen delays in shipping, for instance, faster border clearance, might encourage more trade than cost cutting measures that lowered price proportionately.

  June 03, 2013   doi: 10.1111/saje.12002   open full text
• The Impact of Brain Drain on Human Capital in Developing Countries.
  Abubakar Lawan Ngoma, Normaz Wana Ismail.
  South African Journal of Economics. June 03, 2013
  The debate over the effect of human capital flight on educational attainment in immigrants' source countries has received huge theoretical propositions but a few analytical approaches. This paper examines the short‐run and long‐run impact of skilled migration rates (brain drain) on human capital formation in migrants' source developing countries. Specifically, we revisited some empirical studies that found evidence of beneficial brain drain in migrants' source countries. Our empirical result, using school enrolments does not only disagree with theirs but also presents an insight on how human capital leakages that occur through brain drain can be counterbalanced through remittances received in the immigrants' source countries.

  June 03, 2013   doi: 10.1111/saje.12014   open full text
• Spatial Comparisons of Poverty and Inequality in Living Standards in Malawi.
  Richard Mussa.
  South African Journal of Economics. June 03, 2013
  The paper looks at poverty and inequality across areas in Malawi. The focus is on both monetary (consumption) and non‐monetary (health and education) dimensions of well‐being. Stochastic poverty dominance tests show that rural areas are poorer in the three dimensions regardless of poverty line chosen. Stochastic inequality dominance tests find that the north and south dominate the centre in health inequality, and there is no dominance between the north and south. With respect to education inequality, dominance is declared for the south‐centre pair only. A subgroup decomposition analysis finds that the south contributes the most to consumption and education poverty, while the centre is the largest contributor to health poverty. We establish that within‐area inequalities (vertical inequalities) rather than between‐area inequalities (horizontal inequalities) are the major driver of consumption, health and education inequality in Malawi.

  June 03, 2013   doi: 10.1111/saje.12013   open full text
• Robust Estimates of Changes in Poverty and Inequality in Post‐Independence Namibia.
  Sebastian Levine, Benjamin Roberts.
  South African Journal of Economics. June 03, 2013
  We estimate changes in the distribution of household consumption expenditure in Namibia since independence in 1990 and the effects on poverty. To produce comparability between two household surveys, we use survey‐matching techniques, and we apply the framework of stochastic dominance to test the robustness of our results. The results reveal a significant decrease in the poverty headcount over the period and small but insignificant decreases in the country's extremely high levels of inequality. Decomposition analysis shows that poverty reduction in Namibia is largely driven by growth in mean incomes rather than redistribution. Even so, there have been important changes in inequality among different social groups especially as educational attainment has replaced ethnicity as the main determinant of between‐group inequality.

  June 03, 2013   doi: 10.1111/j.1813-6982.2012.01335.x   open full text