1,720,968 research outputs found
Real exchange rate misalignment and growth of tradable sectors in South Africa: a sectoral dynamic panel data approach
Get PDFA dissertation submitted to the Faculty of Commerce, Administration and Law in l fulfillment of the requirements for the Degree of Master of Commerce in the Department of Economics at the University of Zululand, 2017Disappointing growth outcomes in South Africa on the back of a weakening currency have once again underscored the need for examining carefully how undervaluation relates to economic growth. Evidence on this subject has been accumulated from aggregate studies which do not take us far in understanding how undervaluation affects particular sectors. This study contributes to the existing knowledge by using a sectoral approach to establish the link between undervaluation and growth of South Africa’s agriculture, mining, manufacturing, tourism, personal services and financial sector for the period 1985 through 2014. It addresses endogeneity of the real exchange rate by using the system Generalised Methods of Moments (GMM) technique and reverse causation by using initial rather than contemporary values of explanatory variables. Two measures of undervaluation are used. The first baseline measure is adjusted for the Balassa-Samuelson effect by regressing the bilateral exchange rate between the South African rand and the United States dollar on income per capita using the dynamic ordinary least squares technique. The second measure is computed from a model of a small open economy where the exchange rate is undervalued if the prevailing real exchange rate is lower than the equilibrium real exchange rate dictated by its fundamentals. Using these two measures as regressors in a conditional convergence growth specification, a positive and significant relationship between undervaluation and sectoral growth emerges with a percentage increase in undervaluation being estimated to raise average annual growth by 0.17 per cent holding constant sector specific factors. This effect increases with capital accumulation rather than employment creation and is particularly more relevant and sizeable for sectors that start off poor. These findings are robust to using alternative panel estimation techniques that include the Augmented Mean Group (AMG) and the Common Correlated Effects (CCE) estimators. Time series techniques are then employed to track the effect of undervaluation on individual sectors. Using the bounds testing procedure due to a mixture of variable integration, the results indicate that the impact of undervaluation is not uniformly distributed across sectors. In the short-run period, undervaluation promotes growth in the tourism, financial, mining and personal services sectors while agriculture and manufacturing are all hampered by undervaluation both in the short-run and long-run. Only the mining sector appears to benefit from undervaluation in both short-run and long-run periods. The latter result could be reflective of immense global competition that turn South Africa’s agriculture and manufacturing exports into non-tradables at the margin. Only the mining sector appears to benefit from undervaluation and we take this to reflect presence of an already high global demand for South Africa’s minerals. Overall, time series results emphasize the importance of controlling sectoral heterogeneity and that the effect of undervaluation must not be generalised across sectors. For policy issues having found undervaluation promoting growth of a minor sector (mining) and hurting growth of major sectors in terms of contribution on gross domestic product, our analysis suggests that undervaluation is not the solution to South Africa’s current slow growth as claimed in recent literature that support undervaluation-led growth; it is in fact part of the problem
Exchange rate misalignment, state fragility, and economic growth in sub-Saharan Africa
No full textThe sluggish and sometimes negative growth in sub-Saharan Africa has defined the objectives of most studies seeking to explain the sources of its slow growth. I contribute to this inquiry by estimating how state fragility influences the effect of exchange rate misalignment on economic growth. Since exchange rate misalignment captures the distortionary effects of inappropriate macroeconomic policies in the main, my hypothesis is that resilient and less fragile states cope better with macroeconomic imbalances making misaligned exchange rates less likely to have serious effects on growth in such countries. In testing this hypothesis, I first measure misalignment as deviations of the actual exchange rate from an estimated equilibrium level using the dynamic ordinary least squares method. I then insert this variable and its interaction with state fragility in a growth specification. In line with my hypothesis, results from the system generalised method of moments and data on 13 sub-Saharan countries observed between 2009 and 2018 show a significantly negative effect of exchange rate misalignment on growth that increases with state fragility. Based on this evidence, I urge countries in this region to improve state resilience as an effort to reduce the negative effect of exchange rate misalignment on economic growth
Trade and wage disparities in South Africa
No full textLiterature on trade and wage disparities has gained prominence since the mid-90s following the push for trade liberalization across the globe. Despite the 26 years of empirical research, however, questions of whether trade closes or widens the wage gap remain relevant today, particularly in countries such as South Africa where income inequality remains a persistent policy concern. Against this background, this paper contributes to the literature by examining the effect of trade on relative wages between skilled and low-skilled workers in South Africa using a local municipality-level dataset observed between 1995 and 2019. Results from the system GMM estimator confirm that trade has had a positive and non-trivial effect on wage disparities in the past two decades. When decomposed into exports and imports, it is the latter that appears to have added a relatively large wage premium on skilled workers at the expense of low-skilled workers. This result is crucial in designing both trade and industrial policies. In particular, it brings to the fore the need for targeted interventions that protect low-skilled workers. Such interventions may include programs for skills upgrade and trade protectionist policies in low-skill labour-intensive industries
Re-visiting the External Debt-Economic Growth Question in Zimbabwe
Get PDFThis paper quantifies the threshold effect of external debt on economic growth in Zimbabwe between 1980 and 2016. Results from the Fully Modified Ordinary Least Squares (FMOLS) technique confirm that external debt (up to 57% of GDP) raises economic growth. Beyond the 57% of GDP threshold, external debt lowers growth. A separate analysis of variance shows that the mean GDP per capita is lower by 11% when external debt exceeds 57%. From the sample average, the 57% of GDP threshold suggests that debt stock above 4.7 billion USD can be detrimental to the country’s long-run growth prospects. Currently, Zimbabwe’s external debt is standing at over 11 billion USD which is way above the estimated threshold level. Therefore, the policy implication arising from this paper is that the country’s Finance Minister needs to pursue debt-reduction strategies given that the country’s stock of external debt is already sitting in the growth-reducing territory
Youth unemployment and murder crimes in KwaZulu-Natal, South Africa
No full textThe relationship between crime and unemployment has a long history in social science and remains a central point of debate for politicians today. In this paper, the objective is to establish whether youth unemployment has a causal effect on murder cases in KwaZulu-Natal; a province in South Africa facing high levels of both and the contribution is methodological. In particular, this paper pioneers the application of a control function procedure in testing and controlling idiosyncratic endogeneity within a count data framework in a bid to isolate the exogenous effect of youth unemployment on murder crimes. Using local municipality-level panel data observed between 2006 and 2017 and holding constant standard control variables, youth unemployment is found to be exogenous to omitted time-varying correlates suggesting that classical count data models with entity-fixed effects suffice. Also confirmed is that the control function approach reports results that are similar to the classical Poisson estimator while the Negative Binomial alternative tends to underestimate the effect of youth unemployment on crime by about 10%. Consistent with the majority of studies in literature, the analysis finds a positive and sizeable effect of youth unemployment on murder offences. A percentage point increase in youth unemployment increases the odds of murder occurrence by 1.6-1.8 times. This suggests that South Africa's labour market could be linked to murder crimes in KwaZulu-Natal and that a social policy aimed at creating jobs for young people can be an alternative way of combating murder crimes in the province
Real exchange rate misalignment and agricultural trade: a panel analysis
No full textLiterature focusing on real exchange rate (RER) misalignment and agricultural trade is inconclusive and far from convincing. Against this background, the study sought to examine the impact of RER misalignment on agricultural exports using a panel data set of 20 countries covering the period 1983-2006. The equilibrium RER is first estimated using the Dynamic Ordinary Least Squares technique and deviations from this equilibrium level are termed RER misalignment. The calculated misalignment measure is then inserted in the export model as a covariate. Pre-estimation checks suggested that export determinants follow a non-stationary process (a random walk with a drift) and are cointegrated. Using the Feasible Generalized Least Squares technique to control for heteroscedasticity and contemporaneous correlation across countries, the study indicates that RER misalignment has a detrimental effect on agricultural exports and the effect is non-linear. This result is robust to estimation by the instrumental variable technique to control for endogeneity and simultaneity of the exchange rate. Against this background, policymakers in these countries should work to eliminate currency misalignment through maintaining clean floats otherwise pegged rates should remain in tandem with the equilibrium level suggested by their long term fundamentals
Export Diversification and Business Startups in Africa
Get PDFPurpose: This study examines the impact of export diversification on new business formation.
Design/methodology/approach: Using an instrumental variable approach within a count data framework that relies on a panel dataset of 10 African countries (Algeria, Gabon, Lesotho, Morocco, Nigeria, Sierra Leone, Togo, Tunisia, Uganda and Zambia) observed between 2008 and 2018 annually, the evidence shows a non-trivial effect of export diversification on business start-ups. In particular, the odds of a new business being registered increase by 1.7 – 3.5 times in response to a percentage point increase in export diversification.
Findings: This result reinforces the need for supportive policies aimed at moving away from concentrated export baskets towards more diversified ones to leverage entrepreneurial effort in the selected African countries.
Paper type: Research Pape
The contribution of apiculture towards rural income in Honde Valley Zimbabwe
Get PDFLivelihood strategies in developing countries typically depend on agricultural activities. Nonetheless, climate change, recurrent droughts and floods are contributing to crop failures in many developing countries yet beekeeping has proven to offer a valuable adaptive strategy. Against this background, the study sought to examine the role of apiculture as an alternative livelihood strategy in Honde Valley. Using the feasible generalised least squares (FGLS) technique and cross sectional data collected on 80 households selected through multistage sampling technique, gender of household head, access to credit, dependency ratio, level of education and size of land owned are found to be significant factors explaining rural income in Honde Valley. Turning to the variable of enquiry, the results of the analysis of covariance (ANCOVA) indicate that the mean per capita income for apiculture farmers is found to be significantly higher than that of non-apiculture farmers. Against this background, apiculture can be used as an alternative livelihood for the rural community. The study contributes in identifying alternative livelihood strategies in developing countries like Zimbabwe
Trade, productivity and efficiency: testing for innovative spillovers from Asia’s newly industrialized countries (nics) on manufacturing in South Africa
Get PDFThesis Submitted for the Degree of Doctor of Philosophy (PhD) In the Department of Economics Faculty of Commerce, Administration and Law at the University of Zululand, 2019.This study primarily speaks to the current debate on technology transfer by testing whether Chinese, South Korean and Japanese service imports affect productivity and efficiency of South Africa’s manufacturing industries through transferring innovation embodied in foreign services. This is a relatively underexplored area as previous literature on international technology transfer has given more attention on imports of physical goods.
In achieving the central aim of the analysis, the study makes several contributions to the body of knowledge. Firstly, it modifies and improves open economy endogenous growth theories by accommodating trade in services as a channel through which technology can be transferred across borders. Secondly and most importantly, it constructs a composite innovation spillover index that comprises several indicators of innovation namely R&D stock, researchers in R&D sector, trademarks and patent applications. Thirdly, it applies a Bayesian approach in one of the chapters (chapter five) which allows us to circumvent model uncertainty in the technology transfer model. Fourthly, unlike the majority of previous studies, it also focuses on technical efficiency as the outcome variable which allows us to establish not only whether Chinese, South Korean and Japanese innovation spillover pushes domestic technology frontier outwards but also how it influences the industries’ movement towards the existing technology frontier. Fifthly and for the first time in literature, it examines the response of labour productivity to exogenous innovation shocks through impulse response functions derived from the local projections method.
Using the R&D stock measure and physical intermediate imports as the transmission mechanism, the study is able to first replicate the result obtained in previous studies that innovation spillovers from China, South Korea and Japan significantly influence productivity growth of manufacturing industries in South Africa and that the effect increases with institutional quality and human capital accumulation. In particular, Generalised Method of Moments (GMM) results in chapter four confirm that Chinese, South Korean and Japanese innovation spillovers raise total factor productivity of South Africa’s manufacturing industries in the 0.003 – 0.012 per cent, 0.005 – 0.022 per cent and 0.0150 – 0.0151 per cent range respectively. When the study moves from the simple R&D stock measure and physical intermediate imports to a composite innovation measure and service imports as the transmission channel in chapter five based on a Bayesian analysis, the study reaches a different conclusion which is that China’s imported innovation exerts a negative effect on total factor productivity of South African manufacturing industries in the -0.015 – 0.176 per cent range. For South Korea and Japan, the effect is plausible and positive in the 0.023 – 0.061 per cent and 0.132 – 0.141 per cent range respectively which is consistent with open economy endogenous growth theories.
Chapter six focuses on labour productivity in the entire manufacturing sector. Results based on the Autoregressive Distributed Lag (ARDL) model are similar to those reported in chapter five despite the use of different outcome variables (i.e. labour productivity and total factor productivity). It is confirmed that South Korean and Japanese innovation spillovers are positively associated with labour productivity and the results are robust to alternative estimators and the decomposition of the total
x
sample. For China, the result of a negative effect on productivity still emerges this time in the – 0.01 – 0.036 per cent range.
Chapter seven focuses on technical efficiency as the outcome variable and the results from a True-Fixed effects stochastic frontier model show that innovation spillovers from South Korea and Japan improve technical efficiency of manufacturing industries. South Korean spillovers have a larger effect (0.310 per cent) when compared with Japanese spillovers (0.129 per cent). Meanwhile, China still enters with a negative effect on technical efficiency which is akin to a positive effect on technical inefficiency.
With respect to the local projections method in chapter eight, it is empirically confirmed that productivity growth in South Africa’s manufacturing sector increases with Japanese and South Korean exogenous technology spillover shocks particularly in long term horizons (above 6 quarters). For China, South Africa’s productivity response is significantly negative.
At the outset, the study raises four arguments. Firstly, Chinese innovation reduces productivity growth adding to the on-going concerns of China’s resource predatory presence in Africa. Secondly, innovation imported from the remaining countries particularly Japan and South Korea correlates positively with domestic productivity and the effect increases with human capital accumulation and the quality of institutions. Thirdly, despite observing a positive effect innovation from Japan and South Korea on domestic productivity, it is domestic innovation that enters with the most sizeable effect implying that foreign innovation should not substitute but rather complement domestic innovation efforts. Fourthly, trade in services plays an important role in transferring innovation across international boundaries.
As far as domestic industrial policy is concerned, the policy implication arising from this study is that service trade with Japan and South Korea is a relevant mechanism through which South Africa’s manufacturing industries can make technological upgrades but that with China should be a source of concern and an important area that requires further research. Two possible explanations for China’s negative effect are suggested. Firstly, China’s services in Africa hardly employ domestic workers as they normally come with their own workforce. This means when Chinese services (or service providers) leave South Africa, none of their technology is left for the domestic manufacturing industries to utilise. Secondly, China has been recurrently accused of providing services in Africa at the expense of natural resource extraction. This implies that the technology effect of China might be outweighed by the resource extraction leading to an overall negative effect of Chinese presence.
For South Korea and Japan in which the technology spillover effect is positive, evidence suggest that the effect is smaller when compared to that of domestic innovation index implying that Japanese and South Korean imported innovation ought to be treated as a complement rather than a substitute of domestic innovation effort. Also confirmed is that the positive impact of imported innovation increases with human capital accumulation and institutional quality implying that domestic absorptive capacity plays a huge role in ensuring that South Africa is able to fully absorb technology coming from Japan and South Kore
On the Unemployment Output Relation in South Africa: A Non-Linear ARDL Approach
Get PDFThe central aim of this paper is to establish the asymmetric effects of cyclical output on South Africa's unemployment rate. To achieve this objective, the non-linear autoregressive distributed lag model (NARDL) is applied on quarterly data spanning the periods 1994Q1-2017Q4. For every 10% economic contraction and expansion respectively according to the results, the response of the labour market is asymmetric in the long-run in that it loses more workers during contraction (10.3%) than it employs during recoveries (8%) supporting the labour market hysteresis. This is particularly true post the 2009 Global crisis suggesting that firms might have become more risk-averse to short-lived recoveries in recent years. The weak response of the labour market during expansions supports IMF’s recent proposition that economic recovery alone may not be enough to address South Africa's unemployment problem. 
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