Trends and determinants of inward foreign direct investment to South Africa
- Authors: Rusike, Tatonga Gardner
- Date: 2008
- Subjects: International business enterprises -- South Africa , Investments, Foreign -- South Africa , Economic development -- South Africa , Macroeconomics -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:995 , http://hdl.handle.net/10962/d1002730 , International business enterprises -- South Africa , Investments, Foreign -- South Africa , Economic development -- South Africa , Macroeconomics -- South Africa , Foreign exchange rates -- South Africa
- Description: Foreign direct investment (FDI) is seen as a way to provide the needed capital inflow to stimulate growth in a domestic economy. FDI can also result in increased employment levels, managerial skills and increase in technology. In efforts to attract FDI, host countries have undertaken various policy incentives to attract foreign investors. This study analyses the trends and determinants of inward FDI to South Africa for the period 1975-2005. The study starts by reviewing FDI literature on its determinants and provides the macroeconomic background and FDI related policies undertaken in South Africa. The trend and sectoral analysis provides the actual nature of FDI flows to South Africa. An empirical model linking theoretical and empirical determinants of FDI is estimated using the Johansen cointegration and VECM framework. The study also augments the cointegration framework with impulse response and variance decomposition analyses to complement the long and short run determinants of FDI. Dummy variables are used in each of the estimated FDI models to take into account the possibility of structural breaks. Results show that relative to the size of the economy and to other developing countries, South Africa still receives low levels of inward FDI. Only are few years are exceptional i.e. 1997, 2001 and 2005. From the sectoral distribution, the financial sector is now the major recipient of FDI followed by the mining and manufacturing sectors. The emergence of the financial sector could suggest that FDI motives could have shifted from the natural resource seeking and market seeking to efficiency seeking FDI. The United Kingdom emerges as the major source of FDI to South Africa followed by United States of America and Germany. Empirical analysis indicated that openness, exchange rate and financial development are important long run determinants of FDI. Increased openness and financial development attract FDI while an increase (depreciation) in the exchange rate deters FDI to South Africa. Market size emerges as a short run determinant of FDI although it is declining in importance. Most of the impulse response analysis confirmed the VECM findings. Variance decomposition analysis showed that FDI itself, imports and exchange rate explain a significant amount of the forecast error variance. The influence of market size variable is small and declining over time.
- Full Text:
- Date Issued: 2008
- Authors: Rusike, Tatonga Gardner
- Date: 2008
- Subjects: International business enterprises -- South Africa , Investments, Foreign -- South Africa , Economic development -- South Africa , Macroeconomics -- South Africa , Foreign exchange rates -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:995 , http://hdl.handle.net/10962/d1002730 , International business enterprises -- South Africa , Investments, Foreign -- South Africa , Economic development -- South Africa , Macroeconomics -- South Africa , Foreign exchange rates -- South Africa
- Description: Foreign direct investment (FDI) is seen as a way to provide the needed capital inflow to stimulate growth in a domestic economy. FDI can also result in increased employment levels, managerial skills and increase in technology. In efforts to attract FDI, host countries have undertaken various policy incentives to attract foreign investors. This study analyses the trends and determinants of inward FDI to South Africa for the period 1975-2005. The study starts by reviewing FDI literature on its determinants and provides the macroeconomic background and FDI related policies undertaken in South Africa. The trend and sectoral analysis provides the actual nature of FDI flows to South Africa. An empirical model linking theoretical and empirical determinants of FDI is estimated using the Johansen cointegration and VECM framework. The study also augments the cointegration framework with impulse response and variance decomposition analyses to complement the long and short run determinants of FDI. Dummy variables are used in each of the estimated FDI models to take into account the possibility of structural breaks. Results show that relative to the size of the economy and to other developing countries, South Africa still receives low levels of inward FDI. Only are few years are exceptional i.e. 1997, 2001 and 2005. From the sectoral distribution, the financial sector is now the major recipient of FDI followed by the mining and manufacturing sectors. The emergence of the financial sector could suggest that FDI motives could have shifted from the natural resource seeking and market seeking to efficiency seeking FDI. The United Kingdom emerges as the major source of FDI to South Africa followed by United States of America and Germany. Empirical analysis indicated that openness, exchange rate and financial development are important long run determinants of FDI. Increased openness and financial development attract FDI while an increase (depreciation) in the exchange rate deters FDI to South Africa. Market size emerges as a short run determinant of FDI although it is declining in importance. Most of the impulse response analysis confirmed the VECM findings. Variance decomposition analysis showed that FDI itself, imports and exchange rate explain a significant amount of the forecast error variance. The influence of market size variable is small and declining over time.
- Full Text:
- Date Issued: 2008
The term structure of interest rates and economic activity in South Africa
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
The yield curve as a forecasting tool : does the yield spread predict recessions in South Africa?
- Authors: Khomo, Melvin Muzi
- Date: 2006
- Subjects: Recessions -- South Africa , Monetary policy -- South Africa , Economic development -- South Africa , Economic indicators -- South Africa , Business cycles -- History -- 20th century , Business cycles -- South Africa , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1040 , http://hdl.handle.net/10962/d1004722 , Recessions -- South Africa , Monetary policy -- South Africa , Economic development -- South Africa , Economic indicators -- South Africa , Business cycles -- History -- 20th century , Business cycles -- South Africa , South Africa -- Economic conditions
- Description: This paper examines the ability of the yield curve to predict recessions in South Africa, and compares its predictive power with other commonly used variables that include the growth rate in real money supply, changes in stock prices and the index of leading economic indicators. The study also makes an attempt to find out if monetary policy explains the yield spread's predictive power with regards to future economic activity. Regarding methodology, the standard probit model proposed by Estrella and Mishkin (1996) that directly estimates the probability of the economy going into recession is used. Results from this model are compared with a modified probit model suggested by Dueker (1997) that includes a lagged dependent variable. Results presented in the paper provide further evidence that the yield curve, as represented by the yield spread between 3-month and IO-year government paper, can be used to estimate the likelihood of recessions in South Africa. The yield spread can produce recession forecasts up to 18 months, although it's best predictive power is seen at two quarters. Results from the standard probit model and the modified pro bit model with a lagged dependent variable are somewhat similar, although the latter model improves forecasts at shorter horizons up to 3 months. Compared with other indicators, real M3 growth is a noisy indicator and does not provide much information about future recessions, whilst movements in the All-Share index can provide information for up to 12 months but does not do better than the yield curve. The index of leading economic indicators outperforms the yield spread in the short run up to 4 months but the spread performs better at longer horizons. Based on the results from the study, it appears that changes in monetary policy explain the yield spread's predictive power. This is because the yield spread loses its explanatory power when combined with a variable representing the monetary policy stance of the central bank.
- Full Text:
- Date Issued: 2006
- Authors: Khomo, Melvin Muzi
- Date: 2006
- Subjects: Recessions -- South Africa , Monetary policy -- South Africa , Economic development -- South Africa , Economic indicators -- South Africa , Business cycles -- History -- 20th century , Business cycles -- South Africa , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1040 , http://hdl.handle.net/10962/d1004722 , Recessions -- South Africa , Monetary policy -- South Africa , Economic development -- South Africa , Economic indicators -- South Africa , Business cycles -- History -- 20th century , Business cycles -- South Africa , South Africa -- Economic conditions
- Description: This paper examines the ability of the yield curve to predict recessions in South Africa, and compares its predictive power with other commonly used variables that include the growth rate in real money supply, changes in stock prices and the index of leading economic indicators. The study also makes an attempt to find out if monetary policy explains the yield spread's predictive power with regards to future economic activity. Regarding methodology, the standard probit model proposed by Estrella and Mishkin (1996) that directly estimates the probability of the economy going into recession is used. Results from this model are compared with a modified probit model suggested by Dueker (1997) that includes a lagged dependent variable. Results presented in the paper provide further evidence that the yield curve, as represented by the yield spread between 3-month and IO-year government paper, can be used to estimate the likelihood of recessions in South Africa. The yield spread can produce recession forecasts up to 18 months, although it's best predictive power is seen at two quarters. Results from the standard probit model and the modified pro bit model with a lagged dependent variable are somewhat similar, although the latter model improves forecasts at shorter horizons up to 3 months. Compared with other indicators, real M3 growth is a noisy indicator and does not provide much information about future recessions, whilst movements in the All-Share index can provide information for up to 12 months but does not do better than the yield curve. The index of leading economic indicators outperforms the yield spread in the short run up to 4 months but the spread performs better at longer horizons. Based on the results from the study, it appears that changes in monetary policy explain the yield spread's predictive power. This is because the yield spread loses its explanatory power when combined with a variable representing the monetary policy stance of the central bank.
- Full Text:
- Date Issued: 2006
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