The effect of sectoral foreign direct investment on sectoral growth and sectoral employment in South Africa
- Authors: Paul, Bernice Nicole
- Date: 2021-04
- Subjects: Investments, Foreign -- South Africa , South Africa -- Economic conditions -- 1991- , South Africa -- Economic policy , Gross domestic product -- South Africa , UNCTAD-ICTSD Project on IPRs and Sustainable Development , Unemployment -- South Africa
- Language: English
- Type: thesis , text , Master , MCom
- Identifier: http://hdl.handle.net/10962/177964 , vital:42894
- Description: Over several decades past, developing countries have received increased amounts of Foreign Direct Investment (FDI). This form of investment has been welcomed because of the perceived benefits attached to it. FDI is seen as an important driver of economic development for many nations. For South Africa specifically, GDP growth rates have remained less than required, unemployment rates have reached staggering levels, poverty and inequality levels are increasing and the list goes on. Considering the perceived benefits of FDI, one may argue that FDI can play a crucial role in reducing the mentioned challenges facing the nation, however, only if directed to initiatives contributing to growth and employment. The 2015 Investment Policy Framework for Sustainable Development includes an action menu promoting investment in sectors relating to the achievement of the Sustainable Development Goals (SDGs). Therefore, this study is aimed at investigating the relationship between sector FDI and sector growth in addition to investigating the effect of sector FDI on sector employment over the period 2000Q1 to 2016Q4 for six of South Africa’s economic sectors. The reason for such a study is based on the premise that developing nations such as South Africa lack sound trade and industrial policies favorable to foreign investors. This then leads to the nation failing to attract higher volumes of FDI which could be used to address structural challenges facing the country. It is therefore important to identify sectors in which FDI has resulted in growth and employment so that when policies are considered, the right FDI is targeted. A comprehensive review of existing theoretical and empirical literature showed that FDI does result in economic growth for developed and developing countries, although FDI crowds out domestic investment in the short run. Literature on the effect of FDI on employment showed diverse effects. Some studies found FDI to increase employment overall, other studies found FDI to increase employment only during periods of restructuring and some studies found FDI to result in job losses. For South African sectors, the present study finds that the financial services sector receives the highest volume of South African FDI, followed by the mining and quarrying sector and the manufacturing, however, FDI in all six sectors under study is associated with increased growth and employment. This finding suggests that the financial services sector has received increased volumes of FDI as a result of financialization of the South African economy. It is this increased FDI in the financial services sector that is directed to income redistribution from the real sector to the finance sector. This study employed econometric techniques and methods of analysis to investigate the relationship between sector FDI and sector growth, and the effect of sector FDI on sector employment. Panel cointegration tests were conducted for all six sectors included in the study to establish if long run equilibrium relationships exist among integrated variables. The Johansen-Fisher panel cointegration test revealed that there is evidence of cointegration in four of the six sectors. Since cointegration was established, the study proceeded to perform the Dumitrescu-Hurlin panel causality analysis and estimate a Panel Vector Error Correction Model (VECM). Results from the causality analysis found a unidirectional causality relationship between FDI and GDP growth, while the panel VECM found FDI to have a significant effect on growth in all sectors. The Seemingly Unrelated Regression (SUR) model employed to investigate the effect of FDI on employment found FDI to have an insignificant effect on employment in all sectors included, although the signs of the coefficients suggest that FDI is associated with increased employment and rising wages is associated with increased productivity growth. Since this study finds that FDI is associated with increased GDP growth in all six sectors under study, policy makers should devise strategies to attract FDI in sectors such as the transportation, storage and communication sector and the electricity, gas and water sector as FDI in these sectors are associated with increased growth however, they receive very low levels of FDI. There are a number of reasons for this, therefore, government institutions and policy makers should investigate the reasons for these low levels of FDI inflows into these sectors so that they can devise further strategies to address these reasons and perhaps attract higher levels of FDI into these sectors. Spillover benefits play a major role in host nations participating in FDI therefore, prior to entering into bilateral treaty agreements, policy makers should ensure that foreign investors are compelled to create jobs, offer training and qualifications etc. through their investments so that some of the SDGs can be achieved. Additionally, this study finds a positive, statistically insignificant relationship between FDI and employment. FDI may not have a significant relationship on employment due to jobless growth and capital-intensive growth rather than labor-intensive growth. Such a situation calls for government intervention. Skills shortage is a rising problem in South Africa; therefore, investors choose to employ advanced technologies rather than people. Under such circumstances, governments are encouraged to invest resources into skills development so that human capital are not completely replaced by technology. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2021
- Full Text:
- Date Issued: 2021-04
- Authors: Paul, Bernice Nicole
- Date: 2021-04
- Subjects: Investments, Foreign -- South Africa , South Africa -- Economic conditions -- 1991- , South Africa -- Economic policy , Gross domestic product -- South Africa , UNCTAD-ICTSD Project on IPRs and Sustainable Development , Unemployment -- South Africa
- Language: English
- Type: thesis , text , Master , MCom
- Identifier: http://hdl.handle.net/10962/177964 , vital:42894
- Description: Over several decades past, developing countries have received increased amounts of Foreign Direct Investment (FDI). This form of investment has been welcomed because of the perceived benefits attached to it. FDI is seen as an important driver of economic development for many nations. For South Africa specifically, GDP growth rates have remained less than required, unemployment rates have reached staggering levels, poverty and inequality levels are increasing and the list goes on. Considering the perceived benefits of FDI, one may argue that FDI can play a crucial role in reducing the mentioned challenges facing the nation, however, only if directed to initiatives contributing to growth and employment. The 2015 Investment Policy Framework for Sustainable Development includes an action menu promoting investment in sectors relating to the achievement of the Sustainable Development Goals (SDGs). Therefore, this study is aimed at investigating the relationship between sector FDI and sector growth in addition to investigating the effect of sector FDI on sector employment over the period 2000Q1 to 2016Q4 for six of South Africa’s economic sectors. The reason for such a study is based on the premise that developing nations such as South Africa lack sound trade and industrial policies favorable to foreign investors. This then leads to the nation failing to attract higher volumes of FDI which could be used to address structural challenges facing the country. It is therefore important to identify sectors in which FDI has resulted in growth and employment so that when policies are considered, the right FDI is targeted. A comprehensive review of existing theoretical and empirical literature showed that FDI does result in economic growth for developed and developing countries, although FDI crowds out domestic investment in the short run. Literature on the effect of FDI on employment showed diverse effects. Some studies found FDI to increase employment overall, other studies found FDI to increase employment only during periods of restructuring and some studies found FDI to result in job losses. For South African sectors, the present study finds that the financial services sector receives the highest volume of South African FDI, followed by the mining and quarrying sector and the manufacturing, however, FDI in all six sectors under study is associated with increased growth and employment. This finding suggests that the financial services sector has received increased volumes of FDI as a result of financialization of the South African economy. It is this increased FDI in the financial services sector that is directed to income redistribution from the real sector to the finance sector. This study employed econometric techniques and methods of analysis to investigate the relationship between sector FDI and sector growth, and the effect of sector FDI on sector employment. Panel cointegration tests were conducted for all six sectors included in the study to establish if long run equilibrium relationships exist among integrated variables. The Johansen-Fisher panel cointegration test revealed that there is evidence of cointegration in four of the six sectors. Since cointegration was established, the study proceeded to perform the Dumitrescu-Hurlin panel causality analysis and estimate a Panel Vector Error Correction Model (VECM). Results from the causality analysis found a unidirectional causality relationship between FDI and GDP growth, while the panel VECM found FDI to have a significant effect on growth in all sectors. The Seemingly Unrelated Regression (SUR) model employed to investigate the effect of FDI on employment found FDI to have an insignificant effect on employment in all sectors included, although the signs of the coefficients suggest that FDI is associated with increased employment and rising wages is associated with increased productivity growth. Since this study finds that FDI is associated with increased GDP growth in all six sectors under study, policy makers should devise strategies to attract FDI in sectors such as the transportation, storage and communication sector and the electricity, gas and water sector as FDI in these sectors are associated with increased growth however, they receive very low levels of FDI. There are a number of reasons for this, therefore, government institutions and policy makers should investigate the reasons for these low levels of FDI inflows into these sectors so that they can devise further strategies to address these reasons and perhaps attract higher levels of FDI into these sectors. Spillover benefits play a major role in host nations participating in FDI therefore, prior to entering into bilateral treaty agreements, policy makers should ensure that foreign investors are compelled to create jobs, offer training and qualifications etc. through their investments so that some of the SDGs can be achieved. Additionally, this study finds a positive, statistically insignificant relationship between FDI and employment. FDI may not have a significant relationship on employment due to jobless growth and capital-intensive growth rather than labor-intensive growth. Such a situation calls for government intervention. Skills shortage is a rising problem in South Africa; therefore, investors choose to employ advanced technologies rather than people. Under such circumstances, governments are encouraged to invest resources into skills development so that human capital are not completely replaced by technology. , Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 2021
- Full Text:
- Date Issued: 2021-04
The functioning of the interbank market and its significance in the transmission of monetary policy
- Authors: De Angelis, Catherine
- Date: 2013-06-11
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1075 , http://hdl.handle.net/10962/d1008054 , South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Description: Monetary policy in South African is the primary means by which the authorities can influence activity in the overall economy. The South African Reserve Bank accommodates banks through repo transactions for which they charge the repo rate. The most important market in the transmission of the repo rate to the rest of the economy is the interbank market. As such, a detailed discussion of this market is given. In September 200 I the monetary authorities made certain adjustments to the repo system of accommodation, which included changing the repo rate from a floating rate to a fixed rate that would be administratively determined by the MPC. This was done to address certain weaknesses in the floating rate system. This thesis examines and compares the period before and after the adjustments to the repo system, with the aim of determining whether or not the monetary authorities achieved the goals intended from making this change. The repo rate, prime interbank rate, 3-month NCO rate and the prime lending rate are analysed using the Engle-Granger two variable approach and an ECM model to test for causality. It was found that the monetary authorities did not achieve their intended goals as the relationship between the repo rate and the interbank rate was more significant in the first period. Furthermore, the direction of causality the authorities hoped to achieve by implementing the changes were in fact already in place. As such the adjustments to the system changed the transmission mechanism from the one desired by the authorities to one that was not intended. The conclusions reached by this study show that, in terms of the objectives of the monetary authorities, the previous repo system functioned better. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
- Authors: De Angelis, Catherine
- Date: 2013-06-11
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1075 , http://hdl.handle.net/10962/d1008054 , South African Reserve Bank , Monetary policy -- South Africa , Foreign exchange rates -- South Africa , Money market -- South Africa , Banks and banking -- South Africa , Repurchase agreements -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Description: Monetary policy in South African is the primary means by which the authorities can influence activity in the overall economy. The South African Reserve Bank accommodates banks through repo transactions for which they charge the repo rate. The most important market in the transmission of the repo rate to the rest of the economy is the interbank market. As such, a detailed discussion of this market is given. In September 200 I the monetary authorities made certain adjustments to the repo system of accommodation, which included changing the repo rate from a floating rate to a fixed rate that would be administratively determined by the MPC. This was done to address certain weaknesses in the floating rate system. This thesis examines and compares the period before and after the adjustments to the repo system, with the aim of determining whether or not the monetary authorities achieved the goals intended from making this change. The repo rate, prime interbank rate, 3-month NCO rate and the prime lending rate are analysed using the Engle-Granger two variable approach and an ECM model to test for causality. It was found that the monetary authorities did not achieve their intended goals as the relationship between the repo rate and the interbank rate was more significant in the first period. Furthermore, the direction of causality the authorities hoped to achieve by implementing the changes were in fact already in place. As such the adjustments to the system changed the transmission mechanism from the one desired by the authorities to one that was not intended. The conclusions reached by this study show that, in terms of the objectives of the monetary authorities, the previous repo system functioned better. , KMBT_363 , Adobe Acrobat 9.54 Paper Capture Plug-in
- Full Text:
Savings behaviour in selected poor townships of the Kouga municipal district
- Authors: Baxter, Chad
- Date: 2012
- Subjects: Saving and investment -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:9009 , http://hdl.handle.net/10948/d1014540
- Description: This study considers the nature of savings behaviour amongst low income earners residing in the township areas of Kouga Municipal District. It reflects on the popularity and persistence of informal savings and credit associations, also known as stokvels, in these communities in the face of an increase in the availability of formal savings products. This study argues that despite financial deepening taking place within the South African economy, the popularity and widespread usage of stokvels can largely be attributed to the lack of appropraite formal products available for low income earners. This study does not conclude that the usage of informal savings products results in increased savings behaviours amongst this group, but it does conclude that they provide a suitable mechanism in which savings can take place.
- Full Text:
- Date Issued: 2012
- Authors: Baxter, Chad
- Date: 2012
- Subjects: Saving and investment -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:9009 , http://hdl.handle.net/10948/d1014540
- Description: This study considers the nature of savings behaviour amongst low income earners residing in the township areas of Kouga Municipal District. It reflects on the popularity and persistence of informal savings and credit associations, also known as stokvels, in these communities in the face of an increase in the availability of formal savings products. This study argues that despite financial deepening taking place within the South African economy, the popularity and widespread usage of stokvels can largely be attributed to the lack of appropraite formal products available for low income earners. This study does not conclude that the usage of informal savings products results in increased savings behaviours amongst this group, but it does conclude that they provide a suitable mechanism in which savings can take place.
- Full Text:
- Date Issued: 2012
An analysis of the long run comovements between financial system development and mining production in South Africa
- Authors: Ajagbe, Stephen Mayowa
- Date: 2011
- Subjects: Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:955 , http://hdl.handle.net/10962/d1002689 , Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Description: This study examines the nature of the relationship which exists between mining sector production and development of the financial systems in South Africa. This is particularly important in that the mining sector is considered to be one of the major contributors to the country’s overall economic growth. South Africa is also considered to have a very well developed financial system, to the point where the dominance of one over the other is difficult to identify. Therefore offering insight into the nature of this relationship will assist policy makers in identifying the most effective policies in order to ensure that the developments within the financial systems impact appropriately on the mining sector, and ultimately on the economy. In addition to using the conventional proxies of financial system development, this study utilises the principal component analysis (PCA) to construct an index for the entire financial system. The multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) was then used to estimate the relationship between the development of the financial systems and the mining sector production for the period 1988-2008. The study reveals mixed results for different measures of financial system development. Those involving the banking system show that a negative relationship exists between total mining production and total credit extended to the private sector, while liquid liabilities has a positive relationship. Similarly, with the stock market system, mixed results are also obtained which reveal a negative relationship between total mining production and stock market capitalisation, while a positive relationship is found with secondary market turnover. Of all the financial system variables, only that of stock market capitalisation was found to be significant. The result with the financial development index reveals that a significant negative relationship exists between financial system development and total mining sector production. Results on the other variables controlled in the estimation show that positive and significant relationships exist between total mining production and both nominal exchange rate and political stability respectively. Increased mining production therefore takes place in periods of appreciating exchange rates, and similarly in the post-apartheid era. On the other hand, negative relationships were found for both trade openness and inflation control variables. The impulse response and variance decomposition analyses showed that total mining production explains the largest amount of shocks within itself. Overall, the study reveals that the mining sector might not have benefited much from the development in the South African financial system.
- Full Text:
- Date Issued: 2011
- Authors: Ajagbe, Stephen Mayowa
- Date: 2011
- Subjects: Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:955 , http://hdl.handle.net/10962/d1002689 , Economic development -- South Africa , Econometric models , Mineral industries -- Economic aspects -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Principal components analysis , Cointegration , Stock exchanges -- South Africa , Banks and banking -- South Africa , Foreign exchange rates
- Description: This study examines the nature of the relationship which exists between mining sector production and development of the financial systems in South Africa. This is particularly important in that the mining sector is considered to be one of the major contributors to the country’s overall economic growth. South Africa is also considered to have a very well developed financial system, to the point where the dominance of one over the other is difficult to identify. Therefore offering insight into the nature of this relationship will assist policy makers in identifying the most effective policies in order to ensure that the developments within the financial systems impact appropriately on the mining sector, and ultimately on the economy. In addition to using the conventional proxies of financial system development, this study utilises the principal component analysis (PCA) to construct an index for the entire financial system. The multivariate cointegration approach as proposed by Johansen (1988) and Johansen and Juselius (1990) was then used to estimate the relationship between the development of the financial systems and the mining sector production for the period 1988-2008. The study reveals mixed results for different measures of financial system development. Those involving the banking system show that a negative relationship exists between total mining production and total credit extended to the private sector, while liquid liabilities has a positive relationship. Similarly, with the stock market system, mixed results are also obtained which reveal a negative relationship between total mining production and stock market capitalisation, while a positive relationship is found with secondary market turnover. Of all the financial system variables, only that of stock market capitalisation was found to be significant. The result with the financial development index reveals that a significant negative relationship exists between financial system development and total mining sector production. Results on the other variables controlled in the estimation show that positive and significant relationships exist between total mining production and both nominal exchange rate and political stability respectively. Increased mining production therefore takes place in periods of appreciating exchange rates, and similarly in the post-apartheid era. On the other hand, negative relationships were found for both trade openness and inflation control variables. The impulse response and variance decomposition analyses showed that total mining production explains the largest amount of shocks within itself. Overall, the study reveals that the mining sector might not have benefited much from the development in the South African financial system.
- Full Text:
- Date Issued: 2011
Monetary policy transmission in South Africa: a comparative analysis of credit and exchange rate channels
- Authors: Sebitso, Nathaniel Maemu
- Date: 2011
- Subjects: Monetary policy -- South Africa , Foreign exchange market -- South Africa , Financial crises -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1129 , http://hdl.handle.net/10962/d1020851
- Description: This thesis focuses on monetary policy transmission and particularly seeks to examine the impact of credit and exchange rate channels of monetary policy transmission in the South African economy. South Africa's monetary policy has gone through several changes over the past thirty years. In this respect, there is a need for robust empirical evidence on the effects of these channels on inflation and output. The thesis employs a structural vector autoregressive (SVAR) model to identify monetary transmission in South Africa for the period 1994:q4 - 2008:q2. The form of the SVAR used in this thesis is based on the fact that South Africa is a small open economy, which means that external shocks are an important driver of domestic activity. The impulse responses and variance decomposition results show that the repo rate, credit and exchange rate play a role in terms of their impact on inflation and output. The dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the importance of the interest rate channel. A shock to the interest rate, increasing it by one standard deviation, results in a persistent fall in credit. The response of output is immediate as it falls and bottoms out within the second year. Inflation shows a lagged response, it is positive within the first year as the exchange rate depreciates but in subsequent quarters inflation responds negatively as expected. Inflation falls and reaches a minimum by approximately eight quarters then moves towards baseline. The exchange rate shows delayed appreciation. The shock to the repo interest rate leads to an immediate depreciation of the exchange rate in the first two quarters as output declines, followed by an appreciation in the third and sixth quarter. Due to larger error bounds the impact of the repo rate on the exchange rate could be less effective within the first two years. The impulse responses suggest that monetary policy plays an effective role in stabilising the economy in response to a credit shock, notwithstanding large standard error bounds. Hence, the monetary authority reacts by increasing the repo rate as a result of inflation. The impact of credit on output is positive but is offset to some extent by the rising repo rate. In response to the rand appreciation, the monetary authority reduces the repo rate significantly during the first year with the maximum impact in the second year and then returns to baseline thereafter. Therefore the monetary authority reduces the repo rate, probably to stabilise falling inflation. The result shows that inflation falls as a result of the rand appreciation. A shock to the exchange rate causes a rise in output, though small in magnitude, which is persistent but reaches baseline at the end of the period. This result could reflect the effects of the resultant fall in the repo rate and a persistent rise in credit over the whole period, which tends to increase output. The exchange rate shows an obvious and stronger immediate impact on inflation compared to credit impact on inflation. However, the credit shock has an obvious and stronger impact on output compared to an exchange rate impact on output. However, the large standard error bounds may imply that credit and exchange rate channels are not as effective in the short run. It is important to note that the results are based on the SVAR model estimated with percentage growth rate of the variables. The variance decomposition result is in line with the impulse responses and shows that the exchange rate and credit channels could be important transmission channels in South Africa over the chosen sample period. The exchange rate and credit shocks show a stronger effect on inflation than on output, looking at both the impulse responses and variance decomposition results. The reaction of the repo interest rate to the credit and exchange rate shocks comes out as expected. The repo rate increases as a result of an increase in the credit and falls as a result of the currency appreciation.
- Full Text:
- Date Issued: 2011
- Authors: Sebitso, Nathaniel Maemu
- Date: 2011
- Subjects: Monetary policy -- South Africa , Foreign exchange market -- South Africa , Financial crises -- South Africa , South Africa -- Economic conditions , South Africa -- Economic policy , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1129 , http://hdl.handle.net/10962/d1020851
- Description: This thesis focuses on monetary policy transmission and particularly seeks to examine the impact of credit and exchange rate channels of monetary policy transmission in the South African economy. South Africa's monetary policy has gone through several changes over the past thirty years. In this respect, there is a need for robust empirical evidence on the effects of these channels on inflation and output. The thesis employs a structural vector autoregressive (SVAR) model to identify monetary transmission in South Africa for the period 1994:q4 - 2008:q2. The form of the SVAR used in this thesis is based on the fact that South Africa is a small open economy, which means that external shocks are an important driver of domestic activity. The impulse responses and variance decomposition results show that the repo rate, credit and exchange rate play a role in terms of their impact on inflation and output. The dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the importance of the interest rate channel. A shock to the interest rate, increasing it by one standard deviation, results in a persistent fall in credit. The response of output is immediate as it falls and bottoms out within the second year. Inflation shows a lagged response, it is positive within the first year as the exchange rate depreciates but in subsequent quarters inflation responds negatively as expected. Inflation falls and reaches a minimum by approximately eight quarters then moves towards baseline. The exchange rate shows delayed appreciation. The shock to the repo interest rate leads to an immediate depreciation of the exchange rate in the first two quarters as output declines, followed by an appreciation in the third and sixth quarter. Due to larger error bounds the impact of the repo rate on the exchange rate could be less effective within the first two years. The impulse responses suggest that monetary policy plays an effective role in stabilising the economy in response to a credit shock, notwithstanding large standard error bounds. Hence, the monetary authority reacts by increasing the repo rate as a result of inflation. The impact of credit on output is positive but is offset to some extent by the rising repo rate. In response to the rand appreciation, the monetary authority reduces the repo rate significantly during the first year with the maximum impact in the second year and then returns to baseline thereafter. Therefore the monetary authority reduces the repo rate, probably to stabilise falling inflation. The result shows that inflation falls as a result of the rand appreciation. A shock to the exchange rate causes a rise in output, though small in magnitude, which is persistent but reaches baseline at the end of the period. This result could reflect the effects of the resultant fall in the repo rate and a persistent rise in credit over the whole period, which tends to increase output. The exchange rate shows an obvious and stronger immediate impact on inflation compared to credit impact on inflation. However, the credit shock has an obvious and stronger impact on output compared to an exchange rate impact on output. However, the large standard error bounds may imply that credit and exchange rate channels are not as effective in the short run. It is important to note that the results are based on the SVAR model estimated with percentage growth rate of the variables. The variance decomposition result is in line with the impulse responses and shows that the exchange rate and credit channels could be important transmission channels in South Africa over the chosen sample period. The exchange rate and credit shocks show a stronger effect on inflation than on output, looking at both the impulse responses and variance decomposition results. The reaction of the repo interest rate to the credit and exchange rate shocks comes out as expected. The repo rate increases as a result of an increase in the credit and falls as a result of the currency appreciation.
- Full Text:
- Date Issued: 2011
An analysis of exchange rate pass-through to prices in South Africa
- Authors: Karoro, Tapiwa Daniel
- Date: 2008
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:953 , http://hdl.handle.net/10962/d1002687 , Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Description: The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.
- Full Text:
- Date Issued: 2008
- Authors: Karoro, Tapiwa Daniel
- Date: 2008
- Subjects: Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:953 , http://hdl.handle.net/10962/d1002687 , Foreign exchange rates -- South Africa , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , Prices -- South Africa , Banks and banking -- South Africa , South Africa -- Economic policy
- Description: The fact that South Africa has a floating exchange rate policy as well as an open trade policy leaves the country’s import, producer and consumer prices susceptible to the effects of exchange rate movements. Given the central role that inflation targeting occupies in South Africa’s monetary policy, it becomes necessary to determine the nature of influence of exchange rate changes on domestic prices. To this end, this thesis examines the magnitude and speed of exchange rate pass-through (ERPT) to import, producer and consumer prices in South Africa. Furthermore, it explores whether the direction and size of changes in the exchange rate have different pass-through effects on import prices, that is, whether the exchange rate pass-through is symmetric or asymmetric. The paper uses monthly data covering the period January 1980 to December 2005. In investigating ERPT, two main stages are identified. The initial stage is the transmission of fluctuations in the exchange rate to import prices, while the second-stage entails the pass-through of changes in import prices to producer and consumer prices. The first stage is estimated using the Johansen (1991) and (1995) cointegration techniques and a vector error correction model (VECM). The second stage pass-through is determined by estimating impulse response and variance decomposition functions, as well as conducting block exogeneity Wald tests. The study follows Wickremasinghe and Silvapulle’s (2004) approach in estimating pass-through asymmetry with respect to appreciations and depreciations. In addition, the thesis adapts the analytical framework of Wickremasinghe and Silvapulle (2004) to investigate the pass-through of large and small changes in the exchange rate to import prices. The results suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation which supports the binding quantity constraint theory. There is also some evidence that pass-through is higher in periods of small changes than large changes in the exchange rate, which supports the menu cost theory when invoices are denominated in the exporters’ currency.
- Full Text:
- Date Issued: 2008
A review of the actuaries' capitalisation rate from an economic perspective
- Authors: Turner, Jason
- Date: 2006
- Subjects: Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:992 , http://hdl.handle.net/10962/d1002727 , Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Description: The purpose of this paper was to evaluate if the macroeconomic change that has occurred in the South African economy since the 1980s has been significant enough to justify a re-examination of the actuaries’ capitalisation rate, due to its formulation processes dependence on the macroeconomic situation. The need for the reexamination arises from the use of the capitalisation in the calculation of lump sum awards where even a small change in the rate can have a significant impact on the value of the final award. In order to address the issue an examination of how Keynesian expectations are formulated and an examination of the Government’s macroeconomic policy was conducted to provide the foundation. On this foundation, a trend analysis of the major groups of financial instruments, as well as the current outlooks for the South African economy, was conducted to determine if there was any indication of a significant change in the macroeconomic conditions. The results of the analysis provided a compelling case for the urgent need for the actuaries’ capitalisation rate to be recalculated to account for the changed economic situation.
- Full Text:
- Date Issued: 2006
- Authors: Turner, Jason
- Date: 2006
- Subjects: Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:992 , http://hdl.handle.net/10962/d1002727 , Macroeconomics , Keynesian economics , Insurance -- Mathematics , South Africa -- Economic conditions -- 1961-1991 , South Africa -- Economic policy
- Description: The purpose of this paper was to evaluate if the macroeconomic change that has occurred in the South African economy since the 1980s has been significant enough to justify a re-examination of the actuaries’ capitalisation rate, due to its formulation processes dependence on the macroeconomic situation. The need for the reexamination arises from the use of the capitalisation in the calculation of lump sum awards where even a small change in the rate can have a significant impact on the value of the final award. In order to address the issue an examination of how Keynesian expectations are formulated and an examination of the Government’s macroeconomic policy was conducted to provide the foundation. On this foundation, a trend analysis of the major groups of financial instruments, as well as the current outlooks for the South African economy, was conducted to determine if there was any indication of a significant change in the macroeconomic conditions. The results of the analysis provided a compelling case for the urgent need for the actuaries’ capitalisation rate to be recalculated to account for the changed economic situation.
- Full Text:
- Date Issued: 2006
Asset prices and inflation-targeting : implications for South Africa
- Authors: Cosser, Leigh Emma
- Date: 2005
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , South Africa -- Economic policy , Banks and banking, Central -- South Africa , Anti-inflationary policies , Monetary policy -- Japan , Monetary policy -- United States
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1127 , http://hdl.handle.net/10962/d1020849
- Description: An analysis of the current monetary policy framework in South Africa, which followed the exampie of a number of developed countries by implementing an inflation-targeting regime in 2000, is presented. The primary goal of the framework is to establish price stability, with financial stability a secondary objective. However, as has been evident in other countries, price stability does not guarantee financial stability. Movements in asset prices and the development of asset price bubbles have resulted in a number of episodes of financial instability, which negatively impacted on the growth and development of the countries involved. In addition, the majority of these episodes have occurred in periods of low and stable inflation. The dissertation analyses whether monetary policy would be more efficient if asset price movements were incorporated within the inflation-targeting regime. International experience indicates that early intervention of monetary policy can dampen the negative effects that result when an asset price bubble "bursts". However, if the monetary authorities act too early the effects on the economy can be just as disruptive. The literature is scrutinized to establish what the most effective form of monetary policy should be. The results are then transposed within the South African context to establish how the South African Reserve Bank can best ensure both price and financial stability.
- Full Text:
- Date Issued: 2005
- Authors: Cosser, Leigh Emma
- Date: 2005
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Inflation (Finance) -- South Africa , South Africa -- Economic policy , Banks and banking, Central -- South Africa , Anti-inflationary policies , Monetary policy -- Japan , Monetary policy -- United States
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1127 , http://hdl.handle.net/10962/d1020849
- Description: An analysis of the current monetary policy framework in South Africa, which followed the exampie of a number of developed countries by implementing an inflation-targeting regime in 2000, is presented. The primary goal of the framework is to establish price stability, with financial stability a secondary objective. However, as has been evident in other countries, price stability does not guarantee financial stability. Movements in asset prices and the development of asset price bubbles have resulted in a number of episodes of financial instability, which negatively impacted on the growth and development of the countries involved. In addition, the majority of these episodes have occurred in periods of low and stable inflation. The dissertation analyses whether monetary policy would be more efficient if asset price movements were incorporated within the inflation-targeting regime. International experience indicates that early intervention of monetary policy can dampen the negative effects that result when an asset price bubble "bursts". However, if the monetary authorities act too early the effects on the economy can be just as disruptive. The literature is scrutinized to establish what the most effective form of monetary policy should be. The results are then transposed within the South African context to establish how the South African Reserve Bank can best ensure both price and financial stability.
- Full Text:
- Date Issued: 2005
Interest rate behaviour in a more transparent South African monetary policy environment
- Authors: Ballim, Goolam Hoosen
- Date: 2005
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Banks and banking -- South Africa , Interest rates -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1034 , http://hdl.handle.net/10962/d1004462 , South African Reserve Bank , Monetary policy -- South Africa , Banks and banking -- South Africa , Interest rates -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Description: South Africa introduced inflation targeting as a monetary policy framework in 2000. This marked a sizable shift in monetary policy management from the previous "eclectic" approach and the explicit focus on M3 money supply before that. The study appraises the effectiveness of monetary policy under this new dispensation. However, the analysis does not centre on inflation outcomes, which can be a measure of effectiveness because they are the overriding objective of the South African Reserve Bank in effect, it is possible to have a target-friendly inflation rate for a length of time despite monetary policy that is ambiguous and encourages unpredictability in market interest rates. However, persistent policy opaqueness can, over time, damage a favourable inflation scenario. For instance, if the public is unsure about the Reserve Bank's desired inflation target, price setting in the wage and goods markets may eventually produce an inflation outcome that is higher than the Bank may have intended. Rather, this study adjudicates the effectiveness of monetary policy within the context of policy transparency, which is an intrinsic part of the inflation targeting framework. The study looks at the extent to which monetary policy transparency has enhanced both the anticipatory nature of the market's response to policy actions and the force that policy has on all interest rates in the financial system, particularly long-term rates. These concepts are important because through the transmission mechanism of monetary policy, the more deft market participants are at anticipating future Reserve Bank policy the greater the Bank's ability to steady the economy before the actual policy event. With the aid of regression models to estimate the response of market rates to policy changes, the results show that there is significant movement in market rates in anticipation of policy action, rather than on the day of the event or the day after. Indeed, the estimates for market rates movement on the day of and even the day after the policy action are generally minute. For instance, the R157 long-term government bond yield changes by a significant 41 basis points in response to a one percentage point change in the Reserve Bank's benchmark repo rate in the period between the last policy action and the day preceding the current action. In contrast, the R157 bond yield changes by an insignificant 2 basis points on the day of the current repo rate change and about 1 basis point the day after the current change. The results point to a robust relationship between policy transparency and the market's ability to foresee rate action. If this were not the case, it is likely that there would be persistent market surprise and, hence, noticeable movement in interest rates on the day of the rate action and perhaps even the day after. Another important observation is that monetary policy impacts significantly on both short- and long-term market rates. Again, certifying the robustness of monetary policy under the inflation targeting regime
- Full Text:
- Date Issued: 2005
- Authors: Ballim, Goolam Hoosen
- Date: 2005
- Subjects: South African Reserve Bank , Monetary policy -- South Africa , Banks and banking -- South Africa , Interest rates -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:1034 , http://hdl.handle.net/10962/d1004462 , South African Reserve Bank , Monetary policy -- South Africa , Banks and banking -- South Africa , Interest rates -- South Africa , South Africa -- Economic policy , South Africa -- Economic conditions
- Description: South Africa introduced inflation targeting as a monetary policy framework in 2000. This marked a sizable shift in monetary policy management from the previous "eclectic" approach and the explicit focus on M3 money supply before that. The study appraises the effectiveness of monetary policy under this new dispensation. However, the analysis does not centre on inflation outcomes, which can be a measure of effectiveness because they are the overriding objective of the South African Reserve Bank in effect, it is possible to have a target-friendly inflation rate for a length of time despite monetary policy that is ambiguous and encourages unpredictability in market interest rates. However, persistent policy opaqueness can, over time, damage a favourable inflation scenario. For instance, if the public is unsure about the Reserve Bank's desired inflation target, price setting in the wage and goods markets may eventually produce an inflation outcome that is higher than the Bank may have intended. Rather, this study adjudicates the effectiveness of monetary policy within the context of policy transparency, which is an intrinsic part of the inflation targeting framework. The study looks at the extent to which monetary policy transparency has enhanced both the anticipatory nature of the market's response to policy actions and the force that policy has on all interest rates in the financial system, particularly long-term rates. These concepts are important because through the transmission mechanism of monetary policy, the more deft market participants are at anticipating future Reserve Bank policy the greater the Bank's ability to steady the economy before the actual policy event. With the aid of regression models to estimate the response of market rates to policy changes, the results show that there is significant movement in market rates in anticipation of policy action, rather than on the day of the event or the day after. Indeed, the estimates for market rates movement on the day of and even the day after the policy action are generally minute. For instance, the R157 long-term government bond yield changes by a significant 41 basis points in response to a one percentage point change in the Reserve Bank's benchmark repo rate in the period between the last policy action and the day preceding the current action. In contrast, the R157 bond yield changes by an insignificant 2 basis points on the day of the current repo rate change and about 1 basis point the day after the current change. The results point to a robust relationship between policy transparency and the market's ability to foresee rate action. If this were not the case, it is likely that there would be persistent market surprise and, hence, noticeable movement in interest rates on the day of the rate action and perhaps even the day after. Another important observation is that monetary policy impacts significantly on both short- and long-term market rates. Again, certifying the robustness of monetary policy under the inflation targeting regime
- Full Text:
- Date Issued: 2005
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