Economics

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African stock markets: empirics of development, integration, efficiency and investor herd behaviour
(University of Zululand, 2017) Aawaar, Godfrey; Tewari, D.D
Africa’s stock markets are as diverse as the 53 economies that constitute the continent. Stock markets in Africa have been described as being less developed, inefficient and isolated or segmented from the rest of the world. However, these views are not entirely accurate in the light of the current state of development. African stock markets have gained prominence and relevance in the global financial scene in the last three decades. The number of exchanges, for instance, has risen from 6 in the 1980s to 29 presently. Most of them may have experienced significant progress in terms of their performance, their integration with the world and their efficiency. Regrettably, unlike the developed and emerging stock markets elsewhere in the world, Africa’s stocks markets have suffered a history of global and investor neglect and have accordingly attracted very little research. This study contributes to our knowledge of Africa’s stock markets in relation to what factors drive their development, whether their co-movement (regionally and globally) has evolved over time and in scale, whether their integration is associated with their informational efficiency, and whether or not herding behaviour exists in these stock markets. The study used various methodologies to accomplish the objectives including the dynamic GMM estimation, pooled panel OLS regression, wavelet squared coherence analysis, multivariate DCC-GARCH analysis, and the cross-sectional absolute deviation (CSAD) modelling technique. The findings of this study have far-reaching implications: First, we conclude that both domestic (macroeconomic and institutional) and global factors drive stock market development in Africa; sound domestic macroeconomic environment and good quality institutions as well as stable global economic and financial conditions are indispensable drivers of stock market development. Second, we also conclude that the integration and co-movements of Africa’s stock markets with the world market is both time-varying and scale-dependent, but with significant variations among market pairs. In addition, greater global co-movements exist in Africa’s stock markets at both short- and long-term frequency scales, while intra-regional and inter-regional co-movements exist at various time horizons but are relatively weak. However, the strength of these dependencies differs between pairs of markets and regions. Third, we additionally conclude that market integration is closely associated with informational efficiency, and that a globally integrated stock market tends to be a globally informationally efficient market. Finally, we conclude that herding behaviour exists in Africa’s emerging equity markets. Important policy recommendations are suggested in this study.
Analysing the impact of wage rate and inflation on labour productivity among selected early inflation-targeting countries and emerging market economies
(University of Zululand, 2023) Mthethwa, Mzweleni Fundani; Prof Kaseeram, I. and Dr Makhoba, B.P.
The emerging market economies (EMEs) have experienced more severe trade-offs, higher output and inflation volatility, and poorer performance than developed economies, economic diversity necessitates special efforts. However, the inflation targeting (IT) has been used by central banks as the tool to maintain price stability, but what remains as a major issue is the positive relationship between increased wage rate and labour productivity, which then increases the inflationary pressure in a case of IT EMEs as compared to early IT countries. Theories based on prior experiences around the world have led to generalisations of some monetary policies that ignore differences between countries. In a labour market with perfect competition, wage rates are determined by labour productivity, and wage dispersion represents the marginal contributions of the different workers to the final product. Therefore, this study analysed the impact of labour productivity on wage rate and inflation among selected early IT countries and EMEs over the period 1990-2019. It was a quantitative study, anchored on IT adopters’ countries design because there was strong evidence of a structural break before 1990, which led to a rose rapidly of inflationary pressure and subsequently fed through into per worker wages and productivity negatively. The study employed a panel autoregressive distributed lag approach (PARDL) to analyse the long-run relationships and short-run dynamics between wage rate and labour productivity. Labour productivity was treated as an endogenous variable in the model, while explanatory variables include wage rate, inflation, import and export ratio. The study provided strong evidence of a significant positive impact of wage rate, inflation, import and export ratio on labour productivity for both early IT countries and EMEs. The study found that there was positive and significant long-run relationship between wage rate and labour productivity. Also, there was a positive short-run relationship highlighting the dual effects of wage rate on labour productivity in early IT countries and EMEs, positively significant at 1% and 10%. Moreover, there was positive and significant relationship between inflation rate and labour productivity, which was contrary to related studies for both early IT countries and EMEs. The most plausible explanations for these results are that the adoption of IT had a positive impact on labour productivity shock that led to a significant decline in consumer price inflation and inflation expectations for early inflation targeters. However, that was contrary for IT EMEs as compared with early IT as positive labour productivity shock in IT EMEs led to a significant increase on the inflation pressure. The results of this study have important policy implications for policy makers in EMEs and contribute to the notion that the causes of inflation in EMEs are multi-dimensional and dynamic. Thus, policy makers in EMEs need to be able to offer solutions to the inflationary trends that lead to high productivity, also decreased unemployment, and an improvement in living standards.
Budget Deficits, economic growth and external balances in SADC countries: a panel data and time series analysis
(University of Zululand, 2017) Mavodyo, Elisha; Kaseeram, I.; Contogiannis, T.E
The role fiscal policy plays as a macro-economic stabilisation tool remains a contentious issue in macro-economics. Yet an understanding of the role fiscal policy plays in influencing external balances as well as economic growth is instructive upon policy makers to craft stimulus packages in order to enhance sustainable economic growth, bearing in mind, as well, that lack of fiscal space underscores the limits of discretionary fiscal policy. In the same vain, an awareness of the role of budget deficits in driving external balances plays a principal role in adopting fiscal prudence as a way of harnessing the widening current account deficits which may have dire consequences on the economy. Notwithstanding the importance such an understanding is to the achievement of the Southern African Development Community (SADC)’s goals of fighting poverty and attaining economic integration through adoption of sound macroeconomic policies, the SADC region has received very little scholarly attention on this contemporary issue. This thesis fills this gap in the literature by providing empirical evidence that is SADC specific on the role of fiscal policy in driving the external balances as well as the impact of fiscal policy in accounting for economic growth in the region. This goal is achieved in three separate chapters; chapter4, chapter 5, and chapter 6 of this thesis. In chapter 4 of this thesis the study analysed the co-movement between budget deficits and the external balances in 14 SADC member countries. Relying on evidence from the cutting edge Common Correlated Mean Group Estimator (CCEMG) and the system general methods of moments (GMM) estimation approaches, the study found evidence in support of the twin deficits hypothesis in the case of the 14 SADC member countries included in our analysis. The implications of these findings underscore the need to adopt fiscal austerity measures in order to harness the widening current account deficits which are way beyond the SADC set targets in most of the SADC member countries. Chapter 5 of this thesis presents the panel empirical evidence on the impact of public debt on subsequent economic growth in an unbalanced panel of 14 SADC member countries. Utilising various panel estimation approaches including the Dynamic Ordinary Least Squares (DOLS), the Fully Modified Ordinary Least Squares (FMOLS), the system GMM from use of initial values, and system GMM from the use of five and three-year averages. The study documents contradictory results on the relationship between public debt and economic growth. However, the study discriminated in favour of the DOLS which provide evidence in favour of the growth engendering role of public debt. Furthermore, to the best of the researchers’ knowledge no other study in the SADC context analysed the growth effects of public debt, particularly the non-linearities and the public debt-investment channels through which public debt is related to economic growth. To this end, the study found overwhelming evidence in support of the non-linearities in the relationship between public debt and economic growth. The policy implications of these findings are that though SADC member countries may rely on public debt as a counter cyclical measure but they ought to exercise restraint as excessive dependence on public debt beyond a certain threshold has detrimental effects on long run growth. Moreover, the analysis found that for public debt to be growth promoting it has to be channelled through investment in human capital. The last set of empirical evidence in this thesis is presented in chapter 6. Chapter 6 reports the empirical evidence on the role of fiscal policy, specifically budget deficits, on economic growth in South Africa, Madagascar and Lesotho. Empirical evidence in this chapter, robust to some of the recent developments in time series literature- the DOLS, FMOLS, and the Canonical Cointegration Regression (CCR)-, overwhelmingly establish the growth promoting role of fiscal policy in South Africa, Madagascar and Lesotho. These findings may be taken to suggest that budget deficit in the three SADC countries could be dedicated to growth enhancing activities like investment in both physical and human capital, investment in technology and health that supports growth. In the case of South Africa, this study went further to analyse the growth effects of budget deficits in a pre and post democratic South Africa (1994) as well as the role of budget deficit in a pre and post inflation targeting era (2000). The overall conclusion of this study is that debt spending, within limits, done in conjunction with broader developmental goals like investment in physical and social infrastructure, is essential for promoting growth in SADC countries.
The contribution of Foreign Direct Investment (FDI) to domestic employment levels in South Africa: a Vector Autoregressive Approach
(University of Zululand, 2018) Makhoba, Bongumusa Prince
South Africa is a free market economy that promotes Foreign Direct Investment (FDI) in all of its economic sectors, with the aim of accelerating economic growth and increasing job opportunities. Several empirical works have yielded mixed and controversial results with regard to the effects of FDI on employment and economic growth in both developed and developing countries. The primary focus of this study is to investigate the effect of FDI on domestic employment levels in the context of the South African economy. The analyses of the study were carried out using the annual time series data, covering the period of 1980 to 2015. The macroeconomic variables used in the estimation process of the study include employment, FDI, GDP, inflation, trade openness and unit labour costs. The study employed secondary data from the South African Reserve Bank (SARB) and Statistics South Africa (StatsSA) database. The study mainly used the Vector Autoregressive/ Vector Error Correction Mechanism (VAR/VECM) approach to conduct empirical analysis. However, the study also employed single equation estimation techniques, including the Ordinary Least Squares (OLS), Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS) and Canonical Co-integrating Regression (CCR) models as supporting and confirmatory tools to verify the results produced by the VAR/VECM model. This study provides strong evidence of a significant negative relationship between FDI and employment levels in the South African economy. The results also indicate that employment levels are highly influenced by an increase in economic growth (GDP). Empirical analysis of the study suggests that the effect of economic growth on employment is highly positive and significant in South Africa’s economy. Policy recommendations on this effect are given on the basis of empirical findings obtained from this particular research.
The credit channel of monetary policy transmission in the selected emerging markets
(University of Zululand, 2019) Ntshangase, Lwazi S.; Kaseeram, I.
The credit channel has been investigated extensively in developed countries yet few studies have been conducted in emerging, developing and in less developed countries. This research employs a panel VAR model and five country-specific-VAR models to determine the effectiveness of the credit channel in the selected inflation targeting emerging markets (Brazil, Chile, Mexico, Russia and South Africa), that have implicitly or explicitly embraced the inflation targeting monetary policy framework, over the period 2000Q1-2016Q4. The balance sheet channel is not investigated due to a lack of data in the available database. The study adopted the traditional bank lending channel theory by Bernanke and Blinder (1988), according to which monetary policy rate shocks are propagated to economic variables through credit. The control variables in the models include gross domestic product, bank loans to the private sector, monetary policy rate, money supply, consumer price index and the nominal exchange rate. IRF are generated from the panel VAR model as averages, and compared to the IRF generated from each VAR model. Overall, the bank lending channel and interest rate channel were found to be according to theory and effective with a 1.5 period lag in the selected emerging markets. It is advisable for the five emerging countries to continue to develop innovations for greater efficiency in the conducting of monetary policy; this will further assist the more inelastic variables to become more responsive. The bank lending channel was found to be more effective in Brazil and Russia and the magnitudes of the decline of bank loans are quite similar for both countries, where, after the third period, the decline is about o.2% for a 1% initial shock to interest rates. However, the bank lending channel in South Africa, Chile and Mexico was found to be ineffective, perhaps due to the high indebtedness of consumers, perhaps arising out of financialization reasons. In the South African context, the authorities ought to revisit the National Credit Act to assess why bank loan issues are inelastic to monetary policy tightening.The causality patterns suggests that all variables Granger cause each other.
The determinants of food security status among indigent rural households in the Isikelo community of the Mbizana local municipality, Eatern Cape Province
(University of Zululand, 2018) Mbewana, Vusi
The Eastern Cape is the second largest province in the country, with high levels of poverty, and hence its rural areas, in particular, are considered to be highly food insecure. There is little known about the factors which determine the households' food security status in small rural towns such as Mbizana, a local Eastern Cape municipality mainly comprising of indigent households, for no such studies have been conducted in this area. The main objective of the study was to identify the relevant factors that affect the food security status of the households in the Isikelo community of the Mbizana local municipality. The study employed a systematic random method to select 330 participants to participate in a survey. The data collection occurred over the period of December 2016 to February 2017. The study used two binary logit models, where the first one estimated the determinants of household food security status using the dietary diversity scores, while the second model used the household food insecurity access scale (HFIAS) developed by USAID in 2007. In the first logit model, five variables were found significant and these variables included household social grants, gender, total monthly income, remittances, and membership in maize cooperative. In the second logit model, the results indicated that 10 of the 15 commonly used predictors that were included in the model, were found to be statistically significant. These variables included household size, government social grants, gender, marital status, total household monthly income, farm income, remittances, improved seed, and subsistence farming (own food production). Moreover, 62.0% of the sampled households were food insecure, whereas 38.0% of them were found to be food secure. In comparison, the dietary diversity scores showed that 52% of the households were food insecure, whereas 48 were found to be food secure. There is a significant discrepancy in these two measures of food security. However, the study prefers the household food insecurity access scale because it uses a norm of 30 days, unlike the dietary diversity scale, which uses the data of 24 hour recall. Based on the findings of the study, it is recommended that the government should introduce programmes that promote farm cooperatives, as well as subsistence farming. It is also recommended that government should finance small farmers in order to produce diverse agricultural products in rural areas, which will upgrade the income, as well as food security status, of the households in the relevant municipality.
The determinants of self-employment relative to being a wage earner in Ladysmith, KZN
(2017) Kumalo, Siboniso Nhlanhla; Kaseeram, I.; Contogiannis, E.
Following the unprecedented increase in the self-employment rates in South Africa, the study probes the determinants of self-employment relative to being a wage earner within the context of black owned businesses in Ladysmith, KZN. A questionnaire was administered to 450 respondents comprising 299 gainfully employed and 151 self-employed blacks, using a combination of convenience and snowball sampling for the self-employed and random methods to identify wage/salary earners. The study employed a logistic regression model to estimate the probability of being self-employed relative to being a wage/salary earner focusing on household income per capita, education, age, marital status, family business background, risk propensity, gender and access to finance as independent variables, gathered from the questionnaire, to shed new light on self-employment determinants. The study used the Hosmer-Lemeshow test to assess goodness of fit and the Wald test to assess the contribution of individual predictors in the model. Supported by descriptive statistics and chi squared test, the logistic results showed a positive and meaningful relationship between self-employment and age suggesting that as one becomes older each year increases the probability of being self-employed by 3.27%. With regards to gender, the results showed a positive relationship suggesting that being female increases the possibility of being self-employed by 57.35%. On the other hand, marital status results suggested that being single decreases the chances of being self-employed by 55.56% indicating that single people are more likely to be gainfully employed. Furthermore results revealed that an additional year of education increases the possibility of being of self-employed by 13.07%. When a person has a family business background, the possibility of that person being self-employed is higher by 146%, and lastly, increased funding opportunities cause an increase in self-employment by 397%.
Dynamic relationships between sectoral electricity consumption, economic growth and electricity prices in South Africa
(University of Zululand, 2017) Ezesele, Sunday L.; Kaseeram, I.; Contogiannis, T.
Dynamic relationships between sectoral electricity consumption, economic growth and electricity prices in South Africa The purpose of this paper is to explore the dynamic relationship between the sectoral outputs, electricity supply and electricity price in South Africa within the endogenous growth model framework. Over the past two decades or more the relationship between economic growth and electricity consumption has received much attention due to its various policy implications. However, none of the studies considered the relationship between electricity consumption and sectoral output growth, additionally no study to the best of our knowledge considered the impact of electricity prices on sectoral (or on aggregate economic) growth. In the light of this, the current study uses multiple equation VAR and Johansen (1991) methodologies to assess the long run cointegrating and short run adjustment relationships between sectoral outputs, electricity consumption, and electricity price in South Africa for the period January 1991- March 2015 using monthly data. According to VECM results in the long run electricity supply affect the retail sector, while in the case of mining and wholesale sectors, growth in these sector puts upward pressure on electricity supply. In the long run manufacturing sector is not affected by and does not affect electricity supply. In the short run there were some unidirectional causalities, however, the crucial finding is that an abundance of electricity supply will enhance most of the sector under study. In the long run electricity price does not affect the manufacturing, wholesale and retail sectors, it only affects the mining sector. This implies that the manufacturing, retail and wholesale sectors can absorb the price increases in the long run but the mining sector is adversely affected by such price increases. In the short run the VECM results suggest that price adversely affects the mining and wholesale sectors. While the manufacturing and retail sectoral growths tend to affect price. However, the VAR results suggest that there is a bidirectional causality between electricity price and the manufacturing and mining sector in the short run. Moreover, there is no causality between electricity price and the retail and wholesale sectors respectively. Hence in summary evidence of causality running from price to growth, at least in some sectors over the short run , for example, in a labour intensive sector like mining and in the somewhat labour intensive wholesale and manufacturing sectors, hence electricity supply ought to be expanded in the economy to keep price down.
Economic impact of HIV/AIDS on rural households in KwaDlangezwa
(2012) Langeni, Innocentia, Nothando; Contogiannis, E.
This study investigates the economic impacts of HIV/AIDS on the rural households in KwaDlangezwa. The study also investigates the hypothesis that Aids has massive economic impact on families infected and affected by HIV/AIDS. At the level of the household, AIDS results in the loss of income, assets, savings and an increase in spending on health care by the households. HIV/AIDS epidemic slows down the pace of economic growth. UNAIDS (2009) estimated that the number of people living with HIV worldwide continued to grow in 2008, reaching an estimated 33.4 million (31.1 million–35.8 million). The total number of people living with the virus in 2008 was more than 20% higher than the number in 2000, and the prevalence was roughly threefold higher than in 1990. South Africa is one of the countries most severely affected by the AIDS epidemic, with the largest number of HIV infections in the world. UNAIDS estimated that in 2009, the total number of persons living with HIV in South Africa was 5.7 million. South Africa’s generalised HIV epidemic is defined as being hyper-endemic due to the high rate of HIV prevalence and the modes and drivers of HIV transmission. Heterosexual sex is recognized as the predominant mode of HIV transmission in the country followed by mother-to-child transmission, and drivers of the epidemic include migration, low perceptions of risk, and multiple concurrent sexual partnership (UNAIDS, 2010). xiii The HIV/AIDS epidemic is a global concern of every country in the world particularly, in most African countries where the spread of the virus is increasing at an alarming rate. Coupled with other socio economic and political problems such as poverty, high fertility, low literacy and, the incidence of HIV/AIDS in most African countries like South Africa is becoming a serious challenge. The rural households are the most affected because of the lack of service delivery. Data is collected using quantitative and qualitative method. Quantitative results are in consensus with qualitative results. Results reveal that seventy one percent (71%) of the respondents believe that AIDS has a negative impact on the level of income, and fifty seven percent (57%) of the respondents believe that AIDS has negative impact on assets and household members who are infected with HIV/AIDS do not get any assistance. The overall results reveal that HIV/AIDS has negative economic impact on the rural household in KwaDlangezwa.
Efficiencies of small-scale sugarcane growers in the King Cetshwayo District Municipality of KwaZulu-Natal
(University of Zululand, 2019) Bulagi, Mushoni, Benedict; Kaseeram, I.; Tewari, D.
Low agricultural productivity remains a threat to the existence and sustainability of the small-scale production of crops. Unfavourable climatic conditions such as drought are a concern to the long-term supply of food in the context of a rapidly growing population. The continuous uncertainty surrounding access to credit, extension support and industry regulations exacerbate the dilemma faced by small-scale growers. Therefore, there is a need to develop strategies to promote agricultural efficiency and productivity. Sugarcane is a traditional crop produced in three provinces in South Africa and it contributes to the livelihoods of many small-scale sugarcane growers operating in the rural set-up. This thesis aimed to evaluate agricultural efficiencies, productivity and efficiency change and identify barriers to technical efficiency of small-scale sugarcane growers in the sugar producing regions of the King Cetshwayo district municipality. This is a grey area as existing studies have given more attention to SFA (Stochastic Frontier Analysis) and ranked constraints faced by small-scale sugarcane growers. The thesis analyses three methodological approaches to addressing the objectives of the thesis. The first objective was to analyse the technical, cost and allocative efficiency of a sample of 300 small cane growers located in the King Cetshwayo district municipality (KCDM) of Northern KwaZulu-Natal. This objective was achieved through estimating agricultural productive efficiency using Data Envelope Analysis (DEA). The second objective was to determine the chemical-input use efficiency, which was determined using the Slack-Based Measure (SBM) approach of the sampled cane growers. The third objective was to employ the Truncated Regression model to identify key socio-economic sources of technical efficiency; this chapter relied on field survey data of 300 sugarcane growers. The fourth objective measured input-oriented technical, cost and allocative efficiency of 160 small-scale sugarcane growers in the Felixton and Amatikulu regions. The fifth objective investigate the determinants of technical, cost and allocative efficiency in the Felixton and Amatikulu regions. Both objectives used the DEA and Truncated Regression model. The sixth objective decomposed agricultural efficiency change in small-scale sugarcane growers in the Amatikulu region using the Färe Primont Index (FPI) using farm-level data for 38 small-scale growers. Furthermore, the Bayesian Modelling Average technique (BMA) investigated policy-related sources of small-scale
An empirical analysis of exchange rate pass-through to prices in South Africa
(University of Zululand, 2017) Maduku, Harris; Contogiannis, E.; Kaseeram, I.
The South African Reserve Bank (SARB) adopted an inflation targeting monetary policy with the effect from the 2000 in an attempt to curb inflation in the country. The band that was adopted was that of a minimum of 3% and a maximum of 6%. The main problem to the current monetary policy is the monthly inflation and other provincial inflation rates that are sometimes going outside the upper band of the target. Finding the duration taken by the price indices to respond to exchange rate fluctuations took a central interest to this research and also to find out the magnitude of the exchange rate fluctuations that are passed on to prices. This research did a comparative analysis from a SVAR and Recursive VAR to investigate exchange rate pass-through (ERPT) to tradable prices in South Africa for the period 2002-2015. Using monthly data, both estimations find the producer price index as the most contributing factor to inflation with an average of 22% of exchange rate fluctuations passed to prices. The argument behind the high pass-through in producer prices is mainly because of the high volumes of intermediate goods that are imported by the South African producers for local production. The results reveal that the impulse response functions are not very strong but the prices do not take long to respond to any exchange rate changes. We find that prices respond within 2 months to fluctuations in the exchange rate. It takes between 3 to 4 months for other price indices to respond to import prices. Also there is reverse causation on all the variables in the model but the magnitude differs from one variable to another. Large and persistent ERPT especially on import and producer prices accompanied by high wage demands and a depreciating currency are worrying factors for South Africa. Monetary policy makers are advised to put in place targeting measures on the exchange rate if inflation could be kept under control. Since inflation expectations play a pivotal role on inflation, it is wise for the upper band to be increased probably by 1% so that high inflation expectations that are influenced by inflation that is sometimes going outside the upper band can be held down.
Empirical analysis of money demand in South Africa (1980-2011): an autoregressive distributed lag approach.
(University of Zululand, 2013) Mutsau, Isaac; Kaseeram, I.; Contogiannis, E.
The estimation of money demand function and determination of its stability is common practice in macroeconomic research due to its significance in the transmission mechanism of monetary policy. This study investigates stability of the long-run money demand for both narrow and broad money in South Africa over the period 1980 to 2011, using expenditure components of Gross Domestic Product (GDP) as scale variables, the real effective exchange rate, inflation and a representative short-term interest rate as opportunity cost variables. The bounds testing procedure, a single equation cointegration technique, is applied to test for cointegration between the endogenous and exogenous variables. To achieve this objective, the Autoregressive Distributed Lag (ARDL) approach (Pesaran et al., 2001) is employed to estimate the long-run equilibrium relationships between real money balances and disaggregated expenditure components of Gross Domestic Product in addition to the interest rate and inflation as variables reflecting the opportunity cost of holding money. Both short-run and long-run relationships are explored to understand the dynamic adjustments through the error correction mechanisms of the model. The CUSUM and CUSUMQ tests (Brown et al., 1975) are applied to examine the possibility of structural breaks in money demand functions, as well as parameter stability. Results indicate that M2 and M3 money aggregates are cointegrated and are maintaining a stable long-run relationship with their determinants. However, M0 and M1 monetary aggregates are found not co-integrated with their determinants. Different expenditure components have different influence on the demand for broad money. This research also gives evidence that demand for broad money has remained stable despite the external shocks experienced in the previous years due to the global economic meltdown.
Essays on currency carry trade in Africa’s emerging and frontier markets
(University of Zululand, 2018) Nkansah, Eric
The currency carry trade, an investment strategy where investors borrow funds from low-interest currency countries and invest the funds in financial assets domiciled in high-interest currency countries, has become very popular in the academic literature over the last two decades. The strategy exploits the failure of the uncovered interest rate parity (UIP) hypothesis which states that the interest rate differential between two countries is exactly offset by the depreciation of high interest rate currency over the investment time horizon. Thus this investment strategy is expected to yield zero returns if the uncovered interest rate parity condition holds. Its failure is well documented in literature, though these studies mostly concentrate on currencies of the developed world. This study implements the trade by targeting ten currencies of Africa‘s emerging and frontier markets, and fund the trade with four developed market currencies. The researcher first evaluates the profitability of the trade across all the forty currency pairs from 1998 to 2015. This is then followed by a rigorous analysis of returns using advanced risk-adjusted performance measures to test their viability as an alternative asset class or prudent investment. The study further examines a value-at-risk (VaR) analysis of the currency carry trade returns using generalised autoregressive conditional heteroskedasticity (GARCH) models. Finally, the study investigates the relationship or the information transmission mechanism between returns of the African currency carry trade and the returns of its respective Stock Markets. Different methodologies were employed to achieve the various objectives of this study. Notable among them are the Huber‘s robust regression, advanced portfolio performance evaluation measures, univariate generalised autoregressive conditional heteroskedasticity (GARCH) with value-at-risk and expected shortfall estimations, vector autoregressive Granger causality, panel vector autoregression (xtvar) and multivariate dynamic conditional correlation GARCH analysis. The study concludes that only a handful of the currency pairs studied were statistically profitable during and after the financial crisis of 2007. Naïve estimation of carry trade however produced some modest profits for a good number of the currency pairs. The study also concludes that some of the currency pair studied exhibit features of a viable investment and may be classified as an asset class. Furthermore, the researcher shows that the most appropriate approach to estimating the risk or value-at-risk of African currency carry trade returns is through the GARCH (1, 1) with skewed t distribution of the innovation. Finally, the implications of the African currency carry trade for the stock markets in Africa were found to be mixed. Thus African currency carry trade returns of twenty two currency pairs were found to significantly Granger cause the stock markets of the target currency countries, whilst evidence of causality could not be established for six currency pairs. A large number of currency pairs show one-way causality from the currency carry trade to the stock markets, with minimal amount of volatility spillover sparsely distributed across the selected African countries. For all the currency pairs together and the stock markets of Africa together, the study found that the stock markets respond greatly to shocks in carry trade whilst there appears to be very minimal response by carry trade to shocks in the stock markets.
Essays on the impact of inflation targeting in South Africa
(2012) Kaseeram, Irrshad; Contogiannis, E.
Through the literature review this study points out the debate as to whether inflation targeting (IT) has been effective in anchoring expectations, stabilizing output, reducing the inflation rate, and the volatility and persistence of inflation, is still an open question. Further, this study asserts that perhaps the perceived success of IT is nothing more than just ‘conservative window dressing’ (ie., raising interest rate to maintain low inflation at the expense of output losses). In the form of three separate essays this study attempts to contribute to the above debate about the effectiveness of IT and the conservative monetary policy assertion. The first essay undertakes a detailed econometric investigation into whether the inflation expectations of the various market players (viz., financial analysts, business executives and trade unionists) are anchored to an inflation target, and if so then it would imply that they find the central bank’s IT framework to be credible (termed the credibility proposition). However, if expectations are not anchored to the target then it implies that agents do not find the central bank’s IT policy to be credible. When the inflation and expectations data are stationary then the credibility proposition can be tested using the Cruijsen and Demertzis, (2010) vector autoregression framework, but when the mentioned data are nonstationary, as is the case of South Africa, then the Johansen (1991) cointegration and vector error correction modelling techniques must be used. The study found that only financial analysts tend to find the South African Reserve Bank’s IT framework to be credible while business executives and trade unionists do not find this policy framework to be credible. The second essay attempts to investigate whether inflation volatility and inflation persistence have declined since the adoption of IT, since IT purports to anchor expectations around a target or target band, thereby reducing inflation volatility and inflation persistence. This study contributes to the debate by examining South Africa’s IT performance in respect of inflation volatility and inflation persistence using the generalized autoregressive conditional heteroscedasticity (GARCH), GARCHM (-in mean) and AR (2) (second order autoregressive model) methodologies. In order to avoid erroneous conclusions the study accommodates for structural breaks in the data using the Bai and Perron, (2003), the Lee and Strazicich (2003), the Andrews and Ploberger (1994) and the Lumsdaine and Papell (1997) unit root tests. The study found no significant changes in inflation volatility and persistence over the pre and post IT periods. The third essay estimates forward-looking hybrid Taylor-type reaction functions using the general method of moments (GMM) technique. as was estimated by Clarida, Gertler and Gali (1998), Gerdesmeier and Roffia (2003), Hayo and Hofmann (2005). The results showed that over the IT period, South Africa followed a conservative (high weighting on inflation reduction and low weightings on output deviation in setting the repo rate) predictable monetary policy. The study also presented case studies of the IT experiences of Chile, Brazil, Turkey and compared them to South Africa. The findings suggest that in all the countries, IT is effective in reducing inflation and achieving sustainable economic growth. However, whether IT is effective in reducing inflation expectations, volatility and persistence and stabilizing output close to its normal levels, from a statistical perspective is still an open question. A synthesis of the three essays suggest that the authorities have not succeeded in convincing price and wage setters that IT can credibily maintain inflation within the target band, hence inflation and inflation volatility persists. Moreover the success of inflation targeting is hinged on raising the repo rate to prevent the second round effects of supply shocks (eg., oil price hikes, exchange depreciations) from manifesting itself, however the effect of this policy stance is at the expense of output stabilization, which poses challenges for the transformation of monetary policy in the future.
The estimation of the Cobb- Douglas production functions for the South African agricultural sector and a selection of its subsectors.
(University of Zululand, 2015) Hlongwa, Lungani; Kaseeram, I.; Contogiannis, E.
The main focus of this study is to apply a Cobb-Douglas production function to estimate agricultural production functions at both the aggregate and sub-sectorial levels in order to determine the productivity of land, labour and capital, while maintaining rainfall levels as a control variable for the South African economy over the period from 1975 to 2012. This task will be accomplished by applying cointegration techniques, Johansen’s (1988) vector auto regression (VAR) methodologies and error correction mechanisms to capture short run disequilibrium between agricultural production function and its determinants. Specifically the main objective of this study is to derive plausible estimates of the marginal productivities of land, labour and capital. Moreover this study will attempt to establish the nature of the long and short run relationships between land, labour and capital in the aggregate sector and the maize and wheat subsectors. However before the empirical analysis is conducted the study will first attempt to explain the relevant theories of growth and, which will then serve as a basis for examining South African growth experiences and policy prescription more specifically in the agricultural sector, for the purposes of understanding the South African agricultural sector growth phenomenon and choosing appropriate determinates of agricultural production growth. The findings of the VECM, FMOLS, CCR and DOLS methods strongly suggest that the marginal productivities of capital and land were positive while that of labour was negative; all the coefficients were statistically significant except for capital. Additionally the marginal productivity of land exceeded unity , thus implying that land productivity exhibits increasing returns to scale which confirms the trends that the number of farms have been decreasing but their land acreage have been increasing. While the negative marginal productivity of labour suggests that the South African aggregate agricultural sector is overwhelmed by severe diminishing marginal returns to labour, which explains the observed persistent decline in employment in the agricultural sector over the past three decades or more.
An evaluation of the perspectives of government and small to medium enterprises on the viability of special economic zones in Limpopo province
(University of Zululand, 2018) Naidoo, Logambal; Kaseeram, I.; Heeralal, S.
This study investigated the perspectives of government and small to medium enterprises on the viability of special economic zones in the Limpopo Province of South Africa. South African studies by various scholars have documented many challenges faced by South Africa’s experiments with IDZs which prevented them from being the panacea for the huge unemployment and development constraints that the country faced. The research methodology was based on a qualitative baseline study designed to gather primary data, via a purposive sampling approach, from key informants in Limpopo province, namely, the municipalities and SMEs in Tubatse and Musina. Nineteen key informants in the province were interviewed. Additionally, the study was supplemented by the review of national and local government documents regarding the identified SEZs. Descriptive statistics were used to analyse the data, the findings suggested that the local government and the small to medium enterprises believed that SEZs were a viable vehicle for attracting investments and promoting SME development in the Limpopo Province. However, there were gaps in terms of information gathering from national, provincial and local government and the SMEs. The main limitation in this study is that the Department of Trade and Industry refused to be interviewed and informants from all levels of government were afraid of shared information being disseminated to the public domain. Furthermore, a group of farmers also refused to be part of the study for fear of losing a plot of land allocated to them. The main recommendations from this study is that the South African government should not repeat the errors it made with the IDZs in regard to inflexible labour policies and limited incentives; to formulate a successful industrial policy that attracts the investment and skills transfer commitment from all successful South African businesses and international investors instead of relying on certain ‘politically correct’ partners; government and all investors to develop a memorandum of understanding to address the mass unemployment, produce black industrialists and promote SMEs as recommended by the National Development Plan; government’s communications strategy should be transparent with regular information dissemination concerning the ongoing establishment of SEZs; government should create an investor friendly environment through ensuring the protection of private property rights and rooting out corruption and patronage in state owned enterprises and government, and finally the implementation of a business friendly National Development Plan.
Exploring the Role of Fiscal Policy and Sovereign Debt Shocks on Economic Growth among Southern African Developing Communities
(University of Zululand, 2021) Makhoba, Bongumusa Prince
Fiscal policy remains a key macroeconomic stabilisation mechanism at the disposal of governments and fiscal policymakers to influence economic activities consistent with balanced and sustainable economic growth. A thorough understanding of the role fiscal policy remains extremely paramount for fiscal authorities to consistently formulate prudent fiscal stimulus packages that enhances sustainable economic expansion. This thesis critically examines the role of fiscal policy and sovereign debt shocks on economic growth in the Southern African Developing Communities (SADC). Over the years, fiscal policy and austerity measures have triggered a deterioration in the fiscal position of these member countries primarily due to the relatively high budget deficits, inducing even further sovereign debt risk in long-term economic prosperity. The phenomenon of fiscal policy has gained immense scholarly popularity among both researchers and policymakers, stimulating intensive debate in the body of literature as to whether fiscal policy has been able stabilise macroeconomic fluctuations across different economies characterised by different phases of economic growth and development. The study starts by giving a thorough background and introduction in Chapter 1. Chapter 2 discusses a detailed review of existing theoretical frameworks on the role of fiscal policy and sovereign debt on economic growth. Chapter 3 analyses the role of fiscal policy and sovereign debt shocks on economic growth in the SADC region. In this chapter, a Panel Vector Autoregressive (PVAR) model was estimated using annual data for 13 SADC countries ranging from 2000-2018. The empirical results revealed that government expenditure, employment and public debt has a significant positive influence on economic growth while gross fixed capital formation exerts a negative effect on growth. The findings of the study are consistent with the Keynesian school of thought, which strongly argues that governments use countercyclical expansionary fiscal policy as a credible tool to spur economic activities and stabilise macroeconomic fluctuations during different phases of the business cycle. Chapter 4 estimates a Panel Smooth Transition Regression (PSTR) model to examine a nonlinear effect of public debt on economic growth among SADC members for the period viii 2000-2018. The findings show a significant asymmetric relationship between public debt and economic growth in the SADC region. The results further indicate a debt threshold of 60% at which public debt deters economic growth in SADC region. The empirical results of a linear and nonlinear effect of public debt on growth are consistent with several prior empirical studies conducted across different economies using different methodologies. In line with the Keynesian approach, the results further suggest that fiscal policy plays a central role in augmenting economic activities both in the low-debt regime and high-debt regime, indicating that, indeed, a positive shock in government spending positively influence economic growth in SADC economies, reinforcing the findings of the previous chapter. Furthermore, the results reveal a significant positive impact of public debt on economic growth during the low regime when the debt level is below the threshold of 60%. Moreover, there was a significant negative effect of debt on economic growth during the high-debt regime as debt level reach the threshold of 60%. This result indicates that there is an inverted U-Shape relationship between public debt and economic growth among SADC economies. Chapter 5 empirically interrogates the asymmetric relationships between public debt and economic growth among selected emerging and frontier SADC economies over the period 2000-2018. In this chapter, a Smooth Transition Regression (STAR) and Nonlinear Autoregressive Redistributed Lag (NARDL) is estimated to analyse the asymmetric effect of public debt on economic growth among selected SADC economies. The results revealed mixed findings on nonlinearity among emerging and frontier SADC members. The findings indicate a concave relationship between debt and economic growth in South Africa, while Botswana, Namibia, Zambia and Zimbabwe showed a U-shape relationship between debt and economic growth. This implies that public debt exerts a significant positive influence on economic growth during low-debt regime while there is a negative effect of debt on economic growth during a high-debt regime in South Africa. Conversely, Botswana, Namibia, Zambia and Zimbabwe show a negative effect of debt during the low-debt regime and a positive influence during a high-debt regime. Malawi, however, showed a positive impact of debt on growth during both low-debt and high-debt regimes.
Exploring the Role of Fiscal Policy and Sovereign Debt Shocks on Economic Growth among Southern African Developing Communities
(University of Zululand, 2021) Makhoba, Bongumusa Prince
Fiscal policy remains a key macroeconomic stabilisation mechanism at the disposal of governments and fiscal policymakers to influence economic activities consistent with balanced and sustainable economic growth. A thorough understanding of the role fiscal policy remains extremely paramount for fiscal authorities to consistently formulate prudent fiscal stimulus packages that enhances sustainable economic expansion. This thesis critically examines the role of fiscal policy and sovereign debt shocks on economic growth in the Southern African Developing Communities (SADC). Over the years, fiscal policy and austerity measures have triggered a deterioration in the fiscal position of these member countries primarily due to the relatively high budget deficits, inducing even further sovereign debt risk in long-term economic prosperity. The phenomenon of fiscal policy has gained immense scholarly popularity among both researchers and policymakers, stimulating intensive debate in the body of literature as to whether fiscal policy has been able stabilise macroeconomic fluctuations across different economies characterised by different phases of economic growth and development. The study starts by giving a thorough background and introduction in Chapter 1. Chapter 2 discusses a detailed review of existing theoretical frameworks on the role of fiscal policy and sovereign debt on economic growth. Chapter 3 analyses the role of fiscal policy and sovereign debt shocks on economic growth in the SADC region. In this chapter, a Panel Vector Autoregressive (PVAR) model was estimated using annual data for 13 SADC countries ranging from 2000-2018. The empirical results revealed that government expenditure, employment and public debt has a significant positive influence on economic growth while gross fixed capital formation exerts a negative effect on growth. The findings of the study are consistent with the Keynesian school of thought, which strongly argues that governments use countercyclical expansionary fiscal policy as a credible tool to spur economic activities and stabilise macroeconomic fluctuations during different phases of the business cycle. Chapter 4 estimates a Panel Smooth Transition Regression (PSTR) model to examine a nonlinear effect of public debt on economic growth among SADC members for the period viii 2000-2018. The findings show a significant asymmetric relationship between public debt and economic growth in the SADC region. The results further indicate a debt threshold of 60% at which public debt deters economic growth in SADC region. The empirical results of a linear and nonlinear effect of public debt on growth are consistent with several prior empirical studies conducted across different economies using different methodologies. In line with the Keynesian approach, the results further suggest that fiscal policy plays a central role in augmenting economic activities both in the low-debt regime and high-debt regime, indicating that, indeed, a positive shock in government spending positively influence economic growth in SADC economies, reinforcing the findings of the previous chapter. Furthermore, the results reveal a significant positive impact of public debt on economic growth during the low regime when the debt level is below the threshold of 60%. Moreover, there was a significant negative effect of debt on economic growth during the high-debt regime as debt level reach the threshold of 60%. This result indicates that there is an inverted U-Shape relationship between public debt and economic growth among SADC economies. Chapter 5 empirically interrogates the asymmetric relationships between public debt and economic growth among selected emerging and frontier SADC economies over the period 2000-2018. In this chapter, a Smooth Transition Regression (STAR) and Nonlinear Autoregressive Redistributed Lag (NARDL) is estimated to analyse the asymmetric effect of public debt on economic growth among selected SADC economies. The results revealed mixed findings on nonlinearity among emerging and frontier SADC members. The findings indicate a concave relationship between debt and economic growth in South Africa, while Botswana, Namibia, Zambia and Zimbabwe showed a U-shape relationship between debt and economic growth. This implies that public debt exerts a significant positive influence on economic growth during low-debt regime while there is a negative effect of debt on economic growth during a high-debt regime in South Africa. Conversely, Botswana, Namibia, Zambia and Zimbabwe show a negative effect of debt during the low-debt regime and a positive influence during a high-debt regime. Malawi, however, showed a positive impact of debt on growth during both low-debt and high-debt regimes.
Female labour force participation and economic growth in South Africa
(University of Zululand, 2019) Mabuyakhulu, Sibongayena Sithembile
Since the mid-90s female work compel investment has seen a stark increment (by 38%) boosting the general business levels. However, by global norms female labour force participation stays low and it is lower than for men averaging to a gap. Women’s work remains characterised by domestic and cultural divisions. This study establishes the long-run relationship between female labour force participation and economic growth and unemployment in South Africa by using time-series data collected from various data source for the period of 1980 to 2015 (yearly) and 2008 to 2016 (quarterly). Empirical studies form both developed and developing countries indicate different results and also indicating a U-shape relationship between female labour force participation and economic growth. This study adopted the Cointegration Vector Autoregressive and Vector Error Correction Model (multivariate equations) together with cointegration equations (FM-Ordinary Least Squares, Canonical Cointegrating Regression and Dynamic Ordinary Least Squares) to establish the long-run and shortrun relationships and the effect of economic growth and unemployment on the participation of women in the labour force. The estimate of yearly data shows that unemployment is positive and significantly influences the participation of women in the labour force in the long run. Economic growth exhibits the n-shape relationship with female labour force participation in the long run, hence, it indicates the opposite of what other researchers have found. The Vector Error Correction Model indicate insignificant effect of economic growth and unemployment on FLFP.
Financial contagion in emerging markets evidence from BRICS countries
(University of Zululand, 2019) Niyitegeka, Olivier
The present study examines the pure form of contagions in the BRICS countries, namely Brazil, Russia, India, China, and South Africa. The pure form of contagion refers to the propagations of shocks due to reasons that are not related macroeconomic fundamentals, and are solely the result of irrational phenomena, such as panics, herd behaviour, loss of confidence and risk aversion. The choice of BRICS was motivated by the fact that these emerging countries have stronger partnerships through the BRICS association. Additionally, these countries come from various continents across the world. This allowed the study to have a worldwide overview of how contagions are transmitted, not only in one region but across regions. The main objective of this study was to examine co-movement and volatility spillover in BRICS countries from ‘source’ markets of the U.S. and Eurozone region. Specifically, the study sought to accomplish the following objectives: (i) To examine the salient characteristics of equity markets in BRICS countries, (ii) To investigate the nature of stock market returns’ volatility for BRICS countries during periods of financial turmoil, (iii)To examine the presence of time-varying conditional correlations in BRICS’ equity market returns, in the wake of the financial crises that took place in the U.S. and Eurozone countries, and (iv) To investigate the presence of time-frequency correlations in BRICS stock markets, following the financial crises that took place in the U.S. and Eurozone countries. The following four econometric models were formulated and utilised by the study: (i) GARCH (1, 1) and its extensions; (ii) the diagonal VECH GARCH (1, 1); (iii) the Dynamic Conditional Correlation GARCH; (iv) and Wavelet analysis. The study found that stock markets within BRICS countries are heterogeneous as they differ in their structural characteristics, economic policies, and geopolitical importance. The Chinese and Russian markets are still in the maturing process as they only reopened recently after decades of communist regimes that prohibited security markets. The Brazilian, Russian and South African stock markets are dominated by natural resource-based stocks, and they are well known commodity exporters. Among the BRICS stock markets, China’s market has experienced the most rapid growth in the past 20 years. The results of Univariate GARCH modelling revealed the persistence of volatility in the BRICS returns, with China (SSE) having the highest volatility persistence, followed by India (SENSEX) and Russia (RTSI). Using GARCH (1,1) variants, the study also found evidence of leverage effect in all BRICS stock markets except China. Bivariate GARCH models were used to examine the dynamic cross-correlation between individual BRICS stock markets as target markets and the U.S. and Eurozone as ground zero (source) markets. The study showed that the cross-conditional volatility coefficient is high in magnitude during periods of financial upheaval compared to a tranquil period, hence the conclusion that there was financial contagion in BRICS stock markets (with the exception of the Chinese stock market) during the U.S. sub-prime and the Eurozone sovereign debt crises. The wavelet cross-correlations analysis showed evidence of positive cross-correlation between the U.S. and individual BRICS stock markets, and the cross-correlation was identified in both short and coarse scales, with the U.S. leading BRICS countries. The cross-correlation between the U.S. and Chinese equity market could not be established. Regarding the Eurozone sovereign debt crisis, the wavelet cross-correlation analysis shows evidence of co-movement and volatility spillover in the short scales, with the DAX leading the BRICS market indices. Evidence of financial contagion emanating from Eurozone stock markets could only be identified in the South African and Russian stock markets. For the Brazilian, Indian, and Chinese markets, no correlation was identified in the short scale period, hence the conclusion that no financial contagion took place in these three stock markets following the Eurozone sovereign debt crisis. The study recommends that since volatility spillover between individual BRICS equity markets and the U.S. market is unidirectional policymakers, investors and regulatory authorities should focus more on monitoring the volatility of the U.S. equity market, as efforts by authorities in BRICS countries to stabilise BRICS stock markets is futile as shocks are exogenous. The current study also recommends that regulatory authorities should come up with initiatives that enable investors to reduce significant risk exposure by formulating sound risk management policies and macroprudential regulations. Given the fact that the current study could not identify financial contagion in Brazilian, Chinese and Indian stock markets emanating from Eurozone countries, the study recommends that policymakers policy makers need to pay due attention to idiosyncratic shock channels in responding to volatility spillover.

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