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    Relationship between inflation rate and wage rate before and after inflation targeting periods in South Africa
    (University of Zululand, 2023) Okosa, Jessica Onyinyechi
    The increasing number of trade unions with strong/collective bargaining power in recent times have put pressure on wage rate, resulting in rate rise in South Africa, thereby causing rate rise in inflation from both the supply and demand sides with its attendant output/productivity deterioration. Consequently, this study complements existing literature by investigating the long and short-run linear and nonlinear relationships between wage rate and inflation rate before and after inflation targeting periods in South Africa. in a sample of 170 observations spanning from 1980Q1 to 2022Q1. The study quantitative, anchored on archival design, with the data sourced from the World Development Indicators (WDI) and the South African Reserve Bank (SARB) It employed the linear and the nonlinear autoregressive distributed lag (LARDL & NARDL) estimation techniques in the analysis to test these objectives. The findings made in this study have both short-run and long-run implications. This study found a positive linear and nonlinear relationship between inflation and wage rate in South Africa for the period under investigation. This implied that although both indicators significantly raise each other during the short-run and long-run, the magnitude of the impact of inflation on wage rate was higher than that of wage rise on inflation. Therefore, higher rates of inflation caused workers/trade unions to demand for higher wages and not vice versa. Hence, the high inflation rate is more of demand-pull rather than supply/cost-push. This study also found a non-persistent inflation rate in the long-run. This implied that adaptive expectation, rather than rational expectation, is the main driver of economic agents’ price setting behaviour. This assertion was further strengthened by significant positive impact of the log of bank rate on inflation in the short-run and long-run. Moreover, high productivity was found as a strong panacea for rising wage rate and inflation rate, whereas the adoption of inflation targeting from the first quarter of the year 2000 in South Africa emitted no significant impact on the wage-inflation nexus. This was attributed to a credit crunch following the 2007/08 global financial crisis that led to policy failures and, hence, the inability of the monetary policy rate to control wage rate. The negative impact of the cumulative negative changes in wage rate on inflation implies that, over the long-run, negative changes in unit labour costs had a marginally stronger dampening effect on inflation relative to a positive change, which in relative terms has a marginally smaller positive effect. Hence, there was weak evidence of an asymmetric/nonlinear impact of wage rate on inflation rate, and vice versa, in the long-run with no short-run nexus. This implied that positive and negative changes in the two indicators are more likely to have a trade-off with each other in the long-run than during the short-run. Finally, the findings from the last objective of this study relating to the nature of the relationship between inflation, wage growth and productivity before and after the inflation targeting eras in South Africa revealed that the downward nexus among inflation, wage rate and bank rate during the early 1980s could be attributed to structural transition to quantitative approach to monetary policy in 1985. Moreover, high volatility recorded among productivity, inflation rate and wage rate in 2020 could be attributed to the structural shock of the COVID-19 pandemic. Based on these findings, the study recommended that government should reduce the cost of governance to keep inflation low, improve productivity through market liberalisation and tax holidays, and incentives to firms in order to keep wage rate and inflation rate low. It is also recommended that capital and money markets reform be done in order to make inflation more responsive to monetary aggregates, and financial system be liberated to cushion the effect of credit crunch that might arise from financial crisis. The findings that emerged in this study have both short-run and long-run implications. The short-run implications included rising inflation, high wage differentials among workers and job loses especially among private establishment. the long-run implications included policy conflicts structural collapse, institutional failures and high tax liability in the future as a contractionary fiscal policy mechanism to cushion demand pull-inflation. OKUHUNYUSHWE NGOLIMI LWESIZULU ISIFINGQO Ukwenyuka kwamanani ezinyunyana ezinamandla okuxoxisana ngokuhlanganyela ezikhathini zakamuva nje, kuye kufake ingcindezi ekukhuphukeni kwezinga lamaholo eNingizimu Afrika. Ngaleyo ndlela kubangele ukwehla kwamandla emali kuze kukhuphuke kuzo zombili izinhlangothi zokuhlinzeka nezidingo kanye nokwehla komkhiqizo. Ngakho-ke, lolu cwaningo luhambisana nezincwadi ezikhona ngokuphenya ubudlelwano obude nobufushane obulandelanayo nobungaqondile phakathi kwezinga lomholo kanye nezinga lokwehla kwamandla emali ngaphambi nangemuva kwezikhathi eziqondiswe ukwehla kwamandla emali eNingizimu Afrika. Esampulini lokubhekwa okuyi-170 kusukela ngo-1980Q1 kuya ku-2022Q1. Imininingwane ithathwe kwi-World Development Indicators (WDI) kanye neSouth African Reserve Bank (SARB) kanti okuqondile nokungaqondile kubambezela ukusatshalaliswa (LARDL & NARDL) kwamasu okulinganisa asetshenziswayo ukuze kufezwe lezi zinhloso. Okutholakele kulolu cwaningo kunemithelela yesikhathi esifushane neyesikhathi eside. Lolu cwaningo luthole ubudlelwano obuhle bokuqondile nokungaqondile phakathi kokwehla kwamandla emali nezinga lamaholo eNingizimu Afrika ngesikhathi sophenyo. Lokhu kuveza ukuthi nakuba izinkomba zombili ziphakamisana kakhulu ngesikhathi esifushane nangesikhathi eside, ubukhulu bomthelela wokwehla kwamandla emali, ezilinganisweni zamaholo bukhulu kunalelo lokwenyuka kwamaholo ekwehleni kwamandla emali. Ngakho-ke, amazinga aphezulu okwehla kwamandla emali abangela abasebenzi/izinyunyana zabasebenzi ukuba zifune ukukhushulelwa amaholo hhayi ngokuphambene nalokho. Ngakho-ke, izinga eliphezulu lokwehla kwamandla emali liwukudonseka kokufunwa kakhulu kunokuletha/ukucindezela izindleko. Lolu cwaningo luphinde lwathola izinga lokwehla kwamandla emali elingaphikeleli ngokuhamba kwesikhathi. Lokhu kusho ukuthi ukulindela okuguquguqukayo kunokulindela okunengqondo, loku kuyinhloko yokuphatha ukuhlelwa kwentengo ngama-ejenti ezohwebo. Lokhu kugomela kuphinde kuqiniswe umthelela omuhle werekhodi lesilinganiso samabhange ekukhuphukeni kwamandla emali esikhathini esifushane nangesikhathi eside. Ngaphezu kwalokho, ukukhiqiza okuphezulu kutholakale njengekhambi eliqinile lokwenyuka kwezinga lamaholo kanye nezinga lokwehla kwamandla emali, kuyilapho ukwamukelwa kokwehla kwamandla emali okuqondiswe kwikota yokuqala yonyaka wezi-2000 eNingizimu Afrika akuzange kube nomthelela omkhulu ekuxhumaneni nokwehla kwamandla emali kwamaholo. Lokhu kudalwe ukushoda kwezikweletu kulandela inhlekelele yezimali emhlabeni wonke ka-2007/08 eyaholela ekuhlulekeni kwenqubomgomo, yingakho nokwehluleka kwezinga lomgomo wezimali ukulawula izinga lamaholo. Umthelela ongemuhle wezinguquko ezingezinhle ezinqwabelene ezilinganisweni zamaholo ekukhuphukeni kwamandla emali, kusho ukuthi, ngokuhamba kwesikhathi eside, izinguquko ezingezinhle ezindlekweni zabasebenzi zinomphumela odambisa kancane ukwehla kwamandla emali uma kuqhathaniswa noshintsho oluhle, okuyinto ngokwemibandela inomphumela omuhle kodwa omncane. Ngakho-ke, kunobufakazi obubuthakathaka bomthelela ongalingani/ongaqondile wesilinganiso samaholo esilinganisweni sokwehla kwamandla emali futhi okuphambanayo, esikhathini eside ngaphandle kwe-nexus yesikhashana. Lokhu kusho ukuthi izinguquko ezinhle nezimbi kulezi zinkomba ezimbili maningi amathuba okuthi zibe nokuhwebelana ngokuhamba kwesikhathi kunangesikhathi esifushane. Okokugcina, okutholwe enhlosweni yokugcina yalolu cwaningo mayelana nesimo sobudlelwane phakathi kokwehla kwamandla emali, ukukhula kwamaholo kanye nokukhiqiza ngaphambi nangemva kwezikhathi eziqondiswe ekwehleni kwamandla emali eNingizimu Afrika kuveza ukuthi ukwehla kokwehla kwamandla emali, izinga lamaholo kanye nezinga lamabhange ekuqaleni ngowezi-1980 kungathiwa kungenxa yoshintsho lwesakhiwo endleleni yokulinganisa yenqubomgomo yezimali yangowezi-1985. Ngaphezu kwalokho, ukuntengantenga okuphezulu okurekhodiwe phakathi kokukhiqiza, izinga lokwehla kwamandla emali kanye nezinga lamaholo ngowezi-2020 kubangwe ukushaqeka kwesakhiwo sobhubhane lwe-COVID-19. Ngokusekelwe kulokhu okutholakele, ucwaningo luncoma ukuthi uhulumeni kufanele ehlise izindleko zokubusa ukuze agcine ukwehla kwamandla emali kuphansi, athuthukise ukukhiqiza ngokukhululeka kwezimakethe kanye namaholide entela, nezinxephezelo kumafemu ukuze kugcinwe izinga lamaholo kanye nezinga lokwehla kwamandla emali liphansi. Kuphinde kunconywe ukuthi kushintshwe izimakethe zemali kanye nezimakethe zezimali ukuze ukwehla kwamandla emali kuphendule kangcono izilinganiso zemali, futhi kukhululwe uhlelo lwezezimali ukuze kuncishiswe umphumela wokuwohloka kwezikweletu okungase kuvele ngenxa yezinkinga zezimali. Amagama Angukhiye: Ukwehla kwamandla emali, izinga lamaholo, ukukhiqiza, i-NARDL, iNingizimu Afrika.
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    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.
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    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.
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    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.
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    Inflation and unemployment in the South African democratic era: is there any trade-off
    (University of Zululand, 2021) Jeza, Mbalenhle Precious
    Achieving and maintaining price stability as well as the creation of sustainable employment are two of the most emphasized objectives of the South Africa Reserve Bank. South Africa has consistently suffered double-digit unemployment rates and unstable price levels, with a resultant stifling of economic growth rates. As a result of these continuous economic issues, South Africa’s central bank policymakers have come under scrutiny regarding the adopted policy framework, which seems to be failing the economy with the growing unemployment rate and overall price level increments to prevail and triggering worsened standards of living for citizens. In an attempt to close the gap in the existing literature, this study examines the inflation unemployment in democratic South Africa. This is achieved through examining the applicability of both the Phillips Curve and the New Keynesian Phillips Curve to determine whether these macroeconomic theories can be adopted in the fight against these economic issues facing South Africa. The Autoregressive Distributed Lag modelling technique is adopted by this study, where quarterly data spanning from 1994Q1 to 2019Q4 is analysed. Findings dismiss the existence of both the Phillips Curve and the New Keynesian Phillips Curve in South Africa. A recommendation to policymakers would be to focus less on inflation targeting, as it was discovered to have a small influence over the unemployment rate. Rather, given the finding that GDP was positively related to inflation, allowing inflation to move more freely could enable a stable economic growth that has the potential of reducing unemployment. This study further recommends that the SARB bank should for targeting output instead.
University of Zululand