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Latest Publications

Impact of internal in-migration on income inequality in receiving areas: A district level study of South Africa

Umakrishnan Kollamparambil
The impact of internal migration on regional income inequality of the receiving areas has hitherto gone largely unstudied. This dearth of literature is especially surprising because income inequality and in-migration into urban centers of growth are two issues that many developing economies are faced with and tackling these issues effectively involves understanding the interactions between these two related phenomena.

This study is therefore a first attempt to analyze the impact of internal in-migration on income inequality of receiving areas and is placed in the context of South Africa. The issue is relevant to no other country as much as to South Africa, which has one of the highest income inequalities in the world attributable to historical factors such as the discriminatory policies of the Apartheid regime (1948-1994) against women and non-whites.  Despite the democratic government of South Africa instituting a series of legislations meant to ensure wage equality across race groups and genders,  income inequality has been increasing post-democracy  from a gini coefficient of 0.59 in 1993 to 0.65 in 2011 (World Bank 2013).

The issue of migration is also of specific interest in the South African context. Under the Apartheid regime, the movement of the vast majority of the population was restricted through the oppressive Group Areas Act and Influx control policies (Zuma, 2013). The elimination of these policies meant that in the Post-Apartheid years the country experienced accelerated urban migration (Mulcahy and Kollamparambil 2016). The intersection of inequality with migration arises from the finding of Leibbrandt, Finn and Woolard (2010) that while urban inequality has increased since 1993, rural inequality seems to have fallen. This points to the possibility of rural-urban migration playing a role in the emerging trends in inequality. Exploring the role of in-migration in explaining this phenomenon of rising urban inequality is hence of high relevance in the context of South Africa.

The study which is undertaken at the district level makes use of the National Income Dynamics Survey data to map the movement of individuals between districts over the period 2008-2015. The results of our multivariate regression analysis using system GMM technique that enables the inclusion of past inequality as well as effectively counters the reverse causality issues, validate the persistent nature of regional income inequality.  A 1 % increase in in-migration into a district increases individual income inequality by 0.02%. This result is statistically significant at 99 percent significance level. The result is unsurprising because migrants constitute predominantly of less-educated workers who are likely to find employment in the informal sectors, thus increasing the level of inequality in the receiving areas.  The level of employment is also seen in our estimation models to be critical at 99% confidence level in determining the inequality levels. Increased employment rate will effectively reduce inequality by 0.11%. Another relationship that comes out consistently across the models is that districts with higher levels of average income has lower inequality. Districts with higher proportion of population with education level above matriculation is seen to have higher levels of inequality at 95% confidence level.

Our analysis shows that rising urban inequality in the urban areas as indicated by Leibbrandt, Finn and Woolard (2010) can be attributed at least in part to rural-urban migration. This works through both the wage as well as employment channel. The employment channel can be said to have a stronger impact than the wage channel as indicated by the coefficients estimated through our multivariate regression analysis. The higher rates of unemployment among the migrants as compared to the non-migrants therefore becomes a cause of worry. The policy implications of the study are clear in highlighting the need to address unemployment issues in general, and among migrants in particular, in making a dent on inequality. Improving the employability of migrants is critical in reducing the inequality, therefore interventions to reduce urban income inequality cannot ignore education and capacity building within rural areas. Addressing education and skill formation in rural sector will improve the quality of migrants that can be absorbed in the urban formal sector without increasing inequality. In conclusion, it can be said that the urban bias in policy formulation that ignores the rural sector cannot be successful as it can only lead to the opposite effect as indicated by the Harris Todaro model.

One limitation of the analysis is the study period allowed only the assessment of impact in the short-run. The longer run impact of in-migration can differ from the short-run impact and needs to be studied further within a longer time frame. 

The effect of Affirmative Action on the reduction of employment discrimination, 1997-2015

This study examines the effect of Affirmative Action on the reduction of employment discrimination by race and gender, more than 20 years since the economic transition. The empirical part of the paper employs a sample that represents the labour force (excluding informal sector workers, agricultural workers, domestic workers, self-employed and employers) aged between 15 and 65 years. The study estimates probit models to examine labour force participation, employment and occupational attainment likelihoods, followed by the Oaxaca-Blinder decomposition, using labour survey data in 1997-2015.

Foreign market selection of emerging multinational corporations: evidence from South African and Egyptian corporations

As literature remains sparse regarding emerging African multinational corporations (EAMNCs), this article focuses on examining the key pull factors (i.e. host country macroeconomic specifications) influencing the foreign market selection of South African and Egyptian multinational corporations as a case study of EAMNCs. Based on estimation of Random Effect and Negative Binomial models, it has been found that the market size, resources endowment and proximity between home and host country are significant pull drivers of both Egyptian and South African MNCs.

Regionalization versus internationalization of African stock markets: A frequency-time domain analysis

Gideon Boako
Among other factors, the World Bank indicates that with an anticipated human population growth of about 1.458 billion by 2025, Africa is increasingly becoming a frontier for investment and world economic development. Increases in demographic transitions opens a window of opportunities, as the working age population increases. This presents an opportunity to open up the African market to enhance intra-African trade, as well as the flow of capital across borders and between Africa and the rest of the world over time. The African Development Bank, UNDP, and OECD report that recent trends in African total trade flows – exports and imports, highlight a shift in trade dynamics and increasing competition from China for the African market. From 2010 to 2013, intra-African exports grew by 50% and by another 11.5% in 2014 to USD61.4 billion. Despite Europe’s dominance in Africa trade, Africa’s trade with Asia rose by 22% between 2012 and 2013. Moreover, since 2000 official remittances to Africa increased six-fold and were projected to reach USD64.6 billion in 2015 with Egypt and Nigeria receiving the bulk of flows. At the same time, increasing Greenfield investments from China, India, and South Africa are expected to increase foreign investment in the continent. The resultant effects of these are improvements in the overall economic growth and developments in the financial sector. In fact, Ahmed et al., (2014) estimates the contribution of Africa’s demographic dividend to gross GDP volume growth of 10-15% by 2030. Standard economic theory postulates that the flow of foreign capital to a recipient country increases its stock of capital and technological knowledge, leading to better economic performance. Capital flows could also enhance local savings, promote capital accumulation, and market efficiency. To reap the above benefits, African countries ought to establish stronger ties and collaborations with the global economy. However, the degree and extent of both inter- and intra-regional interconnectedness ought to be pegged at certain optimal levels in order to reap benefits from scale economies.

The paper examines regional and global co-movemnt of Africa’s stock markets using the three-dimensional continuous Morlet wavelet transform methodology. The analyses which are done in segments investigate co-movements with global markets; bilateral exchange rates expressed in US dollars and euro; and four regional markets in Africa. The wavelet analysis helps in the localization in the frequency and time domains, has the ability to breakdown any ex-post variables on different frequencies to examine the subtleties of joint movements across diverse time horizons without losses in information, and also provides a better trade-off between detecting oscillations and peaks or discontinuities. The method also simultaneously allows for an assessment of the impact of investment horizon. From the point of view of portfolio diversification, short-term or long-term investors are more concerned with the co-movements at higher or lower frequencies to help them formulate their investments strategies. Thus, through wavelets we are able to make a distinction between the short-term and long term investor, as well as their investments horizons.

We find evidence of stronger co-movements of the African stock markets broadly narrowed to short-run fluctuations. The co-movements are time-varying and commonly non-homogeneous – with phase difference arrow vectors implying lead-lag relationships. The presence of lead-lag effects and stronger co-movements at short-run fluctuations may induce arbitrage and diversification opportunities to both local and international investors with long-term investment horizons. The findings also reveal that some African equity markets are, to a degree, segmented from volatilities of the dollar and euro exchange rates. Thus, inferring that international investors may diversify their portfolio investments across those markets without worrying about the effects of currency price volatility. Another implication of our finding is that, from the perspective of the international investor, equity portfolio diversification opportunities into African markets (specifically, Tunisia, South Africa, Nigeria, Kenya, Egypt, and Botswana) are relatively less significant in the short term than the long term. International investors with long-term investment horizons could therefore diversify into the above markets to reduce portfolio risk by adopting lower frequency trading strategies. The results generally show that stronger co-movements occurring at medium frequencies exist at shorter periods. This appears useful for investors with short term investment needs seeking diversification in the short-to-medium term.

Further observation of the findings is the somewhat sparse co-movement between the MSCI-DW on one hand and each of Ghana and Morocco on the hand across all frequencies and time. We also notice that relatively major stronger co-movements occurring during the period of the 2007-2009 GFC happen at higher frequencies (shorter periods). Moving down the frequency axis, major co-movements are hardly observed across all market pairs for the GFC period. This suggests that the impact of the crisis on international investors diversifying their equity portfolio in Africa’s stocks was more severe for investors with short-term than those with long-term investment horizons. We also find evidence of partial segmentation of African stock markets, regionally. The instances of higher regional co-movements among markets may be reflective of the degree of openness and integration, removal of some barriers to intra-regional trade, various market liberalization programmes, as well as level of macroeconomic coordination between countries and regions. Going forward however, aggressive efforts ought to be pursued in the area of harmonizing exchange rate mechanisms, and intensifying trade and other cooperation among national governments to reduce barriers to free flow of investment capital cross regions and countries.

Reference

The effect of financial inclusion on welfare in sub-Saharan Africa: Evidence from disaggregated data

Over two decades sub-Saharan Africa has grown an average by 4.8% per annum. A trend called “Africa rising in the literature” but this robust economic growth seem to have benefited only a minority of elite individuals as poverty in the region remains high and income inequality continues to rise. Critics attribute this to a lack of financial inclusion.

Latest Workshops

Skills Development

Monday, July 3, 2017 to Friday, July 7, 2017

Call for Application for Skills Development Training in Econometrics

The ERSA is pleased to invite applications for the Skill Development Training Programme in basic Econometrics for academics and postgraduate students (masters and PhD) with limited training in Econometrics and quantitative methods. The skills development initiative is in line with ERSA’s objective to deepen economic research capacity and to train young economists in Southern Africa.

7th Annual Meeting of the African Economic History Network: Innovation and the African Past

Wednesday, October 25, 2017 to Friday, October 27, 2017

The African Economic History Network, in association with the Laboratory for the Economics Africa's Past at Stellenbosch University, Harvard Univeristy's Center for African Studies and Economic Research Southern Africa announces a Call for Papers.

Lecture Series in Economic Theory: "Asymmetric Information in Markets and Organizations"

Monday, March 14, 2016 to Tuesday, March 15, 2016
In part 1 of this lecture, we are going to introduce the basic set-up of credence goods markets and discuss how markets should be designed to provide the right incentives for experts and their customers. The theoretical analysis will be complemented by the discussion of evidence of expert behaviour and market outcomes from empirical as well experimental studies. 
 
In part 2 of the lecture, the emphasis will be on information disclosure by interested parties and evidence provision by intermediaries.

The Third ERSA Political Economy Workshop

Tuesday, February 16, 2016 to Wednesday, February 17, 2016

Economic Research Southern Africa (ERSA) and the Institutions and Political Economy Group (IPEG) at the University of the Witwatersrand invite SA-based researchers with a focus on political economy, including public choice, to participate in the upcoming February 2016 workshop. Contributions, even in progress, on all political economy topics will be considered though preference will be given to: corruption, dictatorship, fiscal federalism, intergovernmental grants, political entrepreneurship, and regulation.