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Policy Briefs

Publication

Confronting South Africa’s Water Challenge: A Decomposition Analysis of Water Intensity

Marcel Kohler
In the face of South Africa's growing water scarcity, water conservation and the effective management of water use should be priority focus areas of water policy in the country. There exists an urgent need to introduce market based incentives to optimize the allocation of scarce water resources between competing uses. These economic incentives should target water- stressed areas with the objective of encouraging a shift of water use from economic activities with low water efficiency values to activities with high water efficiency values.
Aug 2016
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Publication

The Contribution of Fiscal Decentralization to Regional Inequality: Empirical Results for South African Municipalities

Hammed Amusa and Ramos Mabugu
In recent years, questions have been raised on whether the current functions and powers of South Africa’s municipalities are sufficient for to achieve the developmental mandates set out in the Constitution. As the representative government closest to citizens, there has been increased demand for the transfer certain functions, such as housing, public transport and land use planning to municipalities. To address these questions, this study sets out to examine the effects of fiscal decentralization on inter–municipal inequalities across the 234 municipalities that constitute South Africa’s local government sphere. To facilitate the analysis, we rely on a theoretical model of fiscal decentralization, where the devolution of fiscal powers away from to sub–national units acts as a commitment device that motivates sub–national authorities to implement policies to reduce inter– regional inequality. The theoretical predictions are tested using a panel data covering the period 2003–2012.
Aug 2016
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The effects of terrorism, crime and corruption on tourist arrivals

Maria Santa-Gallego, Jaume Rosello-Nadal and Johan Fourie
There are many reasons why visitors travel to different countries, but what is less well understood is why the do not travel. In this study, we investigate the performance of the tourism industry in terms of tourist arrivals in the presence of three factors that is likely to discourage tourism activity: terrorism, crime and corruption. We do this for 171 countries for the period 1995–2013. We use two types of analysis: two-dimensional and three-dimensional. The two-dimensional analysis use total tourist arrivals per destination. This analysis suggests that terrorism and crime have a negative effect on tourist arrivals but corruption has no significant effect. We also consider whether the effect of instability on tourist arrivals might differ according to the purpose of the trip. Our results suggest that the effects of terrorism and crime are larger for tourism for personal reasons than for business trips, but corruption only affects business tourism. This is the expected result since tourist destinations are easier to substitute when the purpose of the trip is for leisure or other personal reasons than for business. After a terrorist attack or an increase in crime, tourists might choose a safer destination with characteristics similar to their first choice or they might just stop travelling if the purpose of the trip is for personal reasons. However, when the main purpose of the trip is business between countries with a strong economic relationship, the destination cannot be easily substituted.
Aug 2016
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The political and economic dynamics of foreign aid: A case study of United States and Chinese aid to Sub-Sahara Africa

Kafayat Amusa, Nara Monkam and Nicola Viegi
The study revisits the issue of the determinants of (development) aid allocation by analyzing the motives of two key traditional and non-traditional foreign aid donors - the United States of America (US) and China, in providing aid to a sample of 31 Sub-Saharan Africa (SSA) countries. The results from the econometric analysis indicate that (i) US and China’s motivation for the provision of foreign aid to the SSA countries does not differ substantially, (ii) while donor and altruistic motives and recipient need were drivers of US aid pre-China’s entry into the aid field in SSA, recipient need has dominated US aid allocation post-China’s entry. China’s increasing importance in the region as an economic and strategic partner seems to have reduced the space within which US can exert its economic and political dominance in SSA, and resulted in a pronounced shift in US foreign aid focus towards the “needs” aspects of foreign aid, (iii) lastly, resource motive is only conspicuous in Chinese aid allocation.
Jul 2016
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Publication

Bilateral Investment Treaties: An unfair proposition for Developing countries

Umakrishnan Kollamparambil
After the explosive expansion of Bilateral Investment Treaties (BITS) in the 90s, recent times have seen a reduction in the number of new annual BITs (UNCTAD 2012). With rising number, prominence and success of BIT claims, there is an increasing realization that traditional BITs put undue risk on the host nations without obligating the investors to follow the measures necessary for ensuring the development requirements of the host state (Friedman and Verhoosel 2003). Known investor state dispute settlement cases have increased dramatically in the last 15 years to reach 608 cases in 2014 from a level of around 50 cases in 2000 (UNCTAD 2015). The gravity of the situation is conveyed by the huge amount of claims made by the investor litigants that put host states in serious fiscal strain.
Jul 2016
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Taxes Rates, Economic Crisis and Tax Evasion: Evidence using Zimbabwe and South Africa Bilateral Trade Flows

Marko Kwaramba and Calvin Mudzingiri
Tax evasion involves taxpayers purposefully distorting the true value or quantity of goods traded to the tax authorities in order to reduce their tax liability. In trade, tax evasion includes misstatement of imports or exports in a bid to avoid tax liability by traders. The acts closely linked to tax evasion is trade mis-invoicing and mislabelling. Tax evasion is illegal and punishable by law. The fear of the punitive effect of the law forces traders to be involved in tax evasion secretly and makes it difficult to detect. The decision to evade tax is affected by the probability of being detected by the authorities, the magnitude of the penalty imposed on the offender as well as the wealth effect. If there is a low probability of detection that is compounded by a higher income return from evading tax, importers and exporters put a huge effort into evading tax. Consumers evade tax as a way of reducing the cost of importing commodities.
Jul 2016
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Publication

On the causal links between the stock market and the economy of Hong Kong

Sin-Yu Ho and Bernard Njindan Iyke
Starting from Adam Smith, economists have generally asserted that financial development is an important ingredient for general economic performance. To this end, various empirical papers have examined the causal influence of financial development on economic performance. Hong Kong is one of the economies that have experienced tremendous development in the past three decades. To provide concrete sources of this economic miracle, economists have identified variety of factors. Overall, the role of financial development has been overlooked in most of the studies. However, the stylized fact in support of the positive association between financial development and economic growth remains strong for Hong Kong, especially during the period of substantial economic expansion.
Jul 2016
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Emerging multinational corporations: a prominent player in the global economy

Mustafa Sakr
A process of going multinational could tangibly improve competences of corporations and governments of emerging markets, particularly those based in Africa. As such, they are expected to be in favour of initiating and boosting the global orientation of domestic firms. This is to be done through adopting what is labeled as outward foreign direct (OFDI) promotion policies. Drafting the right combination of such policies is likely to be informed by not only the key attributes of homeland based multinational corporations (MNCs), but also aspects of similarity and difference between them and their potential foreign rivals, coming from both emerging and developed economies. As such, it is expected to be of the utmost importance, for the policy maker, to unveil the key salient attributes of emerging markets based multinational corporations (EMNCs) and how they are really different from those based in developed markets (DMNCs).
Jun 2016
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Output Decomposition in the Presence of Input Quality Effects: A Stochastic Frontier Approach

Yasmina Rim Limam, Stephen M. Miller, and Giampaolo Garzarelli
Several contributions explain countries’ rates of real output growth. However, there is no unanimous answer about the most significant determinants of such growth. The answer from growth accounting sees the separation of growth into two components: one component related to factor accumulation, most often accounted for by physical and human capital, and the other accounted for by Total Factor Productivity (TFP). The relative contribution of factor accumulations and TFP to total growth has animated the growth literature for more than two decades and there is no consensus about the most important factor of growth. This paper approaches the question about the determinants of output growth by focusing on input quality, namely the level of education of the population (human capital) for labor and the age of the capital stock for physical capital.
Jun 2016
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Publication

Can currency in circulation predict South African economic activity?

Cobus Vermeulen, Adél Bosch, Fanie Joubert, and Jannie Rossouw
The forecasting of economic activity is of interest to governments, policymakers, researchers, investors and indeed all participants in the economy. While the South African Reserve Bank (SARB) publishes a number of formal indicators of economic activity, and researchers have managed to create substantial macroeconomic forecasting models, these indicators and models are usually quite complex and not always readily accessible. There is therefore ample scope for simplicity in the forecasting of economic activity. Indeed, a few well-chosen variables can perhaps be suitable indicators of future economic activity, without the need for complicated analyses or modelling of which to draw conclusions.
Jun 2016
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