The financial and real sectors of the economy are inextricably linked; with strong evidence to suggest that there are spillover effects from the stock market to the real economy, with the stock market usually leading the real sector. As such, substantial stock market downturns can negatively impact output. This is of particular concern in an emerging country such as South Africa where maintaining and supporting growth in gross domestic product is critical for the continued development of the country and the allied lowering of poverty levels. Accordingly, for policy makers the ability to forecast market downturns accurately enables them to implement appropriate policies to limit the effects of these stock market downturns on the real economy. Current measures used to forecast share returns such as the Treasury bill yield and dividend-price ratio have limited success in this regard.
Research Briefs
Tobacco consumption is hazardous at all levels. In South Africa, cigarette smoking is a major health problem accounting for thousands of premature deaths each year, including those that are exposed to second hand smoke. In recognition of these consequences, tobacco consumption, particularly cigarette smoking has received a significant amount of attention since the democratic transition in 1994. With the policy change, there has been a significant decline in tobacco consumption in the last two decades. A policy that targets increases the minimum age below which individuals cannot purchase cigarettes, since majority of smokers initiates smoking at a very young age (below 24 years), an age group characterised by high degree of peer influence. Empirically motivated research on tobacco consumption in South Africa have shown a close adherence to determining the effect of tobacco excise taxes on individual smoking behaviour, ignoring the effects of peer network (indirect effects of the policies).
Increasing financial liberalisation since the collapse of the Bretton Woods system in the 1970s has rendered exchange rates volatile in both developed and developing countries. As for South Africa, it liberalised its capital account in March 1995 following the abolishment of the dual exchange rate system which had been in place since the mid-1980s. Currently, the South African rand is an important emerging market currency and the most significantly traded African currency. Understanding the causes of exchange rate volatility is important to policymakers. This follows the argument that the exchange rate movements play an important role in economic development in most developing countries. In South Africa, there is evidence which suggests that exchange rate volatility has significant effect on macroeconomic factors such as employment growth and trade.
An assessment of bank competition is important for a number of reasons. Banking competition helps to foster economic growth. It enhances efficiency as it forces managers to cut down on costs to maintain profitability, improves the corporate sector’s access to finance, and reducing the chances of financial crises. Banking competition facilitates provision of financial services at a lower cost. A decline in banking competition makes provision of financial services costly which negatively impacts economic growth.
The monetary policy committee of South Africa’s Reserve Bank (SARB) has had to increase the repurchase rate on three consecutive occasions within a short period of time. The repo rate was increased by 25 basis points in July 2015 and again by 50 basis points in January 2016. The third increase was by another 25 basis points in March 2016. The aim is to reign in inflationary pressures generated by 13% depreciation of the South African rand since January 2015. Core inflation is forecasted to hit 5.5% in 2016 and 5.4% in 2017 if the current prevailing macroeconomic circumstances pertain (SARB, 2015). Interest rates hikes by the Federal Reserve of the U.S.A. have resulted in capital outflows out of emerging markets leading to the depreciation of emerging market currencies. In the case of South Africa in particular, a severe drought fuelled by the El Nino heat wave has resulted in severe damages to food and livestock production. South Africa therefore has to import tons of maize and other staple food produce to subsidise the shortages in domestic food production. Coupled with the weak rand this makes imports much more expensive than it should have been, fuelling import induced inflation and worsening the trade deficit. Additional risks to the inflationary outlook are inconsistent electricity supply and tariff increases which have impacted adversely on domestic output and household disposable income leading to demands for above inflation wage increases in the absence of a corresponding productivity growth (SARB, 2015).
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.
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.
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.
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.
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.
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.
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).
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.
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.
Climate change poses a serious problem to agriculture sector especially livestock farming in South Africa. There is evidence based on climate models’ predictions that a +2.50 C to + 50 C temperature increase over the current level is likely to wipe out cattle or beef farms and shrink drastically sheep farms in the Southern Africa region. Beyond livestock, very few but expensive adaptation options exist in the arid and semi-arid areas. This is however changing as more farmers embrace wildlife ranching as an alternative adaptation option.
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