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(Last updated 2016-03-24 08:52:50)

Wednesday08:00 - 09:00
Wednesday09:15 - 10:15
Keynote Address: Tim Besley, LSE
Wednesday10:15 - 10:45 Tea
Wednesday10:45 - 11:45Parallel Sessions A
Session A1


Talita Greyling, A comparison of the effect of internet access on global life satisfaction and on specific domains of life satisfaction Abstract: I estimate the effect of internet access on global life satisfaction and examine whether this effect holds for the satisfaction with standard of living and the relational well-being domains of subjective well-being or whether internet access has contradictory outcomes on these domains. Internet access has been shown to play an important developmental role and it positively affects economic growth, education, health governance and social relationships. Therefore, it has become a high profile international goal to give all people internet access. The question arises whether internet access also positively affects subjective well-being and the domains of subjective well-being. To analyse the research questions I use a 2013 data set of the Gauteng City-Region Observatory (GCRO) on quality of life in Gauteng. I estimate global life satisfaction - satisfaction with standard of living - and relational well-being models, making use of ordered logit and OLS estimation techniques. This is the first research paper that analyses the effect of internet access on global subjective well-being in a developing country. It is also the first study, internationally, that compares the effect of internet access on subjective measures of material well-being and relational well-being. I find that internet access is statistically significant in explaining global life satisfaction and satisfaction with standard of living and is positively related to these variables but, contrary to expectations, is statistically not significant in explaining relational well-being.

Marisa von Fintel, Subjective well-being and reference groups in post-apartheid South Africa Abstract: Previous studies on the determinants of subjective well-being concur on the importance of relative income, acknowledging the fact that individuals evaluate their own well-being in light of the performance of a well-defined reference group. Research using data from South Africa during apartheid has found that reference groups were greatly divided along racial lines, with same-race relative standing being much more important than the relative standing vis-à-vis other race groups. Using data from the first wave of the National Income Dynamics Study in 2008, this paper updates and expand these previous findings in order to come to a better understanding of the appropriate definition of reference groups within a divided society such as South Africa. It makes use of a nonlinear model in which various parameters are estimated in order to determine the weight placed on the well-being of individuals in the same race group as the respondent versus all the other race groups living in one of three specified geographic areas. The findings seem to suggest that reference groups have shifted away from a racial delineation to a more inclusive one subsequent to the country's first democratic elections in 1994. Although most of the weight is still placed on same-race relative standing, the estimates suggest that substantial weight is also placed on individuals from other race groups. The paper also examines the spatial variation of reference groups and finds evidence that the relative standing of close others (such as neighbours) enter the utility function positively while individuals who live further away (strangers) enter the utility function negatively. The robustness of these findings is tested with alternative specifications and income measures.

Frances Elise Rousseau, Subjective well-being, relative income and proximity to urbanization in South Africa Abstract: A growing body of literature finds that subjective well-being depends not only on own income, but on the relative income of others. In South Africa, it is found that at the cluster level, an individual’s subjective well-being increases when the average income of his/her reference group increases. In other words, people feel happier when their peers are doing better. Conversely, at the district level, the opposite effect is found. The ‘envious’ response to relative income is more consistent with international studies, but clearly depends, in South Africa, on how one defines the reference group. Using the first wave of National Income Dynamics Study (NIDS) data for South Africa, I test the effect of relative income on how adequate respondents perceived their households’ consumption to be, in five different domains. Perceived consumption adequacy is an alternative indicator of life satisfaction or happiness in place of the usual ladder-type happiness rating question that is used, and has received little attention within the South African context to date. I also test whether the relative income effect is bigger or smaller for the poor compared to the rich. If the poor care less, for example, about relative income, this may inform future policy. Finally, I test whether proximity to urbanization influences the relative strength of this effect. It is hypothesized that being more exposed to economic activity would induce an individual to care more about relative income in comparison to someone residing in a more isolated, rural area. Additionally a consumption adequacy index is constructed from the five consumption adequacy questions, which acts as a proxy for household utility. I then re-test the above three questions and compare these results to the separated answers.

Session A2
Economics of
Tobacco Control


Grieve Chelwa, Evaluating South Africa’s Tobacco Control Measures: A Synthetic Control Approach Abstract: South Africa has since 1994 consistently and aggressively increased excise taxes on cigarettes in order to maintain a total tax burden of around 50% of the average retail selling price. The tax rises have translated into large increases in the inflation-adjusted price of cigarettes. For instance, the average real price per pack of cigarettes increased by 110% between 1994 and 2004. This paper uses a transparent and data-driven technique, the Synthetic Control method, to evaluate the impact on cigarette consumption of South Africa’s large-scale tobacco tax increases. We find that per capita cigarette consumption would not have continued declining in the absence of the consistent tax rises that began in 1994. Specifically, we find that by 2004, per capita cigarette consumption was 36% lower than it would have been had the tax increases not occurred. Our treatment effect estimates survive a series of placebo and robustness tests.

Naiefa Rashied and Ling Ting, A household-level trend analysis of tobacco consumption in South Africa: evidence from NIDS Abstract: Between 1993 and 2003, active and consistent tobacco control policy caused a 33% decline in aggregate cigarette consumption (Walbeek, 2002:38). This lead to a subsequent rise of “roll-your-own” cigarettes in South Africa (Walbeek, 2002). A large proportion of the current South African literature on tobacco consumption emphasises the impact of tobacco control legislation and the increasing tobacco excise tax on the South African fiscus. To date, sparse household-level analysis has been conducted in order to establish the kinds of household trends in tobacco and cigarette consumption since the tightening of South African tobacco control policies between 1993 and 2003. The aim of this study is to conduct a household-level analysis of tobacco consumption in South Africa by applying a series of non-regression techniques to three waves of household survey and panel data derived from the National Income Dynamic Study (NIDS). Some of the findings suggest that between 2008 and 2012, over 500 000 South African households contained at least one regular smoker and that, on average, between 13 to 15 million households consumed tobacco and cigarettes on a monthly basis. Furthermore, households with and without smokers claimed to have allocated, on average, a similar amount of their disposable income to tobacco and cigarettes. Other findings imply that while the household prevalence of smoking declined between 2008 and 2012, the proportion of household spending on tobacco and cigarettes was unchanged.

Hana Ross, Tobacco Industry Tax Avoidance in Response to Tax Increases Abstract: Tobacco tax increases motivate the tobacco industry to engage in behavior that will reduce the impact of these increases on industry profits, often depriving the government of expected tax revenue. This paper examines the legal responses of the tobacco industry such as stockpiling, changing the products’ attributes or their production process, as well as several price-related strategies, which include lowering the price, over-shifting and under-shifting the tax, timing the price change, price discrimination, and price promotions. The original data for this study were collected by contacting selected Parties (countries) to the WHO Framework Convention on Tobacco Control. The selection criteria for choosing a Party were: a recent tobacco tax increase, the presence of legal environment allowing for tax avoidance, data availability, and obtaining consent for publishing the data. Each tax avoidance behavior is examined in terms of the industry’s motivation to engage in it and its consequences for the economy. Several case studies illustrate each tax avoidance response and propose possible government responses to mitigate the impact. At the end, the study recommends the type of data that should be collected by governments in order to monitor the industry’s behavior and formulate an adequate response.

Session A3
History 1
organized by
the Economic
History Society
of Southern


Lorraine Greyling, Gary Magee and Grietjie Verhoef, Economic development in settler societies: Australia and South Africa in comparative settler development trajectories, 1850-1909 Abstract: The last half of the nineteenth century was characterised by the ‘first phase of modern globalisation’, which resulted in the formation of settler societies. These settler societies were dependent on migration from the countries of origin and displayed different paths of economic development. The colonies of South Africa and Australia were amongst these settler societies, where differences in factor endowment, discovered in the new environments, determined the economic development of the colonies. The colonies in Australia and South Africa were both British possessions. These colonies were actively participating in the globalization process as suppliers of raw materials and as recipients of migrants and of investment flows from the industrial core in Britain and Europe. The economic development of the Australian a nd South African colonies shared common features such as geography and climate, distance from the industrial metropolis, dependence on migration, agricultural economies based on exports of commodities such as wool and later minerals, especially gold. Both colonial entities encountered indigenous populations that became an integral part of the economic development. The aim of this paper is to present the first results of a comparative study on the composition, growth a nd performance of the early Australian and South African colonies during the last half of the nineteenth century. The paper uses the first systematic GDP data on the early British colonies in South Africa and compares the macro-economic indicators of real GDP of the Cape Colony, the Natal Colony with that of Victoria and New South Wales. Key aspects of the comparison include the comparison of the impact of the process of globalization on the development of the four colonies in the British Empire.

Lorraine Greyling and Grietjie Verhoef, Foundations of Republican economic development: GDP of the Zuid-Afrikaansche Republiek and the Oranje-Vrijstaat, 1854 -1909 Abstract: Historians have written descriptive narratives on the economic conditions of the ZAR and OVS, emphasizing poverty, currency shortages and limited trade. No systematic attempt has to date been made to reconstruct the gross domestic product of the two Boer Republics prior to the mineral discoveries and the onset of structural change in the economies of southern Africa. This lacunae handicapped systematic comparative work on the performance of settler economies in the British Commonwealth. As part of the wider research project to reconstruct the nineteenth century gross domestic product of the four British colonies that would ultimately merge into the Union of South Africa in 1910, the researchers have completed the first ever systematic and comprehensive GDP data series for the Cape Colony and the Natal Colony between 1850 and 1909. The research outcome offered the first opportunity to compare the performance of the two British colonies in southern Africa to other British colonies, such as Victoria and New South Wales in Australia during the late nineteenth century. This paper now offers the first preliminary data on the GDP of the two Boer Republics since formal state formation in 1852 and 1854 and 1909, prior to the establishment of the Union of South Africa in 1910.

Frederich Kirsten, Lorainne Greyling and Grietjie Verhoef, The calculation and analysis of consumption patterns and a Consumer Price index for Natal Colony, for the period 1850 to 1909 Abstract: Historical price indexes forms a vital part of any economic analysis, and different measures has been formulated with regards to different objectives in calculating a reliable price index (Bialek 2012). Economic History research in South Africa is addressing the ‘Poor Numbers’ problem indicated by Jerven (2013), by engaging in systematic ground level reconstruction of original data on the actural production and economic activity in the colonies prior to the formation of the Union of South Africa in 1910. This research on the Colony of Natal forms part of the mapping of the gross domestic product of the Colony of Natal between 1850 and 1909. The published De Zwart price index presented some generalisations based on assumptions open for correction based on the systematic reconstruction of the gross domestic product of the Colony of Natal by Greyling and Verhoef (EHDR,2015). One of the issues however as pointed out by Diewert (1998) with using the Paasche method to estimate a price index, is the problem of understating the increase in the cost of living. This being the only price index calculated for the Natal colony during this particular time frame, the Natal price index could be vulnerable to these understatements that originate from the Paasche method. This study will apply the Fisher method for a more accurate price index estimation, eliminating the overestimation of the Laspeyres and the underestimation problem of the Paasche method (Diewert, 1998). The study will include about 160 different products in the consumer basket to provide added reliability to the price index. This study will also look at the consumption patterns for the Natal colony during 1850 to 1910 to shed new light on the demand and consumption patterns of the Natal population and to determine the elasticity of demand for various goods for the Natal Colony during the middle part of the 19th century

Session A5
Labour Markets


Christian Bredemeier, Wage Gaps, Earnings Gaps, and the Market Power of Employers Abstract: Women are less mobile between firms than men which gives employers more market power over women and explains parts of the gender wage gap. I rationalize this observation as a consequence of different gender roles in the household. The higher a spouse's earnings, the more likely relative wage differences outweigh utility differences between jobs. About 87\% of estimated differences in inter-firm mobility are attributed to this effect and are, thus, endogenous. This implies mutually enforcing cycles between wage gaps, earnings gaps, and employers' market power and has implications for labor-market and family policies. Additional information requested by reviewers: ---------------------------------------------- I develop a theoretical model which I use to demonstrate a new explanation for monopsonistic discrimination agaist women. For a quantitative/empirical assessment of the model, I calibrate the model. The underlying data for the calibration include: - aggregate data on wages, market hours worked, home production by gender - estimates of the gender-specific elastictities of labor supply to individal firms stemming from link employer-employee data I plan to test the model's key implications using administrative employment data (an anonymized subsample of the official German uenmployment insurance records) on individual level in which the individual's employer and occupation can be identified for every employment spell.

Philippe Burger and Frederick Fourie, REDI3x3: Towards better policy: A macroeconomic model with an informal sector and high open unemployment Abstract: A recent survey of South African unemployment research reveals limited macroeconomic research on unemployment; in addition, almost all macroeconomic work on unemployment policy deals with the formal sector only. Even the few models in the literature that appear to incorporate an informal, or secondary sector, cannot explain persistent high unemployment or analyse labour flows between sectors/segments. To fill this gap we develop a theoretical macro¬economic model that incorporates both formal (primary) and informal (secondary) sectors, as well as uncompetitive market conditions and labour market entry barriers – elements most relevant in analysing the South African economy. We believe such a model provides a more suitable basis for macroeconomic policy analysis in South Africa. The model assumes monopolistically competitive product markets and wage bargaining involving unions. It shows that a primary sector characterised by efficiency-wage behaviour, a mark-up due to high transport costs and labour-union behaviour can explain the dual nature of the labour market – i.e. the existence of a secondary sector due to constrained labour absorption in the primary sector. Secondly, the model shows how barriers to entry in the secon¬dary sector can prevent workers from entering the secondary sector, constraining effective labour supply in the secondary sector. In equilibrium the secondary sector cannot absorb all work-seekers. As a result, work-seekers end up being (involuntarily) unemployed in long-run equilibrium. The unemployed constitute a third segment in the model. The paper concludes by suggesting a few policy implications and also a new macro-economic research agenda on unemployment.

Wayde Flowerday, Continuity and Change: shifts and continuities in South African regulation of labour markets since 1994 and the comparative analysis of the impact of the 1998 Employment Equity Act on employment. Abstract: After the fall of apartheid in 1994, the legislative and regulatory environment of the South African labour market was radically transformed, with a key focus of extending a large range of rights to all employees in order to address inequalities created under the apartheid regime. However, while the introduction of the new regulatory has created a more secure work environment for some employees, it has been argued that it significantly increased the cost of employing labour. This paper will explore the shifts in labour market regulation and legislation in South Africa from 1994 onwards, and will investigate the impact of one particular labour market policy – the Employment Equity Act of 1998 - on employment and production strategies of South African firms. The policy was designed to address unequal access to employment opportunities created by the racially segmented labour market under the apartheid regime. By legislating affirmative action, the Act requires firms that employ more than 50 employees to provide a detailed employment strategy over a five year period that outlines how the firm will restructure its workforce to reflect the demographic composition in the region in which it operates. Since this is a size-dependent policy with a threshold set at 50 employees, it can be investigated utilizing a regression discontinuity design (RDD). This paper employs a panel dataset consisting of the Manufacturing Census and the Large Sample Survey which spans from 1996 to 2001, allowing the investigation of the Employment Equity Act’s effects on firm performance. Preliminary results indicate that the policy has an effect on firm response, as a clustering of firms below the 50 employee threshold is seen once the policy was implemented. It is predicted that due to the threshold, firms will substitute away from labour in favour of capital, retaining skilled staff, and ultimately paying higher wages.

Session A6
Industrial &
Policy 1


Lowell Scarr, Is public investment in R&D valuable? The ARC PPRI Weeds Research Division Abstract: This study investigates the economic impact of the Agricultural Research Council PPRI Weeds Research Division. The Division researches appropriate methods of biological control for invasive alien plants (IAPs). These plants pose an increasing threat to environmental integrity and ecosystem service provision impacting on economic potential. Since the work of the Division is considered a public good, a predominantly descriptive approach has been adopted for the valuation process. A combination of quantitative cost analysis and a qualitative study of the impacts of research and invasive alien plants is used to deal with the challenges associated with non-market valuation. The study found that investment into the Weeds Division is a valuable activity that supports the long-term growth potential of the South African economy. The role of a well-functioning environment is highlighted as an essential base for the creation of sustained growth opportunities in any society. It was determined that investment into the Division should be increased into the future to support efficient spending of scarce state funds. Biological control research was found to provide strategic future growth potential, creating opportunities for the development of a competitive advantage in the biotechnology and environmental management sectors. The study adds to the increasing move towards a more holistic view of economic valuation, taking factors other than pure finance and econometrics into consideration. This is an important shift in prevailing economic thought, as a realisation is reached that a single, or even triple, bottom line is an outdated and insufficient decision making basis.

Simon Roberts, REDI3x3: A critical review of the record of competition enforcement Abstract: Note: i intend for this to be part one of the REDI 3x3 sessions The Competition Act’s objectives encompass addressing anti-competitive conduct in the interests of broader based participation in the economy. This paper will review the enforcement of the Act by the Competition Commission, Competition Tribunal and Competition Appeal Court in the main areas of mergers, collusion and abuse of dominance. The review will draw on studies of concentration and competition in the economy, including assessments of cartel mark-ups and rates of profit across the economy over time and different sectors. In particular, it will analyse the standards applied by the Competition Tribunal and Competition Appeal Court in their rulings and the role that economic evidence has played. It will benchmarks against regimes with which there are similarities and from which South Africa drew in formulating the Act such as Canada, Australia and the EU, as well as Chile which has a younger regime but similar institutional structure. The paper will locate its assessment in the context of the challenges of developing a more inclusive South African economy.

Oluwatobi Enigbokan and Olukunle Ogundele, A Systematic Review of Competition Policy Implementation: Institutional Mechanisms for Success Abstract: Literature revealed that the achievement of competitive outcomes in an economy can be facilitated by various factors, one of which is the presence of appropriate institutional mechanisms. Institutional mechanisms such as the extent of a country’s industrial openness, attitude towards privatisation (Sengupta & Dube, 2008), consumer protection (Roberts 2008), application of the rule of law (UNCTAD 2010, Gomaa 2014) interdependence and setup of economic sectoral institutions (Gomaa 2014), all under the ambit of the government, are influential in the facilitation of successful enforcement of competition policy. The study is exploratory in nature and identifies institutional mechanisms that serve as mediators for the achievement of policy objectives. Specifically, the study also identifies methods by which nations achieve competitive outcomes that advance fair trade practices. A systematic review of literature was carried out using keywords associated with economic institutional frameworks, institutional mechanisms and competition policy. The search was done primarily in economics and political science journals such as Jstor, Journal of Competition Law & Economics, Journal of International Economics and other journals accessible to the Competition Commission of South Africa employees. Consolidation of the most common and recurring success factors required for successful competition policy implementation was done. The success or enabling factors identified are ranked on a macro level through the use of practical mapping tools. Lastly, an attempt was made to connect the requisite institutional mechanisms to theoretical foundations for successful competition policy enforcement. Results reveal that proper implementation of competition policy objectives is hinged on the effective use of institutional mechanisms domicile in an economy. The use of the practical mapping tools provided a set of factors that can be utilised in form of recommendations, for countries looking to adopt or that are in the process of implementing competition regimes. This factors identified serve as a practical way of preparedness to guarantee successful competition policy regimes.

Session A7
& Spatial
Issues 1


Gibson Mudiriza, A contextual analysis of South Africa’s spatial economy. Abstract: The uneven spatial distribution of income is a well-established stylised fact in South Africa. Despite, a number of post-apartheid initiatives to redress the disparities, they remain relatively high. One question that arise is what determines regional income differentials in South Africa. In this chapter we establish some basic facts about South Africa’s spatial economy. A discussion of South Africa’s historical developments reveals that both geographic and institutional factors played significant roles in the generation and reproduction of South Africa’s income disparities in space and overtime. A review of South Africa’s literature suggests that geography is a major determinant of regional income variations. Using 2001 and 2011 census data at the magisterial district level and applying ESDA techniques (boxplots, choropleth maps and measures of spatial autocorrelation) to examine the geographic pattern of regional income, we find evidence of high and persistent regional income disparities as measured by per capita income. These disparities are characterised by strong evidence of spatial association which leads to a dual economy characterised by two geographical clusters, one of low income districts and another of rich districts is also confirmed. Building on reviewed literature and focusing on geographic factors (market potential, housing stocks and resource endowment) as possible correlates of regional income and using ESDA techniques, as well as scatter plots, there is evidence of strong positive association between these factors and regional per capita income.

Clive Coetzee, Estimation of the Spatial Autocorrelation Function for Kwazulu-Natal Abstract: The first law of geography, according to Tobler (1976), states that everything is related to everything else, but near things are more related than distant things. LeSage (2009) points out that it is commonly observed that sample data collected for regions or points in space are not independent, but rather spatially dependent, which means that observations from one location tend to exhibit values similar to those from nearby locations. Spatial dependence in a collection of sample data means that observations at location i depend on other observations at locations j≠ i. Spatial statistics are used to analyse data which have a spatial location. Spatial statistics give explicit consideration to spatial properties like location, spatial patterns, spatial arrangement, distance etc. This spatial dimension tends to make spatial statistics more complex than ‘ordinary’ non-spatial statistics. It is suggested that spatial phenomena often exhibit a high degree of spatial correlation, i.e., sample data collected for regions or points in space are not independent, but rather spatially dependent, which means that observations from one location tend to exhibit values similar to those from nearby locations. The aim of this paper was therefore to test the hypothesis of spatial correlation using four different weight matrices. The Moran I and Geary C methods were applied to 65 economic variables to estimate the levels of spatial correlation in the province. The results suggest that the province has experienced very little (if any at all) spatial correlation from 1996 to 2013. The results strongly suggest spatial heterogeneity. However the results also suggest that concentration/dependence levels in the province have increased especially around the coastal regions.

Clive Coetzee, Spatial Regression Application for KZN Abstract: The field of spatial statistics is based on the non-independence of observations; that is, the research is based on the assumption that nearby units are in some way associated (Tobler 1979). Spatial econometrics is a field whose analytical techniques are designed to incorporate dependence among observations (regions or points in space) that are in close geographical proximity. Extending the standard linear regression model, spatial methods identify cohorts of «distance weights» and allow for dependence between these regions/observations. The models that will be applied are 1) Spatial Lag Regression, 2) Spatial Lagged X Regression and 3) Spatial Error Regression. The analysis will be performed using the programmes GeoDa and QGIS. Data sourced by KZN Treasury and Global Insight will form the basis of the analysis. The data will include economic and social variables from 51 municipalities for 1996, 2004 and 2013. Some of the preliminary results suggests that 1) though different in interpretation, these spatial models are observationally very similar and 2) they all give rise to some form of spatial autocorrelation – outcome in on location correlated with outcome in neighbours.

Session A8
Inflation 1

Tshepo Masipa, The Pass-through impact of oil price on inflation in South Africa: A Time Series Analysis Abstract: Oil is said to be one of the most important commodities used in any modern industrial economy. A number of recent studies also support this notion as they emphasize that oil has many economic use around the world, which includes among others the electricity generation, fuelling transportation, and used as a major input in the petrochemical industries for energy and other chemical products. Therefore, oil importing countries are likely to be affected changes in oil prices. South Africa as an oil-importing country is also likely to be vulnerable to fluctuations of oil prices. Hence, the study seeks to determine the pass-through impact of oil price on inflation. In its analysis, we examine the effect of changes in oil price on petrol price, diesel price and producer price index. The effect is expected to pass-through to the overall inflation rate. Using data from 1990 to 2014, we examine the pass-through impact of oil price to inflation in South Africa. These will achieved by employing two econometric tests; firstly, the Granger-causality test employed to determine the direction of causality between oil price and the prices of selected variables. Secondly, the cointegration test employed to determine the existence of a long-run relationship between oil price and inflation in South Africa.

Manoel Bittencourt, Rangan Gupta and Lardo Stander, Socio-Political Instability and Inflationary Dynamics Abstract: Since 2006, almost 60% of global protest events have been exclusively driven by economic injustice. Standard determinants of socio-political instability reported in the literature, do not fully explain the effect of monetary and fiscal policy decisions on the intended target audience of those policy outcomes. We develop an overlapping generations monetary endogenous growth model characterized by socio- political instability, to analyse growth dynamics and specifically, monetary policy outcomes in the presence of this augmentation. Socio-political instability is specified ad-hoc as the fraction of output being lost due to strikes, riots and protests and is positively related to inequality and inflation, and negatively related to policing expenditure. Interesting, and otherwise non-existent, growth dynamics emerge, both convergent and divergent, if socio-political instability is a function of inflation. Subsequently, we provide empirical impetus to this ad-hoc theoretical specification, using a sample of 170 countries over the period 1980-2012. Specifically, we report empirical evidence in support of our theoretical augmentation, that inflation exacerbates socio-political instability across all countries, even after having accounted for country-specific effects and the role of government. In addition, policing expenditure directed at containing protest events does not have the desired impact. Our findings also address some endogeneity concerns in the instability-inflation nexus.

Vafa Anvari, Byron Botha, Darren Chamberlain, Rudi Steinbach and Rowan Walter, Assessing the impact of time-varying monetary policy credibility in affecting inflation expectations Abstract: Standard New Keynesian rational expectations models assume that the monetary policy authority has perfect credibility. Whilst limiting assumptions are quite common in this class of models, this particular assumption creates a challenge when attempting to simulate disinflation resulting from a lowering of a central bank’s inflation target. Under the assumption of perfect credibility, inflation expectations adjust rapidly towards the newly announced target, raising real interest rates in the process. Under most conditions, the result is lower inflation without the need for nominal monetary policy tightening. Using a reduced-form New Keynesian general equilibrium model that is calibrated for the South African economy, this paper introduces a non-linear process where the policymaker's credibility may vary over time, depending on his actual performance in controlling inflation. Within this framework, the speed at which inflation expectations adjust to a hypothetical change in the inflation target depends not only on the responsiveness of aggregate demand to real interest rates and the slope of the Phillips curve with respect to the output gap, but also the degree of credibility that the policy-maker possesses. This innovation permits a scenario where, if the policy maker has insufficient credibility, falling inflation expectations don’t facilitate the necessary real interest rate increase when disinflating, forcing a nominal rate increase from the central bank.

Session A9
Trade 1


Fariha Kamal and Asha Sundaram, Spatial Concentration of Buyer-Seller Matches in International Trade: The Role of Institutions and Infrastructure Abstract: This paper explores the role of institutions and infrastructure in partner countries in shaping the patterns of spatial concentration of foreign suppliers that transact with U.S. importers. We find that the spatial concentration of suppliers within a country for an importer, as measured by a Herfindahl index, is decreasing in the quality of the origin country’s contracting institutions and transport infrastructure. Additionally, we find that spatial concentration of suppliers is smaller for larger U.S. importers. Our findings are consistent with the idea that there might be a greater role for networks among trading firms that operate within defined geographic boundaries, in surmounting higher costs of matching imposed by weak institutions and infrastructure.

Marianne Matthee and Maria Santana Gallego, Trade margins of South Africa: A gravity model approach Abstract: Since the first democratic elections in 1994, South African government has set out to create employment through inclusive economic growth. Industrialisation and export diversification has always been part and parcel of government’s plans to achieve this (Viviers et al., 2014). In an effort to provide a more focused policy on export diversification, the National Exporter Development Plan (NEDP) was developed in 2013. More specifically, the NEDP aims to “raise net exports, grow trade as a share of world trade and improve its composition” (dti, 2013:5). The dti motivates this aim by stating that “the growth and diversification of South African exports has been weak, with over half of all exports derived from the mining value chain. In order to stabilise growth it is important to diversify exports, including into higher value-added activities, and to improve overall competitiveness.” Therefore, government wants to do is to improve export growth through both the intensive and extensive margins of trade. However, in order to grow along the intensive and extensive margins (i.e. to diversify) it is important to understand the microeconomic determinants of these margins first (Amurgo-Pacheco & Pierola, 2008). It is here where our paper makes a contribution. The aim of the paper is to examine South Africa’s export diversification patterns using highly disaggregated data (HS-6 level). We identify the factors that influence South Africa’s intensive and extensive margins based on a Heckman selection gravity model for South African exports. In a first stage the potential determinants of extensive (i.e. number of firms) are estimated and in the second stage, after correcting for sample selection bias, the determinants of the intensive margin (i.e., average exports per firm) are obtained using sector-level exports from South Africa to 203 importer countries for the period 1995-2012.

Mulatu Fekadu Zerihun, Martin Breitenbach and Francis Kemegue, The way forward on African Economic Integration Initiatives: Evidence from Southern African Development Community Abstract: Abstract This study reviews the doubts and challenges on economic integration initiatives in Africa and empirically investigates the move towards economic integration in the context of Southern African Development Community (SADC). Methodological approaches like measures of co-movement in real GDP, linear and nonlinear econometric techniques to test relative price convergence in the region are carried to answer the research questions in the paper. Furthermore, the paper uses simple descriptive analysis to highlight the facts, challenges and achievements of SADC monetary integration initiative. The results from this study show a weak co-movement in the business cycles of SADC countries. However, both linear and non-linear tests reveal that there is substantially high relative price convergence in the region. In general, the study finds that there is an optimistic future for the proposed monetary union in the SADC region - at least at some future time, even though SADC will not be ready by 2018. Furthermore, these findings encourage member countries to improve policy coordination and harmonize their policy initiatives to realize the proposed monetary union in SADC region. The study further emphasizes that awareness creation, economic education, and information campaigns are paramount to form rational expectations in the region and to avoid premature collapse of the economic integration initiative in the region. The findings from this study have important policy implications for the success of the economic integration initiatives in the region and beyond.

Wednesday11:50 - 12:50Parallel Sessions B
Session B1
Perspectives on
Piketty and
(with panel


Raymond Parsons, Piketty on inequality - new light on an old story? Abstract: The first brief paper in the session on Thomas Piketty's 'Capitalism in the Twenty-First Century' is in two main parts. (1) summarises the general conceptual and historical framework which Piketty uses to evolve his hypotheses on global inequality trends and outlines the extent to which his interpretation of economic history and research into tax records underpin his overall conviction that the advanced world has gone back to 19th century levels of inequality. It includes his assessment of the degree to which inheritance and escalating executive salaries over time promote inequality. The forces of divergence perpetuating long term inequality are thus captured by Piketty in the private rate of return (r) being much higher than the rate of growth of income and output (g) i.e. (r) > (g). This is the overall logic of his conclusions and Piketty offers mainly an agenda of taxation to deal with it. (2) given Piketty's main focus on advanced economies, developing economies have the potential of high 'catch up' growth to ameliorate inequality. Accepting for the present Piketty's broad conceptual framework, we examine SA's chances of avoiding Piketty's 'dystopian vision' of worsening inequalities by reversing his equation, and making (g) > (r). It suggests that repairing the root causes of inequality in SA basically also requires fixing the root causes of low growth. It is therefore necessary to assess to what extent the latest National Development Plan (NDP) meets the criteria for inclusive economic growth and the reduction of inequality. A potentially rich research agenda could be generated by identifying alignments and divergences between the NDP and aspects of Piketty's work, given the challenges of growth and inequality in SA.

Peet Strydom, Capital in the twenty-first century: Different views on Thomas Piketty Abstract: Capital in the twenty-first century by Thomas Piketty is an exposition on economic history about the distribution of income between labour and capital since the Industrial Revolution. The main theme is that income distribution between labour and capital is uneven and the process favours capital while labour is the losing partner, despite existing redistribution policies and labour protectionist organisations. The process does not carry corrective forces to secure a stable distribution. Piketty is of the opinion that this instability is a treat to democracy. He proposes a tax on capital, or wealth, which is globally coordinated since other and existing policies appear to fail. The main thrust of the author's argument is based on the theory of economic growth. It appears that the growth outcomes of his analysis could be derived as a special case of a general growth exposition with variable factor proportions in production, His growth exposition satisfies a growth framework with fixed factor proportions in production. His distribution law is valid within such a special case. If one integrates his exposition on the elasticity of substitution in production with the general case growth model it follows that efficiency gains in capital production encourages large scale substitution of capital for labour while technological progress prevents capital from suffering diminishing returns and capital becomes relatively cheap. It follows that the main source of unequal income distribution is not capital, as suggested by Piketty, but labour. Following a general as opposed to a special case growth analysis it is possible to turn the Piketty policy upside down while the tax proposal loses validity.

Chair: Stan du Plessis
Discussant: Justin Visagie
Session B2
Economics of
Education 1


Stephen Taylor, Volker Schoer, Brahm Flesich and Thabo Mabogoane, The impact of a remedial reading programme on second language grade 4 students in KZN: Evidence from a randomised experiment Abstract: The majority of South African children do not speak English as their first language yet are taught in English from Grade 4 onwards. This represents one of the various educational disadvantages that are contributing to the low levels of learning observed amongst the majority of poor children in South Africa. Finding ways to reduce the learning deficits amongst these children is therefore an important policy priority. This paper reports on a randomised controlled trial of a remedial programme designed to boost the English reading and literacy skills of grade 4 students, for whom English is a First Additional Language. The study randomly assigned 100 initially low-performing public schools in the Pinetown district of KwaZulu-Natal to treatment and control groups. The intervention lasted for 11 weeks, was administered within normal school time and consisted of three components: the provision of scripted lesson plans, additional reading resources and on-site instructional coaching for teachers. The intervention had no statistically significant impact on the overall reading achievement of learners. However, treatment schools improved more than control schools in the spelling and grammar subcomponents of the test. The programme impact was larger for learners who initially had a basic minimum of English skills and for those whose teachers participated actively in the programme. The paper describes some of the challenges involved in implementing a randomised controlled trial in the context of the South African school system. The paper also reflects on how this sort of impact evaluation presents a challenge to the conventional research in education policy, but also creates valuable opportunities for economists and educationists to collaborate to take knowledge further.

Session B3
History 2
organized by
the Economic
History Society
of Southern


Grietjie Verhoef, The opportunity of inequality: Rise of African business in the twentieth century Abstract: Inequality is given, but can be structurally enhanced. Political power is often manipulated to enhance inequalities, to reshape inequalities or to shift inequalities. The history of inequality on different levels of business activity in Africa, tells a story of the emergence of African business in the twentieth century managing inequality and creating opportunity. Martin (2012) in The Political Construction of Business Interests explains business institutions’ development in the USA. The historical construction of the business reality explored in this book, offers a tool to analyse the reality of inequality and opportunity of the context of business development in Africa. This analysis presents the theoretical framework to explore the historical functionality of institutions, political and social, in making African business in the twentieth century. The ever present role of the state in Africa impacted in an inhibiting as well as facilitating role in institutional development of the context in which African business emerged. The state operated in different political contexts – of colonialism, of minority polity and after decolonisation, as majority polity. As such the state was instrumental in forging and changing institutions, which inhibited or enhanced the development of African business. This paper investigated the history of business development in Africa, using a number of case studies from different parts of Africa to explain the institutions which presented opportunities and constraints to business development in Africa. It is argued that inequality was institutionalised and as such contributed to the emergence of opportunities for business in Africa.

Peter Baur, Determining a commodity value using ‘Value of Information’ for a market structure in which the laws of the ‘invisible hand’ does not hold Abstract: This paper examines the role of ‘Information’ in determining the value of a commodity which cannot be determined using typical market fundamentals. Prices within an ancient market with very low levels of competition and unpredictable levels of demand are extremely difficult to predict. In a modern day market, much of what is produced on a very large scale, driven by economies of scale. Even though products may not be homogeneous, price setting behaviour will likely mimic the laws of supply and demand, as long as there are sufficient levels of competition and very large numbers of consumers. The difficulty that modern day consumers face is greatly reduced due to the availability of information about commodities and products. The rules of the invisible hand as set by Adam Smith which first appeared in ‘The Theory of Moral Sentiments’ (1759), which so often forms the basis of many modern economic reasoning, would not have functioned very smoothly in an ancient market. Thus, in a commodity market, where specialisation of skills determines the production of a commodity and low levels of information combined with insufficient competition exist, then other fundamentals regarding price determination need to be taken into consideration. This paper examines the role of ‘Information’ as a determinant of ‘value’, and how this ‘value’ determines a price, proposing that in an ancient economy, the price of a product is determined by the “value of Information’ held by the institutions that serve as regulators of price and not the producer of the commodity.

Session B4
Monetary Policy


Shakill Hassan, Siobhan Redford and Franz Ruch, The Evolution of Dispersion in Inflation Expectations Abstract: We construct cross-sectional measures of dispersion in in‡flation expectations,based on the extent of disagreement in survey data (a rough proxy for infl‡ation uncertainty); and document how these measures evolve over time. The good news is that dispersion of infl‡ation expectations has reduced substantially since 2000. The bad news is that expectations are converging on the upper bound of the official target range. The inter-quartile range of expectations is systematically entirely above the mid-point of the official target range since at least 2008. We then test if the observed behaviour of infl‡ation expectations data can be forecast using Mankiw and Reis'’s (2002) sticky-information model which offers up a proposal to explain the existence of infl‡ation expectations disagreement and time variation as done by Mankiw, Reis and Wolfers (2004). An alternative theory which we test is offered by Capitsran and Timmerman (2009), and includes testable propositions for survey data to see if the disagreement in infl‡ation expectations could be explained by asymmetric loss for economic agents.

Session B5
Labour Markets


Jean-pierre Geldenhuys, Explaining changes in labour's share of income in South Africa Abstract: The past few years have seen a sharp increase income inequality around the world, while South Africa’s extreme levels of income inequality are well-known. Furthermore, the share of labour earnings in national income is declining (often sharply) in many countries. In South Africa, labour’s share of Gross Domestic Product (GDP) declined markedly between 1982 and 2007, before stabilising thereafter (see Burger, 2014, for an analysis from 1993 onwards). Atkinson (2009) considers the division of national income between profits and wages to be the “principal problem of political economy”, and suggests that studying factor shares yields important insights regarding the distribution of personal income, as well as issues pertaining to social justice and fairness. In this paper I examine the evolution of the distribution of factor incomes within and between major South African industrial sectors (at the one- and two-digit SIC-code levels), using data from the South African Reserve Bank and Statistics South Africa. I also use different measures of labour’s share (as suggested by Glyn, 2007) to determine if results are sensitive to the choice of labour share measure used. Furthermore, changes in the aggregate labour share will be decomposed into changes in intra-industry labour share changes and inter-industry output share changes, thereby allowing “shift-share” and variance decomposition analyses of changes in labour’s share (along the lines of Elsby et al., 2013). The contribution of changing sectoral employment shares to changing aggregate and inter-industry labour shares, as well as intra-industry relationships between labour compensation and labour productivity, will also be examined. Finally, I use inter-industry panel data (first-difference) regressions to explain differences in changes in the labour share between major South African industries (controls include industrial profit rates, union membership and changes in input prices).

Gloria Kgalalelo Setou, The economy-wide impact of increasing wages in the South African mining sector, a CGE approach Abstract: This paper examines the economy-wide impact of increasing wages by a minimum of 15 per cent and a maximum of 150 per cent in the South African mining sector. This is in line with the demands by the mineworkers, particularly in the platinum and gold sectors, which saw them embark on major strike action in 2012, 2014 and also eminent in 2015 to demand a minimum wage of R12500. 2012 and 2014 were crisis years for the South African mining industry. The incidents at Marikana and the subsequent strike action which ensued over wage disputes, will forever be engraved in the memories of many South Africans, not only for the tragic loss of 44 lives on that fateful day of 16 August 2012 , but also because they marked a turning point for South Africa's mining industry and raised critical questions of whether the mining charter was being complied with, what a minimum wage is or should be and also whether mining companies are in a position to afford to meet the demands of the mineworkers. Computable general equilibrium modelling is the methodology used and mining sector wages are shocked by both 15 per cent; which is the percentage increase in wages for mine workers already earning close to R12500 and also by 150 per cent; for mineworkers earning entry level wages of around R4500; to evaluate the overall economic impact in both cases. An Upgem14 model is used which comprises of 14 sectors and 14 industries.

Kholekile Malindi, Tenure profile, employer learning and labour market signalling Abstract: The proposed research focuses on the barriers to labour market entry for disadvantaged groups (i.e. black, youth, and uneducated) with the aim of contributing to the existing South African literature that seeks to understand the poor labour market outcomes of these groups. The imperfect information and uncertainty that characterises the relationship between employers and job-seekers is the key barrier to labour market entry that is studied in this research. Employers are imperfectly informed about the skills set and expected productivity of job seekers, and job-seekers are in turn imperfectly informed about the availability of job vacancies that require the skills set they possess. The uncertainty caused by the imperfect information leads to inefficiencies in job search and matching (Schoer and Rankin, 2011) and may directly contribute to unemployment in the presence of high firing costs (Levinsohn, 2007). The research question of this paper asks to what extent the poor labour market outcomes of disadvantaged groups can be accounted for by their inability to emit credible signals for their productivity. School performance is thought to be an important channel through which workers signal their ability. However, in the South Africa case, low and variable quality of pre-tertiary schooling has weakened the potency of schooling qualification as a signal of productivity. Schooling qualification seems to fulfil the signalling role for matric and further qualifications (Duff and Fryer, 2005; Schoer and Rankin, 2011; and Van der Berg, 2014). Unlike traditional empirical measures of employer learning (e.g. Altonji and Pierret, 2001), this paper exploits group differences in the wage gain due to the accumulation of the first year of tenure as a measure of employer learning. With the help of a theory model, the estimated employer learning is then used to infer about labour market signalling.

Session B6
Money and


Sunday Adesina, Banking Sector Development in African Countries: A Comparative Study Abstract: This study highlights and compares the levels of commercial banking sector development in 50 African countries over a period of six years (2008 to 2013). The comparison is based on three indicators of banking sector development: access to commercial banking services, commercial bank loans to GDP, and commercial bank deposits to GDP. The findings of the study show that Mauritius has the highest level of access to commercial banking services, but in respect of commercial bank loans to GDP, Morocco shows the best performance. With regards to commercial bank deposits to GDP, Mauritius shows the highest level. The overall ranking shows that Bulgaria, Mauritius and Morocco have the most developed banking sectors and, South Sudan and Chad have the lowest level of banking sector development. However, the results also show that some of the lagging banking sectors will meet up with the leading ones in the next few years, if all the countries maintain the rates at which their banking sectors developed during the period of this study.

Johan Coetzee, Relationship banking: A new research agenda Abstract: With the advent of the global financial crisis, the onus placed on managing the bank-client relationship has received new attention. Both the risk and the management approach to managing this risk has been questioned now more than ever. Added to this, the understanding of the nature of the bank-client relationship in its simplest form is at the forefront of research agendas. As such, questions such as, “did banks truly understand their clients, and accordingly, mitigate risks in line with this understanding, or were perverse incentives the stronger role player?” have forced scholars to reconsider their understanding of banking relationships. What has become increasingly clear is that the literature on relationship banking suffers from a split-personality: on the one hand, it focuses on the service quality and marketing relationship; on the other, it focuses on the economic and contractual relationship. The purpose of this study is to bridge this divide by proposing a conceptual model that encompasses the pervasive nature of the bank-client relationship. Built on a thorough review of the literature, this model has practical implications for business practitioners as it conceptualises a research agenda based on the complexity of banking relationships.

Session B8
Firm Behaviour


John Paul Dunne and Rethabile Masenyetse, The Determinants of Firm Survival in South Africa Abstract: In developing economies the existence of a healthy corporate structure is vital to the pursuit of long term policy objectives of employment and sustainable economic growth, firm duration is of great importance. This makes it important to understand the dynamics of firm survival and growth and while there is a growing literature on the topic there is limited coverage of developing economies because of data limitations. This paper uses unique dataset on a panel of companies listed in the Johannesburg Stock Exchange (JSE) in South Africa during the period 2000-2010 obtained from the DataStream service to analyse the patterns of survival and investigate the determinants of firm survival. It starts by considered the patterns of growth and survival over the 2000-10 period and specifies some simple logit binary survival models that allow for firm size, growth and financial characteristics. These models are improved upon using the non-parametric Kaplan-Meier product limit method and estimating Cox proportional hazard model. Fifty per cent of the companies listed in the JSE survived for the whole period and the determinants of their survival would seem to be consistent with expectations: large size, high leverage, high profitability and economic sector, especially the primary sector. Age and the origin of the firm were not significant. The results also allow the identification of the types of firms that are most likely to need support to maintain a healthy industrial structure.

Ewert Kleynhans and Moloto Joe Sekhobela Sekhobela, Intellectual capital of the various manufacturing sectors of South Africa Abstract: This paper determines and compares the measure of intellectual capital imbedded in the various manufacturing firms and industries of South Africa. Labour, capital goods, resources and entrepreneurship are the established factors of traditional production. Economists realised that it is not the amount of labour that is important in the efficient production of output, but the value of capital and the attention shifted to human capital as an indicator of the elements imbedded in labour that makes it more productive. Firms and industries can enhance their profits, financial performance and international competitiveness when they enjoy the benefits from knowledge and technological spillovers, but not all firms do. It has been realised that the extent to which companies are able to become competitiveness and utilise spillovers, FDI and other development advantages depends on their absorption capacity. They must be able to apply what they obtain and learn from others to their local advantage. The world is moving from an industrial era to an information era as modern technology expands. All this implies that the factors of production of firms and industries must poses the necessary intellectual capital to become and stay competitive in today’s fast changing markets. It is therefore important to measure this level of intellectual capital of South Africa’s manufacturing industries and learn from the best. This paper uses data from the Johannesburg Securities Exchange and determine the Value Added Intellectual Capital Coefficient of the various firms listed mathematically. This coefficient differentiates between human capital efficiency, physical capital efficiency and the structural capital efficiency of firms. The average intellectual capital of the various firms and industries are then compared and conclusions are made in relation to the success of the best firms in the various sub-sectors.

Mamello Nchake, Lawrence Edwards and Asha Sundaram, Price-setting behaviour and competition in developing countries: An analysis of retail outlets in Lesotho Abstract: This paper looks at the relationship between price-setting behaviour and competition. It employs a unique data-set that combines survey data on retail outlets with detailed, historical information on prices of their products from Lesotho, a small, open, developing economy in Southern Africa. Results reveal a non-linear relationship between the frequency at which retail outlets change their prices and perceived competition. In markets with fewer competitors, an increase in the number of competitors is associated with fewer price changes. However, in markets with more competitors, an increase is associated with more frequent price changes. The analysis hence lends empirical support to the idea previously proposed, that moving from a monopoly to a duopoly may be associated with more rigid prices as coordination costs of collusion increase, with this relationship reversing with more firms in the market, when collusion breaks down. This paper provides new empirical evidence on the relationship between the degree of competition and price-setting behaviour in the context of a developing country, where markets and information flows tend to be relatively imperfect.

Session B9

Henri Bezuidenhout and Sonja Grater, The dimensions of FDI in the tourism sector in Africa Abstract: The tourism sector in Africa has received an increasing media and academic focus as it is viewed to be a fast growing sector and a potentially substantial provider of jobs at all skill levels. With increasing numbers of tourists from developing countries the sector is set to become a major contributor to the African renaissance and growth story through higher standards of living and positive effects on the current account. Very little is understood of the actual contribution of multinational tourism enterprises and whether their investments are directly affecting the much acclaimed story of increasing tourism to African countries. In this paper we aim to contribute to the discussion by investigating links between the tourism figures of African countries and inward FDI in the tourism sector. Although data-sets for African countries are mostly incomplete, at best, the changing dynamics of international data collection allows for the establishment of a baseline comparison between the tourism data of the United Nations Tourism Organisation and the FDI data of Financial Times FDI-Markets databases. We find that, not only, does FDI in tourism positively affect the various tourism categories’ figures but also that the main investors are not the traditional African FDI partners that provides new insights for tourism planners. FDI in tourism is also focused on a narrow band of highly specialized tourist destinations, which allows for highly specialized policy adaptations. These results help to focus FDI policy formulation by African governments and Investment Promotion Strategies, Investment Incentives and Bilateral Investment Agreements between home and host countries as well their respective Investment Promotion Agencies. The results may also help industry to understand the untapped potential for tourism FDI in Africa.

Kafayat Amusa, Can Foreign Aid Enhance Domestic Resource Mobilization Efforts In Nigeria? Abstract: The ambiguous empirical results on the effectiveness of foreign aid in developing countries leaves the door open to exploring other channels through which foreign aid can enhance already on-going domestic growth efforts. Recent literature on domestic resource mobilization (DRM) suggests that utilizing foreign aid in fostering an efficient tax system will ensure sustainable growth and lead to the eventual non reliance on foreign aid. This study examines the role of foreign aid in enhancing DRM in Nigeria with a specific focus on taxation. Taxes play a significant role in any economy as it links the government to citizens through the social contract. Despite numerous reforms, the Nigerian tax system continues to be challenged by structural and administration issues and at the same time, the country remains highly dependent on resource revenues to fund its development goals at the expense of other domestic tax types. This leaves the economy at the mercy of fluctuations in oil prices and other global financial and economic instabilities. Despite misgivings regarding the successes of donor funding in developing countries, it is observed that the donor community can play an effective role in enhancing Nigeria’s ability to mobilize resources domestically through improvements in the country’s tax system. Additionally, an empirical examination into the aid-DRM nexus in Nigeria is carried out. Using GMM estimation technique and separating foreign aid into grants and loans, the study finds support for the provision of loans to enhance tax effort. In addition, the provision of grants is strongly advocated against as this reduces tax effort in Nigeria.

Kwena Matjekana and Tshepo Masipa, An Analysis of Foreign Direct Investment, Exports and Economic Growth in South Africa: Granger-causality Approach Abstract: An Analysis of Foreign Direct Investment, Exports and Economic Growth in South Africa: Granger-causality Approach Abstract Since the dawn of democracy, the South African government has developed and implemented a number of policies which focused on improving economic growth, poverty reduction, reducing budget deficit and increasing exports. Despite the progress made, the struggle against jobless growth and poverty continues. At a time when the country is struggling with such problems, a plan or a policy for a sustainable growth and job creation would be welcomed. In this regard, foreign direct investment (FDI) is considered as one of the most important sources for sustainable growth, increased exports and job creation in developing countries. It is against this background that the paper aims to explore the causal relationship between foreign direct investment, exports and economic growth in South Africa for the period of 20 years, from 1994 to 2014. The paper will attempt to estimate and analyse the pass-through impact of FDI on exports and economic growth. The paper seeks to answer the following questions: does inward FDI translate into growth and increased exports in South Africa? Does the impact of FDI on economic growth and export translate into job creation in South Africa? The findings of the paper will either support or reject the notion of FDI as a main source of growth, increased exports and employment in South Africa for the period reviewed. Informed by the findings, the paper will recommend suggestions that could lead South Africa to a new-growth path. Keywords: Foreign direct investment; exports; economic growth; job creation; South Africa. Authors: KSM Matjekana & TS Masipa Department of Economics University of Limpopo Emails:

Session B10
Industrial and


Pontsho Mathebula, Keabetswe Mojapelo, Yongama Njisane and Ricky Mann, How Competition Policy can contribute towards a more equitable society - A South African perspective Abstract: Excessive inequality is a global phenomenon that not only gives rise to negative economic effects but also many other socio-political imbalances that render the long-term functioning of economies unsustainable. Addressing this phenomenon necessitates a coordinated and multipronged policy effort by government and business alike. In recent times, South Africa has formulated policies centred on the concept of inclusive growth; with the aim to boost economic growth; tackle poverty and inequality; and ensure a greater spread of economic participation by the general populace. One of the policy instruments to achieving such inclusive growth is competition policy, which, this paper argues, can be used to address socio-economic imbalances, such as inequalities in developing economies. To test the hypothesis, we employed a model à la Deaton (1997) to estimate the distributive effects of firms with market power in South Africa using the 2008/2009 Living Conditions Survey household data. The paper finds that the effects of welfare loss associated with monopoly power in South Africa are far greater for low income households than high income households. This confirms the view that competition policy can be used as a policy tool to contribute towards the reduction of poverty and inequality and thus, the achievement of more equitable societies in developing nations.

Lowell Scarr, The rising role of biotechnology: A new wave of innovation Abstract: The time of cheap labour and wholesale chemical usage are drawing to a close. Environmental degradation, cost and health issues are increasingly on the agenda of any sector. Agriculture is no different. Each day consumers become more aware of what they are buying and how it was produced. The long-term health and safety effects of many conventional practices are brought up time and again. This paper seeks to add impetus to the increasing move towards more sustainable and clean production practices. The role of biotechnology as a cost effective and safe production input is investigated. The study uses the example of the biological control of invasive alien plants as a means of illustrating the potential that this emerging sector holds for the domestic and global economy. Particular attention is paid to the safety aspect of this type of input, which is often viewed with caution by the general public. Scientific data on the effects of biological, as opposed to chemical or manual inputs are explored. This includes aspects of cost, health and environmental implications. The use of thoroughly researched and well implemented biotechnology is shown to be a safe and cost effective production input that can result in the development of much less damaging production practices. The potential that this type of input holds for economic growth is discussed, and illustrated to be one of the major areas of future global development.

Helanya Fourie, Lara Granville and Nicola Theron, Regulating for a competitive telecommunications sector Abstract: Technological development and various mergers and acquisitions are changing the South African telecommunications landscape. Convergence is giving rise to new product and service offerings, encouraging operators to invest in different types of infrastructure and services – often through the acquisition of existing service providers. The competitive effects of these transactions on South Africa’s telecommunications market and the related impact that they have on economic growth and employment, are influenced by the regulatory environment that governs the sector. However, the legislative framework that sets out the respective roles of the Competition Commission (CC) and the telecommunications regulator (ICASA) has not always been clear. The SAVA complaint against Telkom for abuse of dominance and Cell C’s complaint against two incumbent MNOs for alleged price discrimination illustrates the importance of a coherent legislative framework for the competition and regulatory authorities. International precedent suggests that certain markets lend themselves to the application of ex ante regulation rather than ex post competition policy. To date, South Africa has only identified a single telecommunications market for ex ante regulation – the market for wholesale call termination. ICASA has however amended the Radio Frequency Spectrum Regulations, providing clarity on the transfer of control of frequency licences – an issue of regulatory uncertainty highlighted by the proposed acquisition of Neotel by Vodacom. Ex ante regulation of spectrum is an important step in streamlining concurrent jurisdiction between the CC and ICASA, and better allows the competition and regulatory authorities to work together to ensure that spectrum (as a national asset) is not placed in the hands of a dominant operator. This paper looks at international and South African precedent to investigate the application of ex ante regulation and ex post competition policy, and its implications for evaluating proposed transactions in South Africa’s telecommunications sector.

Wednesday12:50 - 14:00 Lunch
Wednesday14:00 - 15:20Parallel Sessions C
Session C1
Economics of
Education 2


Derek Yu, Atoko Kasongo and Mariana Moses, Evaluating the performance of the South African economics departments, 2005-2014 Abstract: There are currently only 2 South African studies (Luiz 2004 & 2009) evaluating the performance of the South African economics departments. In both studies, the participants (the heads of the departments) were asked to provide information on gender and rank of the lecturers, class size at each level, as well as publications on the accredited journals, before the participants were asked to subjectively rank the all the economics departments. Our study, taking place 10 years after the merger of some universities, would take a slightly different approach. Instead of asking the participants subjectively rank the departments, this study would collect the information from the departments' publications on the five commonly recognized South African peer-reviewed economics journals (i.e. South African Journal of Economics; Studies in Economics and Econometrics; Development Southern Africa; South African Journal of Economic and Management Sciences; Economic History of Developing Regions), presentation of papers at the biannual Economic South Society of South Africa (ESSA) Conference as well as publication of Economic Research Southern Africa (ERSA) working papers to evaluate each department’s research performance. With regard to teaching activities, information on the courses offered at each level would be collected by consulting the university prospectus/calendar/handbook of each institution.

Leigh Neethling, The determinants of academic outcomes: A competing risks approach Abstract: This study evaluates the determinants of both dropout and degree completion at university. Using discrete-time methods for competing risks event history analysis, we analyse the outcomes for students enrolled at a large South African university. Findings from the study indicate individuals registered for 3-year degrees graduate at higher rates relative to individuals who complete 4-year degrees. Having failed at least one course during the first year of registration does not impact on the duration of studies for those who eventually graduate, but does significantly impact on those who are academically excluded from university. Students from the Science and Engineering faculties are more likely to be academically excluded relative to Commerce and Humanities students. Individuals who are on financial aid are found to graduate at slower rates relative to students with other sources of funding. In contrast, individuals on financial aid exit the system much quicker when exit is based on academic exclusion. Finally, residence-based students also graduate at slower rates relative to students who are not based in residence.

Kgothatso Moerane, Lorraine Greyling and Naiefa Rashied, An analysis of the impact of winter schools on the academic performance of Economics students Abstract: In most Bachelor of Commerce degrees in South Africa, Economics is a compulsory module. Thus, it is important for students to exit fundamental Economics modules with a reasonable understanding of the content. One would expect that a reasonable understanding of the Economics content would lead to good student retention and enhanced individual student success in Economics. Seidman (2005) stipulates that student retention is dependent on the level of at-risk student identification and distinguishes between early, intensive and continuous identification. Van Zyl and Blaauw (2012) and Greyling and De Villiers (2013) proved that early and continuous identification of at-risk students improved both student retention and student success in Economics. The aim of this study is to test whether intensive interventions, in the form of winter schools, improve the success rate of Economics students. The study conducts a descriptive analysis of three cohorts of second year Economics students who participated in an intensive academic intervention, in the form of winter schools, offered by the Department of Economics and Econometrics at the University of Johannesburg. The findings suggest that students who participate in intensive interventions, in the form of winter schools, experience a higher level of student success when compared to students who do not participate in these interventions.

Alicia Fourie and Waldo Krugell, Economic literacy of introductory economic students in South Africa: Is it on track? Abstract: Economic events and economic issues are major concerns worldwide. Leading economies are facing debt crises, recessions and downturns in economic growth. Consumers are confronted daily with increasing food prices, a fluctuating oil price, unemployment and low wages, but despite the attention that has been given to economics in the recent years, economists have found that the public is unfamiliar with economics and basic economic concepts. But how do economists know what the public’s known understanding about economics is? Literature suggests that one should test a consumer’s knowledge about economics, or more specifically, test the level of economic literacy. One way to test for economic literacy in South Africa is by means of the Test of Understanding Economics in South Africa (TUESA). The TUESA was used as a pre-test, testing the economic literacy of introductory economic students at three tertiary institutions in South Africa before any form of instruction took place, and as a post-test determining the economic literacy of introductory economic students after a year’s worth of economic instruction. Results indicated that there are significant differences between the economic literacy scores between gender, race, majors and students who had been enrolled for Gr12 economics in high school. Results from cross tabulations and logistic regression indicated that students who were enrolled for Gr12 economics in high school have a better chance in passing the TUESA than students who were not enrolled for economics in high school. The overall economic literacy levels after a years’ worth of introductory economic tells a different story from the pre-test economic literacy levels but the overall literacy levels seems acceptable.

Session C2


G. Charles-cadogan, Myopic Loss Aversion and Intolerance for Decline in Standard Of Living Abstract: We introduce some new results in behavioural finance with a novel specification of the relative income hypothesis with embedded myopic loss aversion (MLA) to intolerance to decline in standard of living. The model produces a time series of MLA index estimates in contrast to extant survey or experimental economics based approaches. The MLA index estimator is in the domain of attraction of a stable law. So it can generate extreme MLA index values that cannot be replicated in controlled behavioural experiments. This long tailed feature is upheld by the empirical distribution of the MLA index in our sample. A comparative analysis of MLA index estimates from income and consumption data for a developed economy like the US, and an emerging economy like South Africa, show that the MLA index in South Africa is explosive during periods of political uncertainty. Vizly, the Soweto uprising in 1976, P.W. Botha’s hardliner Rubicon speech in 1985, and transition to democracy talks with the ANC in the early 1990s. In non-turbulent epochs the time series of MLA index for South Africa data exhibit mostly gain seeking behaviour with a few years where the index was not statistically different from the median value of 2.25 popularized by behavioural economics. In contrast, for US data, the time series of MLA indexes are more consistent with a median value of 2.25, and less responsive to political uncertainty. It is explosive during periods of financial market instability and natural disasters such as the Black Monday crash of October 1987, Great Recession of 2008, and Hurricane Katrina in 2005. We provide a few remarks on the model’s applicability to subjective well-being and happiness, and estimating a time series of loss aversion indexes for damages from climate change.

Co-pierre Georg and Christoph Aymanns, Trading in Coupled Financial Networks Abstract: We develop a model of the financial system in which financial intermediaries are comprised of business units specialized in trading different types of assets. Assets are intermediated from sellers to buyers via exogenously fixed trading networks. The novelty of our model is that we allow intra-institutional spill-overs. The failure of one business unit exerts an externality on other business units of the same bank and couples trading networks for different assets. We study the resilience of such a system to exogenous random shocks. When there is only one type of asset the transition from a regime in which all banks intermediate to a regime in which intermediation breaks down is continuous in the size of the exogenous shock. When there are multiple types of assets, however, this break-down of intermediation occurs not only at smaller shock sizes, it happens abrupt. %Scale-free networks are more robust than random networks in the case of only one type of asset, but less robust when there are multiple types. The abrupt break-down of intermediation is weaker when trading networks are correlated. If, however, an uncorrelated trading network is coupled with multiple coupled and correlated trading networks, the abrupt break-down of intermediation occurs for even smaller shock-sizes.\\

Session C3
Water & Energy
Prices and
Policy 1


Roula Inglesi-lotz, Social rate of return to R&D on various energy technologies: where should we invest more? A study of IEA countries Abstract: The severity of investment in Research and Development (R&D) in the energy sector is undisputable especially considering the benefits of new technologies to sustainability, security and environmental protection. However, the nature and potential of various energy technologies that are capable to improve the energy and environmental conditions globally is a challenging task for governments and policy makers that have to make decisions on the allocation of funds in R&D. To do so, the optimal resource allocation to R&D should be determined by estimating the social rate of return for R&D investments. This paper aims to estimate the social rate of return of R&D on energy for a group of International Energy Agency (IEA) countries (subject to data availability) by using panel data estimations (primarily fixed effects). Although, Coderi and Cynthia Lin (2011) looked at total R&D expenditures in a specific country, this paper’s innovation will be the separation of R&D expenditures to different types of technology such as energy efficiency; fossil fuels; renewable energy sources; nuclear; cross-cutting technologies/research and total budget. As used mostly in the literature, we will quantify the impact of lagged R&D intensity to TFP of the countries. Energy R&D Data will be derived from the IEA databases while economic data will be provided primarily by the OECD STAN database. All in all, this paper’s purpose is to identify which of these energy technologies yield a higher social rate of return of R&D and make important policy recommendations.

Martine Visser and Alex Child, The Announcement Effect & Climate Thresholds: Early Warnings of Future Thresholds under different framing and risk contexts Abstract: The effect of announcing future institutional change is investigated in three different contexts: a gains frame, a loss frame, and a loss frame with risk. The institutional change considered here is the transition from a normal public goods game into a threshold public goods game framed in the context of dangerous climate change. Announcements may change subject behaviour, through influencing their expectations, before the implementation of the new institution (adjustment effect) and/or after the implementation (adaptation effect). We find that announcements in the Gains Treatment cause zero adjustment effects and negative adaptation effects. Announcements in the Loss Treatment cause significant positive adjustment and adaptation effects. Including risk into the threshold phase of the Loss&Risk Treatment causes the announcements to have zero effects. These results have important implications for early warnings and accurate forecasts related to climate change.

Emily Ikhide and Charles Adjasi, Renewable And Non-Renewable Energy Consumption and Economic Growth: The Case Study of Nigeria Abstract: Despite her rich energy resource endowment, Nigeria remains one of the poorest countries in the Sub-Saharan African region. This has largely emanated from improper use of its natural resource endowment, particularly fossil energy. The consequence is that depletion of fossil fuel energy, fluctuations in oil prices and increases in energy demand constitutes an important development challenge for the country. Evidence on the direction of causality between energy consumption and economic growth has remained inconclusive. Some researchers have found a unidirectional causality running from economic growth to energy consumption (Ozturk 2010a and Odhiambo, 2009), others have found bidirectional relationship between energy consumption and growth (Ramakrishna, and Rena, 2013). Yet others found no real effect of energy consumption on economic growth (Ozturk 2010b). Besides, most studies have concentrated mainly on Asia and Latin America while few have considered Sub-Saharan African countries, particularly Nigeria. Also, most studies on Sub-Saharan Africa have used majorly panel data analysis, which has the defect of not been well placed to provide detailed analysis of country-specific issues. Apparently, the paucity of researches on energy consumption – growth nexus in Nigeria constitutes an important gap that needs to be filled. In this study therefore, we employ annual time series data, sourced from World Bank World development Indicators from the period of 1971 to 2013, and an Autoregressive Distributed Lag (ARDL)-bounds testing approach by (Pesaran et al. 2001) to investigate the causal relationship between consumption of renewable and non-renewable energy and economic growth in Nigeria. The study expects to extend our knowledge in two main areas: it (1) expands our understanding of the causal links between energy consumption and economic growth in Nigeria, and (2) creates the climate for effective policies on inclusive energy consumption and economic growth in the country.

Olalekan Bashir Aworinde, Are Energy Consumption and GDP Per Capita Asymmetric? Empirical Evidence from Nigeria Abstract: The paper examines the causal relationship between energy consumption and GDP per capita in Nigeria. The kernel of this paper is the use of a newly developed asymmetric causality test of Hatemi-J (2012) that separates the causal impact of positive shocks from negative shocks. The results of standard symmetric causality tests show that there is no causal relationship between energy consumption and GDP per capita. However, the results of asymmetric causality tests show that positive shocks in GDP per capita cause positive shocks in energy consumption. This implies that if GDP per capita increases, then energy usage per capita will also increase. The implication of this result in Nigeria is that it is possible to implement energy conservation policies with little adverse or no effects on economic growth.

Session C4
Monetary Policy


Kevin Kotze, Mehmet Balcilar and Rangan Gupta, Markov-Switching in an Estimated Small Open-Economy Dynamic Stochastic General Equilibrium Model for South Africa Abstract: The aim of this paper is to investigate structural changes in the South African economy using an estimated small open-economy dynamic stochastic general equilibrium (DSGE) model. The structure of the model follows recent work in this area and incorporates the expectations of agents and a number of shocks that are assumed to affect the economy at various points in time. In addition, the dynamic linkages between the respective variables in the model may be explained in terms of the microfoundations that characterise the behaviour of firms, households and the central bank. After estimating the model, we allow for the parameters in a number of different structural equations to change periodically over time. Different versions of the model are assessed using various statistical criteria to identify the model that is able to explain the changing dynamics in the South African economy. One of the interesting findings of this analysis is that we find that while the central bank policy rule appears to have changed following the introduction of the inflation-targeting framework, the change in the parameters that describe the central bank reaction function are relatively small.

Angelique Gugulethu Nindi, SADC Monetary Unification: An Empirical Investigation of Demand and Supply Shocks Abstract: The SADC countries aim to establish a monetary union with a common currency in the near future. However, as observed with the Eurozone sovereign debt crisis that began in 2009, monetary unification among economies with different structural characteristics can result in the occurrence of sovereign debt crises should the union be faced with external shocks much like the 2007-08 global financial crises. The optimum currency area (OCA) theory provides criteria, which when present in member states prior to unification, would minimise the costs of monetary unification. The OCA theory describes the ‘similarity in shocks and business cycles’ criterion as the “meta-property” that captures the interaction between several OCA criteria. The premise is that, if the incidence of supply and demand shocks and the speed with which individual economies adjust are similar across member states, then the countries are likely to experience minimal costs of unification. It is in this light that the study makes use of the aggregate demand-aggregate supply (AD-AS) framework to decompose output and price shocks into permanent and temporary shocks in the SADC countries. The AD-AS framework assumes that a positive, permanent demand shock results in a temporary increase in output and a permanent rise in prices. On the other hand, the model assumes that a positive, permanent supply shock results in a permanent increase in output, which is accompanied by a reduction in prices. A VAR system is thus used to decompose output and price shocks in the SADC countries for the period 1980-2014 to analyse the nature of the responses of the member states to shocks.

Yashvir Algu and Kenneth Creamer, A macroeconomic trilemma or dilemma? Evaluating South Africa’s open economy Abstract: In light of the theory of the macroeconomic trilemma, South Africa (SA) is able to maintain a high degree of monetary independence despite the country relaxing controls on international capital flows. Although, in terms of an alternative theory dubbed the macroeconomic dilemma, SA would only be able to maintain high monetary independence by implementing further controls on international capital flows. Both competing theories are empirically tested to determine which best describes SA's monetary policy stance. The theory of the trilemma is tested by constructing indexes developed by Aizenman, Chinn and Ito (2008) and looks at Sa’s interest rate and exchange rate movements in accordance with those of major economies in the world. The theory of the dilemma is tested by estimating a vector autoregressive (VAR) model of SA’s capital inflows, exchange rate fluctuations and interest rate changes. The empirical findings show little evidence that the dilemma theory is applicable in SA, although, there is empirical support for the trilemma theory. While literature suggests that an accumulation of foreign reserves can dampen the effects of a trilemma, the empirical results reveal that, in SA, the accumulation of foreign reserves has not played a significant role in dampening the trilemma trade-off. However, one empirical puzzle revealed by the study is that despite the applicability of the trilemma theory, SA’s degree of monetary independence has fallen during the 2000-2014 inflation targeting period. This is shown by SA’s monetary policy more closely following an international interest rate cycle during this period. A possible explanation, which is an area for further research, is that the relaxing of international capital flows in 1995 resulted in SA facing common business cycles and shocks with major economies in the world, thereby, resulting in the country’s monetary independence index being underestimated.

Tobias Knedlik, Lenders of last resort in monetary unions: the cases of the euro area and CMA Abstract: The global financial crisis and regional follow-ups led to renewed attention towards the last resort lending function of central banks. Whilst the South African Reserve Bank considers last resort lending as one of its main responsibilities, derived from its mandate for financial stability, the European Central Bank does not mention last resort lending as a responsibility. The aim of financial stability is largely ignored by its statutes. The paper analyses the institutional framework for last resort lending in EU and CMA. The paper sets the institutional setting against the requirements for effective last resort lending. It then empirically evaluates the presence of last resort lending during recent crisis episodes. The effectiveness of last resort lending is compared and reform proposal given for both of the jurisdictions.

Session C5


Stan du Plessis and Jannie Rossouw, The SARB’s pioneering experiment in nominal income targeting Abstract: The South African Reserve Bank (SARB) adopted a formal nominal anchor - in the form of a target range for broad money growth (M3) - on the recommendation of the De Kock Commission (1985). The episode is well known and regarded as one more example of the failure of broad money growth targets as an anchor for monetary policy. Here, as elsewhere, broad money targets proved impractical as a guide for the stance of monetary policy and were abandoned when Dr. Stals assumed the Governorship in August 1989. But the actual experiment was more interesting. In this paper we show that the SARB implemented the first nominal income target in international experience instead of a broad money target from 1986 to 1989. When the SARB’s target is understood as a nominal income target for this period, the evaluation of monetary policy from 1986 to 1989 is also more positive than previously held. We use evidence from SARB policy reports, from the De Kock Commission’s report and the academic literature of the late seventies and eighties to show that the implementation of a nominal income target was a deliberate policy choice, not an ex post rationalization of failure with broad money targets. Macroeconomic data from the period is used to evaluate the nominal income target relative to the goals of: (i) successful disinflation, (ii) the stabilisation of output and inflation and (iii) transparency and accountability The paper’s contribution is three-fold: First, It provides a new interpretation of an important period in the history of monetary policy in South Africa. Second, the evaluation of the period’s monetary policy is more favourable (especially given the economic and political background) than usually presented. Third, the paper provides a unique evaluation of a hitherto untested nominal anchor which has lately returned to the policy agenda.

John Hart, Is a value-free economics possible or desirable? Abstract: It appears that the majority of today’s mainstream economists hold the view that, provided the positive-normative distinction is upheld in economics and they focus on the analysis of large data sets, they are engaging in essentially completely value-free scientific economic research. However, in the last decade or so following Hausman and McPherson, the relationship between science and ethics, values and ideological bias has become the subject of renewed methodological discussion. The paper draws on this literature, and the issues it raises, in attempting to answer the question of whether a value-free economics is possible or desirable. Accordingly, the first section begins with the standard textbook and early methodological accounts of the positive-normative distinction and then turns to the recent literature concerning the difficulties involved in trying to uphold the mainstream view of economics as a value-free science. The second section takes up a particular response to this literature. This response emerges from a post-Quinean naturalistic perspective on science and appears to represent a post-positivist defence of the mainstream economics view. The third section follows Mongin in arguing that both extreme views -- that economics is either completely value-free or completely value-laden -- are claims that are difficult to sustain. It seems more reasonable to accept that value judgments do indeed enter into economics, but that this need not have particularly serious consequences for the value-free scientific status of economics. The final section questions this seemingly reasonable conclusion. One of the underlying assumptions of this conclusion is that it is possible to distinguish facts from values. However, if we accept the argument (e.g. Putnam and Walsh) that judgments of fact are ‘entangled’ with judgments of value, then this implies that an essentially value-free scientific economics is neither possible nor desirable.

James Fairburn, Welfare Economics Then and Now Abstract: This paper examines the position of welfare economics in contemporary microeconomics. More specifically it considers the extent to which the subject matter of Graaff’s Theoretical Welfare Economics (1957, Cambridge University Press) continues to have relevance today. Three main themes are explored. First, how has the subject matter of welfare economics changed in the intervening period? Second, how has welfare economics responded to the increasing econometric orientation of the discipline? Third, to what extent has welfare economics been displaced by the broadening of microeconomics to include strategic interactions?

Session C6
Economic Growth


Nonso Obikili, The Relationship between Educational Attainment and Growth at the sub-National Level. Abstract: Various studies have sought to examine the impact of educational attainment on economic growth. These studies typically use cross country measures of educational attainment and economic growth to examine such impacts. This is mostly because statistics on conventional measures of economic activity and growth are usually only available at the country level. The use of country level measures however have may lead to estimates that are not very accurate. Economic activity within many countries is not equally distributed. As shown by Obikili (forthcoming), economic activity and growth within countries can be vary. The story is similar in terms of the distribution of educational attainment within countries. Within many African countries there are significant variations in educational attainment within the country due to historical factors. The implication is that cross-country estimates of the relationship between educational attainment and economic growth do not capture within country relationships and might there misstate the relationship. In this paper I estimate the relationship between educational and economic growth in Africa at the sub-national level. I use data from the Demographic and Health surveys to create a sub-national measure of education attainment and change in educational attainment over time. I also use satellite data on night lights to measure sub-national economic activity and growth. Combining these two sub-national measures allows me to get a finer estimate for the relationship between educational attainment and growth. Finally I use the historical distribution of Christian missions as an instrument to properly estimate the causal relationship.

Alain Kabundi, Franz Ruch and Elmarie Nel, Nowcasting GDP growth in South Africa Abstract: This paper forecasts GDP growth in South Africa in a data-rich environment. The study covers quarter data from 1990Q1 to 2015Q2. Large Bayesian vector autoregressive (VAR) and Factor models outperform small-scale models. In addition, the performance of large-scale models is comparable to that of Nowcasting model for GDP growth, even though the latter approach benefits from information flow within the quarter. The news analysis indicates the importance of soft data in forecasting both variables, providing a comprehensive framework which distinguishes the drivers and their respective impact on the key variable. In addition, the findings point to the relevance of Nowcasting models relative to traditional econometrics models in forecasting the present and the near future.

Monaheng Seleteng and Sephooko Motelle, Sources of Economic Growth in the Southern African Development Community: Its likely Impact on Poverty and Employment Abstract: As a means to combat poverty, many countries still pursue high and stable rates of economic growth. There are several sources of economic growth such as physical capital accumulation, human capital development and technological progress. In order to attain sustained economic growth, it is crucial that countries do not only accumulate a certain stock of factors of production, but demonstrates the ability to combine such factors in a manner that is efficient. The Southern African Development Community (SADC) continues to pursue high and stable economic growth as a way of fighting poverty and inequality. This study attempts to investigate the key sources of economic growth in the SADC region using different panel data techniques, namely; fixed effects, generalized methods of moments, and seemingly unrelated regression estimators and make inference on poverty and employment. The findings reveal that the factors affecting economic growth in the region are: inflation, government expenditures, openness to trade, human capital, level of financial development, and political stability. Furthermore, it can be inferred from the analysis that higher growth rate has a positive impact on employment and hence may lead to poverty reduction.

Asanda Fotoyi and Ronney Ncwadi, Assessing the efficiency of South Africa’s preliminary quarterly GDP announcements Abstract: Macroeconomic variables, such as GDP, often influence economic decisions by policy makers, market participants and econometricians i.e. policy recommendations, evaluation and forecasting. However these decisions are often based on preliminary data announcements by statistical agencies. The question then is, whether the preliminary announcements should be relied on as unbiased or, perhaps efficient. This paper seeks to answer this question with regards to South Africa’s preliminary quarterly GDP announcements. Efficiency, in this sense, is defined by Mckenzie, Tosetto and Fixler (2008) as to say that the statistical agency ensures all available information at a particular time is being used in the most efficient way to compile an estimate of a macroeconomic variable. The paper thus aims to qualify the degree of confidence to be attributed to interpretations of the course of the indicator and thus the expected reliability of existing and future announcements. According to Mckenzie et al (2008), Aruoba (2008), Garratt and Vahey (2006), Faust, Rogers and Wright (2005), and Sleeman (2005) having efficiently derived preliminary estimates implies that revisions are due solely to the incorporation of new information rather than the correction of errors; revisions are unpredictable using the information set at the time of the initial announcement; initial estimates is an unbiased measures of the final estimate. To answer the proposed question the paper therefore examines the relationship between the revised data and the preliminary data using an Ordinary Least Squares econometric model.

Session C7
Economics of
the Household 1


Manoel Bittencourt, Evidence on Primary Education and Fertility Rates from Southern Africa Abstract: I study whether primary school completion rates have played any role on total fertility rates in all fifteen countries of the Southern African Development Community (SADC) between 1980 and 2009. The evidence, based on panel time-series data and analysis (I use the Pooled OLS, Fixed Effects and Fixed Effects with Instrumental Variables estimators to deal with statistical endogeneity, heterogeneity and reverse causality in thin panels), suggests that primary education has reduced fertility in the SADC, or that the community is already trading-off quantity for quality of children. The evidence is significant because lower fertility, caused by education, implies more capital per worker, higher productivity and higher growth rates, and even more significantly because---in accordance with unified growth theory---it suggests that the SADC is experiencing its own transition from the Malthusian epoch into sustained growth.

Sevias Guvuriro and Frikkie Booysen, Family Public Goods and Intra-Household Decision-Making by South African Couples Abstract: Intra-household decision-making and its link to welfare outcomes of families is a fundamental development issue. This is particularly so for the less privileged households in developing countries. The current study aims to: (i) examine different sources of financial bargaining power within couples and (ii) examine whether financial bargaining power from different sources has differential impacts on household expenditure on family public goods. The South African National Income Dynamic Study (NIDS) data offer a direct measure of financial decision making responsibility by asking a question about who makes decisions about day-to-day household expenditures. The probit and multinomial probit models are used to establish key economic and non-economic determinants of decision-making power. The OLS models are in turn applied to determine the extent to which financial bargaining power and decision making power influence family public goods expenditure. The issues addressed here have considerable theoretical and policy relevance. If differences in bargaining power influence the expenditure outcomes, then the unitary model is discarded, paving way for the contemporary intra-household models. On the policy front, the influence of bargaining power emphasises the significance of gender empowerment and informs the targeting of social assistance. The South African evidence suggests that financial bargaining power originates from a wider context of financial, economic and social factors. Furthermore, the results do not support resource pooling, show the influence of marriage heterogamy, and highlights the importance of gender-based development policies.

Frederik Booysen, Celeste Campher, Tshepo Moloi and Alistair Munro, Social Discounting and the Family: Evidence from a Laboratory Experiment Abstract: Simon (1995) incorporates altruism into the utility function using the notion of interpersonal or social distance. The Social Discounting Task (SDT) is employed as a corresponding measure of altruism and used to estimate a social discounting function. This paper investigates the extent to which social discounting is associated with dimensions of family psychology, including family functioning, cohesion and well-being as well as inter-generational solidarity. A conventional laboratory experiment was conducted with a total of forty-six under-graduate students. Ethical clearance for the study was obtained from the institutional review board of the Faculty of Humanities. A pencil and paper instrument was administered to study participants. Subjects received a show-up fee of R30 and completed a standard Social Discounting Task (SDT) together with a post-experimental questionnaire. The post-experimental questionnaire in addition to basic socio-demographics included the “Family Adaptability and Cohesion Evaluation Scales” (FACES IV) as well as information on the relation to the subject of the person at the relevant social distance and selected dimensions of inter-generational solidarity. At the completion of the experiment, a random incentive system (RIS) was used to calculate subjects’ earnings. Median cross-over points were determined and corresponding social discounting functions estimated for different types of households exhibiting diverse family psychologies. Findings suggest that altruism is greater in balanced families. Behaviours reliant on altruism can be supported by ensuring through family policy that families are healthy and well functioning.

Session C8
& Spatial
Issues 2


Bruce Rhodes and Tamlyn McKenzie, Understanding the socio-economic factors associated with water services and sanitation in South Africa Abstract: Despite notable progress in the provision of water services and sanitation (WSS) in South Africa considerable gaps remain. It is publically acknowledged that South Africa has recently met is Millennium Development Goals halving water and sanitation backlogs. 40.7% of households that had access to piped water inside their homes as the main source of supply in 2002 has only risen to 41.5% by 2010. Furthermore over the same time period, the number of households using boreholes as their main source had risen. WSS is unevenly distributed across provinces and by socio-economic status. This paper seeks to examine and identify those socio-economic factors that may predict poor WSS provision in South Africa. Established definitions of safe and unsafe water and differing levels of sanitation are employed. Using the 2013 South African General Household Survey (GHS), socio-economic variables and WSS availability were analysed. As well as descriptive statistics, probit regressions determined the likelihood of safe water and sanitation access based on household socio-economic status. It is evident that access to WSS is largely determined by province, race and rural-urban location and appears that higher quality levels of sanitation are less accessible relative to higher quality levels of (piped) water. Clearly identifying these socio-economic predictors of WSS provides obvious policy direction and better targeted water infrastructural development.

Bevuya Banele Mdlankomo and Etiyel Chibira, The role of Truck Stops facilities in combating road freight fatalities along the North South Corridor Abstract: On the international level South Africa is regularly singled out as one of the worst performing countries in the world as far as road safety is concerned, including the African continent. The 2011 RSA rate of 27.58 compared to the 24.1 deaths per 100 000 population of the African region, which is also the highest of all the world regions. Each year the number of deaths and disabilities due to road accidents escalates and empirical evidence postulates that 25% of those falling asleep behind the wheel are heavy-vehicle drivers in South Africa. The paper primarily analyses the role of truck stops along the North South Corridor and how such facilities can be employed as a panacea towards responding to the swelling road freight fatalities and providing resting facilities for fatigue truck drivers. At present, drivers have to utilize unsafe areas such as highway shoulders that have the potential to create road fatalities, furthermore such unsafe areas subject truckers to theft of cargo which ultimately increase the cost of doing business. The paper is based on a research conducted by the C-BRTA and completed in 2013. In delivering the study, qualitative and quantitative research methods were employed. It was concluded that the establishment of truck stops can contribute significantly to enhancing road safety whilst also discouraging truckers from utilizing often hazardous exit ramps of freeways. The paper recommends interventions that include the promotion of additional truck stops at strategic nodes of the North South Corridor, establishing truck stops in close proximity with each other such that they are able to play a strategic role in minimizing fatigue-related crashes and finally the promotion of safe features at truck stops with the view to encourage drivers to use such facilities.

Sanele Gumede and Mihalis Chasomeris, South Africa’s Port Pricing Methodology and Financing Investments Abstract: This paper critiques the port pricing methodology, the required revenue (RR) model, and recommends possible enhancements to South Africa’s port pricing model. As a developmental state, South Africa have committed to massive infrastructure investments in which State-Owned Entities (SOE) are the custodians. SOE - Transnet National Ports Authority (TNPA) uses RR model to recover port investments, all port costs and to make profit. Both TNPA and the Ports Regulator agree that RR method is not designed for ports, however, with the absent of the better method it is used. RR does not provide any incentive to reduce costs and, or to improve productivity. Furthermore the current RR assumes zero debt beta (βd) and equate TNPA’s asset beta (βa) to the Queensland’s Competition Authority, 0.5, which faces different market environment to TNPA. The interviews and personal communications are conducted with the TNPA, Ports Regulator and the industry stakeholders. Furthermore this paper uses content analysis of the stakeholder submissions on port pricing, submitted from 2009 to 2014. A price capping model has the potential to encourage TNPA to reduce costs and improve productivity. The recovery of port infrastructure investment can be spread across the useful life of such infrastructure in order to reduce costs. TNPA can continue to use capital asset pricing method to measure the return on equity, however a slightly lower βa should be used and βd should be considered.

Gift Dafuleya, A Model of Geographically Stretched Households Applied to the Second Largest City in Zimbabwe Abstract: This article evaluates households with migrants who maintain close relations and economic ties with members at the household of origin. Referring to these households as geographically stretched, this article first presents a model to generalise this phenomenon and then apply it to Bulawayo, the second largest city of Zimbabwe. This model extends the standard household model by including migrant altruism and remittances into the cash income constraint of the household at origin. The data used to test the implications of the model is drawn from a household survey conducted by the author in three high-density suburbs of Bulawayo between March and July 2014. Almost each household has a migrant who remits cash, goods, or both in Bulawayo. The analysis first implement logit and probit regressions to determine the characteristics of migrants who remit either cash or goods and then employs data on cash remittances and the total income at household of origin to test if remittances are pooled with total income at household of origin. The first analysis shows that the probability of remitting goods is high the larger the household size, but low for cash remittances. The second analysis demonstrate that the pooling of migrant remittances and total income at the household of origin depends on the nature of expenditures and the migrant demographic characteristics, but largely support the model. The findings challenge the idea that a household is composed of co-residents and suggest that migration may be an effective social protection strategy to overcome income constraints at the household of origin.

Session C9
Markets 1


Mehmet Balcilar, Rangan Gupta and Stelios Bekiros, The Role of News-Based Uncertainty Indices in Predicting Oil Markets: A Hybrid Nonparametric Quantile Causality Method Abstract: We emphasize the role of news-based economic policy and equity market uncertainty indices as robust drivers of oil price fluctuations. In that, we utilize a new hybrid nonparametric quantile causality methodology in order to investigate whether EPU and EMU uncertainty measures incorporate critical predictability for oil market returns and volatility. The causality-in-quantile approach employed in our study presents with the following novelties: firstly, it is robust to misspecification errors as it detects the underlying dependence structure between the examined time series; this could prove to be particularly important, as it is well known that high-frequency data display nonlinear dynamics. Secondly, via our methodology we test for causality that may exist in the tails of the joint distribution of the variables, thus not only for causality-in-mean (1st moment). Also we investigate causality-in-variance thereby volatility spillovers, as some times when causality in the conditional mean may not exist, yet higher order interdependencies emerge. We empirically investigate the ability of EPU and EMU in predicting oil returns and their volatility over various quantiles, using data spanning the period 2nd January, 1986 to 8th December, 2014. The start and end dates of the sample are purely driven by data availability. Based on daily WTI oil returns and the EPU and EMU indices, we found that for the period January 1986 till December 2014 both measures present strong predictability over the entire distribution of oil returns around the median, yet more importantly for volatility the predictability covers the entire distribution except minor divergences in the tails. Consequently, uncertainty variables are likely to predict returns under turbulent oil markets, whilst volatility presents further forecastability in “normal” periods as well. It seems that an inherent heterogeneity is observed leading to an asymmetric pattern over the distribution of oil returns and its volatility with respect to uncertainty predictability.

Y. Modeste Some, Time - Varying Volatility and Risk Premia in General Equilibrium Abstract: This paper offers insight on the link between the nominal bond interest rates, risk premia, and economic uncertainty shocks. The analysis is carried out using a New keynesian dynamic stochastic general equilibrium (DSGE) model with recursive preferences and stochastic volatility (SV). It is shown that up to a third-order approximation, stochastic volatility has a …rst order effect on the level as well as the dynamics of risk premia. Moreover, stochastic volatility induces a process for the decision rules which is similar to the Autoregressive. The model is estimated by Simulated Method of Moments (SMM) using U.S. quarterly data. At the the SMM estimates, results show that bonds risk premia are mainly driven by the levels of technology and preferences shocks compared to the level monetary policy shock. Similarly, monetary policy shock conditional volatility has a negligible contribution to bond risk premia means and variances. On the other hand, productivity and preferences shocks conditional volatility have large effects on the term structure of interest rates and risk premia. Conditional Heteroscedasticity in Mean (ARCH - M) process introduced in Engle, Lilien and Robins (1987).

Nico Katzke, Willem van Lill and Albertus van Niekerk, The information content of implied volatility: Evidence from South Africa Abstract: This paper examines the information content of different measures of ex ante future market volatility implicit in the price of call options. Investors place great value on the ability to accurately predict stock market volatility. It enables them to foresee risks and allows for the implementation of appropriate hedging strategies. Accordingly, a vast literature attempts to accurately forecast volatility. Different models that have subsequently been developed include generalized autoregressive conditional heteroscedasticity (GARCH) type models, stochastic volatility models and realised volatility models, which rely on historical stock price data to forecast future volatility. However, another part of the literature relies on the informational content of stock options in predicting volatility. This entails using implied volatility (derived from asset pricing models) as a forecast of future volatility. Much of the recent research on the information content of implied volatilities employ a statistical technique that permits asset returns to vary over time according to a GARCH model. We examine the predictive content of different implied volatility measures for South Africa by adding them to the GARCH models as exogenous variables. Specifically, we use two domestic measures, implied volatility (IV) and the South African Volatility Index (SAVI), as well as a proxy for global volatility, the Chicago Board Options Exchange’s Volatility Index (VIX). In addition to the GARCH model, we use a GJR-GARCH model, which takes asymmetries into account. Through constructing a nested model, we can statistically verify whether implied volatility is an important determinant of realized volatility. This also gives an indication of the efficiency of the South African options market.

Cobus Vermeulen, Fanie Joubert, Jannie Rossouw and Adél Bosch, Can currency in circulation predict South African economic activity? Abstract: The money supply can be broadly defined as consisting of currency and deposits. While currency forms but a small portion of the total money supply, it can be a crucial determinant of spending behaviour and subsequently economic activity. The ability of the money supply to predict an up- or downswing in economic activity, as measured by a positive or negative output gap, is evaluated over a sample period 1980 – 2012. Two models are estimated, one using only the currency component and a second using the total money supply (M3). It is found that the growth rate of real currency in circulation is reasonably accurate in predicting economic activity 6 months ahead, whereas the total money supply can predict economic activity up to 9 months ahead. It is concluded that currency in circulation can be a valuable additional source of information to policymakers and can complement other approaches of forecasting economic activity.

Session C10
New data, new
insights: Micro
data based
analysis of
firms and
using SARS


Nicola Viegi, Biniam Bedasso, Johannes Fedderke and Nonso Obikili, Mark-ups and Competitiveness of the South African economy: a firm level analysis Abstract: We use South Africa Revenue Service firm level administrative data to further examine two issues which have importance in understanding the patterns of economic growth and structural change in the South African economy. Firstly we use the richness of the data to analyse the level of mark-up over marginal costs prevalent in the South African economy, its inter-sectoral distribution and its intra sectoral heterogeneity. This analysis allows how to rationalize the wide set of results present in the South African literature. Secondly we analyse how the distribution of mark-ups affect the dynamic of entry and exit of firms, thus giving a contribution of understanding the patterns of structural change of the South African economy and the relations between market structure, competitive pressures and economic growth. The paper forms part of the session on SARS firm level administrative data

Lawrence Edwards, Marco Sanfilippo and Asha Sundaram, Intermediate Inputs and Export Growth: Evidence from South Africa Abstract: This study exploits a rich and unique transaction-level database on import and export transactions by South African firms between 2009 and 2013 to analyze the relationship between access to imported intermediate inputs and firm exports. We explore the link between improved access to foreign intermediate inputs and the likelihood of exporting, survival in foreign markets and the diversity of exports, focusing particularly on the variety and quality of products exported and the range of destination markets serviced. We highlight the complementarity between imports and exports, and argue that access to a wider variety of inputs at lower costs can boost firm exports, thereby contributing to employment generation, economic growth and dynamism.

Neil Rankin, Marianne Matthee, Tasha Naughtin and Carli Bezuidenhou, Extensive and intensive margins of exporting and productivity amongst South African firms Abstract: Submitted for SARS data session. Existing literature on South African exporters finds that exporting in South Africa is rare, concentrated, and that exporters and non-exporters have different characteristics. However, much of the existing research on South African firms is based on small samples. Our paper forms part of a project initiated by UNU-WIDER and National Treasury to utilise SARS data with the aim of updating existing firm-level research in South Africa. We focusing on exporters and document the behaviour of exports at a micro-level and the dynamics of exporting at the extensive and intensive margin over time. To do this we link company income tax data, employee data and transaction data. Our results show that exporters are different to non-exporters across a number of dimensions – they are larger in terms of output and employment, are more capital intensive and they pay higher wages. However, we find no evidence of a premium in terms of total factor productivity. In addition to examining these difference in levels we use the transaction data to investigate the presence of multiple product exporters and how exporting evolves with time. In particular we distinguish between the contribution of the intensive margin (the same exporter exporting more), and the intensive margin (new exporters, new destinations or new products exported). The data also allows us to investigate export expansion paths – we can examine whether export of new products is more common than entry into new markets, and how these may differ by export destination and types of product. Lastly, we are able to investigate whether multi-product exporting firms have different characteristics in terms of size, capital-intensity, wages and productivity compared to other exporters and how this may change as firms increase the number of products exported or destinations exported to.

Andrew Kerr and Martin Wittenberg, Estimating worker and job flows using South African Revenue Service administrative data Abstract: In this paper we estimate rates of gross worker flows and gross job flows using South African Revenue Service firm level data, shedding light on labour reallocation and the policy environment in which South African firms operate. This research is important because although South Africa’s unemployment problem is well known, labour demand and labour reallocation are not well understood at all. The main reason for this is because to undertake analysis of these issues researchers requires access to firm level panel data and this type of data has been extremely scarce up until this point in South Africa. There are a number of important policy relevant questions that we can answer by an analysis of job and worker flows. Understanding which types of firms are creating employment and which are not helps to shed light on what regulations are working and which are not, and why it may be that South Africa has far fewer small firms than comparator economies. Low levels of job and worker flows can indicate a rigid labour market so estimating how high these flows are deepens our understanding of whether labour market regulations are constraining firm growth. We have accessed the data and begun our data analysis – this will continue until we present the work at ESSA.

Wednesday15:30 - 16:50Parallel Sessions D
Session D1
Economics of
the Household 2


Carolyn Chisadza and Manoel Bittencourt, Education and Fertility: Panel Evidence from sub-Saharan Africa Abstract: We study the post-independence demographic transition of sub-Saharan African countries using the unified growth theory. This theory advances that, because of higher demand for human capital and higher education returns, the child quantity-quality trade-off takes place and it results eventually in the demographic transition from high to low fertility rates and sustained economic growth. We study the effects of different levels of education on fertility rates in 48 countries between 1970 and 2010. The results, based on panel data analysis with fixed effects and instrumental variables, suggest that higher education levels have a negative and significant effect on the fertility rates compared to lower levels of education. These results, according to the unified growth theory, indicate that the region is transitioning from the Malthusian stagnation epoch to a modern growth regime in which people replace quantity with quality of children. Lower fertility also implies higher human capital and higher productivity which can lead to sustained economic growth as witnessed in most developed regions today.

Ramaele Moshoeshoe, Birth Order and Educational Attainment: Evidence from Lesotho Abstract: In this paper, I examine the eff ect of birth order on educational attainment in Lesotho. Using family fixed eff ects models, I fi nd robust negative birth order eff ects on educational attainment and child labour. The birth order estimates on educational attainment are in sharp contrast with the evidence from many other developing countries, but are in line with the evidence from developed countries. I further fi nd that these birth order e ffects are pronounced in large families, and families with fi rst-born girls, which suggests presence of girls' education preferences. Turning to potential pathways of these eff ects, I fi nd that they are not propagated through family wealth, but mainly through birth-spacing. These results are robust to diff erent sample restrictions.

Ferdi Botha, Frikkie Booysen and Edwin Wouters, Family functioning in South African families: The role of socioeconomic status Abstract: The importance of healthy family relationships for individual well-being is widely accepted. Improvements in the ways that families function thus serve to positively enhance the lives of individuals within such families. The principal focus of this paper is on the concept of family functioning, which is broadly defined as a multidimensional relational process by which family members interact and provide emotional support. One important element for family functioning is socioeconomic status (SES). Ecological theory states that a family’s socioeconomic context is determined by macro-systemic factors, thereby influencing individuals’ perceptions of family functioning. Within this context, there are two perspectives at play regarding the association between family functioning and SES, namely the social causation perspective and the social selection perspective. The former asserts that social conditions influence family well-being and functioning, while the latter assumes that individual personality traits and characters influence the family’s SES. This paper uses data from the 2011 and 2012 South African Social Attitudes Surveys (SASAS). The Family Attachment and Changeability Index (FACI-8) is used as measure of family functioning, whereas SES is viewed as multidimensional and in this paper includes education, income, and occupational status. Using structural equation modelling (SEM) and other appropriate econometric techniques, the paper examines the social causation perspective on the association between family functioning and SES. The analysis is also disaggregated by gender, as previous research stresses the potential importance of examining gender differences in how SES relates to family functioning.

Session D2
Economics of
Tobacco Control


Hana Ross, Nicole Vellios, Katherine Clegg Smith, Joanna Cohen and Jackie Ferguson, A Closer Look at “Cheap White” Cigarettes Abstract: Objective Given the prominence of Cheap White brands in illicit tobacco discussions, we examined various definitions of these brands, their market presence, brand proliferation, manufacturers, location of production facilities, trademark ownership, prices and compliance with tax stamp and warning labels laws. Methods We reviewed both published and grey literature, and supplemented these sources with a unique dataset on the compliance with warning label laws that includes brand owners and prices, collected for the Tobacco Pack Surveillance System (TPackSS) by the Johns Hopkins Bloomberg School of Public Health. Results We identified 82 Cheap White brands and 53 Cheap White manufacturers that operate at least 82 production facilities. Both government agencies and Transnational Tobacco Companies (TTCs) report an upward trend in the market presence of illegal Cheap Whites, particularly in the European Union. One third of the manufacturers are located in the Free Zones of Russia, Cyprus and UAE. Among the 37 Cheap White brands in the TPackSS database, two thirds had neither the correct health warning nor the required tax stamp at least in one country, and about 86% of illegal Cheap Whites were purchased outside large retailers. We found that TTCs also produce Cheap White cigarettes. The price analysis revealed that both legal and illegal Cheap White brands are less expensive than their respective non-Cheap White counterparts, but the price gap is not as large as anecdotally reported in Western Europe. Conclusion Similar to many TTC brands, Cheap White brands are sold both legally and illegally, that is, a portion of them are distributed without paying all applicable taxes. The illicit cigarette trade can be addressed by adopting the WHO Protocol to Eliminate Illicit Trade in Tobacco Products and implementing an effective global tracking and tracing system.

Caitlan Russell and Corne van Walbeek, How do increases in the excise tax on beer impact the retail price of beer? The evidence from South Africa Abstract: Background: Governments around the world use excise tax increases to discourage alcohol use. A crucial requirement is that increases in the excise tax increases the retail price. Objective: To determine to what extent increases in the excise tax on beer in South Africa are passed on to consumers in the form of higher retail prices. Data: For beer prices, we use monthly average data for a number of beer brands, subdivided by packaging type, as collected by South Africa’s statistical agency for the Consumer Price Index (December 2001 to December 2014). Data on the excise tax is obtained from budget documentation. Methods: For each brand and packaging combination we run a regression ∆Pt = β0 + β1∆Tt-1 + β2∆Tt + β3∆Tt+1 +εt, where ∆Pt is the change in the average price in period t and ∆Tt is the change in the excise tax in period t. The instantaneous pass-through coefficient is β2, while the full pass-through coefficient is β1+β2+β3. Results: For all brands and packaging combinations, the full pass-through coefficient (β1+β2+β3} is typically greater than one. Thus the tax is overshifted. Most of the pass-through happens in the month in which the tax is increased. For 750 ml bottles, consumed primarily by poorer consumers, the pass-through coefficient is smaller than the pass-through coefficient for individual 340 ml cans or 6x340 ml “six-packs”, which are typically consumed by richer consumers. Conclusion: In South Africa increases in the excise tax on beer are more than fully passed on to consumers in the form of higher prices. On the evidence that beer consumption is negatively correlated with the price of beer, this makes excise tax increases a particularly suitable alcohol control tool.

Bertha Bangara, Tobacco Price Shocks and the Malawian Economy Abstract: One of the major concerns facing developing economies is the implications of their dependence on commodities for their economic growth and the implications of price changes. A considerable literature has developed from the earlier work on the macroeconomic impact of the impact of oil price shocks on the developed economies that had exploitable reserves. For developing economies the implications can be much more profound as many are characterised by a dependence on a limited number of exportable primary commodities. Commodity price shocks then become one of the major macroeconomic concerns and a major reduction in the international price can lead to a devastating slowdown in economic growth. While there exist some cross country studies, it has become clear that the country specific studies that take into account the different characteristics of low income economies are essential. This paper contributes to the growing literature by considering the case of Malawi and the macroeconomic impact of price shocks in its major export crop. Using a cointegrating VAR approach on quarterly Malawian data from 1980 to 2012, the paper establishes that there exist long-run relationship between tobacco prices, output, exchange rates and inflation, with the causality running from tobacco prices to the three variables. The speed of adjustment to equilibrium is very slow, leading to lack of convergence in GDP and exchange rates, suggesting a long period of disequilibrium in the economy results from a tobacco leaf price shock. This can only mean that tobacco leaf price shocks are essentially permanent on the Malawian economy, a major concern given the dependence of the country on tobacco exports.

Catherine Namome, Beatrice Conradie, Corne van Walbeek and Tony Leiman, Farming typologies for West Nile Uganda, with implications for tobacco control policy Abstract: Tobacco control regulation in the first world drove tobacco growing underground into places like small-scale farming in West-Nile, Uganda. There is political will in the first world to identify and support viable agricultural alternatives for tobacco farmers but formulating the appropriate policies is difficult because there is no data for these production systems. The first step in policy formulation, and the objective of this paper, is to describe prevailing production systems. A survey conducted in West Nile Uganda gathered data on 126 producers. Principle component analysis wit k-means clustering was used to identify the corresponding factors with eigenvalues of more than one, which jointly describe 69% of the variation in the dataset. Ten indices were constructed from twenty none variables which load onto each factor, enabling the analysis to identify five homogenous farm types. The results contain a detailed description of the production system for each of the five farming types found in West Nile. The dominant type is the fifth cluster. The typical farm in this group comprises 3 acres of land on which three crops are grown using traditional methods of production. The next most prevalent type is a semi-intensive with modern farming practices. The implication of these results is that the identified and described production systems can be used to design programs which encourage the adoption of non-tobacco production systems.

Session D3

Brown Gardner and Johane Dikgang, Finding a Best Conservation Park Entry Fee for Kruger National Park Abstract: Whereas most park valuation studies simply value a park our goal is to maximize net revenue. Kruger National Park is regarded as a firm "exporting" products to foreign clientele. In trade theory a profit maximizing firm charges different prices in different countries with different demand functions. Transaction costs limit there to be one price for all foreigners in our case. The travel cost of an individual serves as an indirect determinant of price. We estimate the optimal price to charge for the site using travel costs for trip not the site. By estimating the marginal visitation response to a change in trip cost, due to a park entry fee increase, ceteris paribus, we deftly avoid the standard criticism of travel cost regarding multiple destinations. A Negative Binomial models count data specification of the recreational demand function is used because the number of trips taken is a non-negative integer. Most importantly, the truncated distribution function is augmented for endogenous stratification. The population in each country (zone) is limited to those whose income matches the income in our sample, a measure more appropriate than the total population. Our results indicate that the revenue maximizing daily entry fee to charge international visitors is US$96 (2014 prices) based on the truncated population zone. Proper choice of zonal population measure is therefore critically important. This suggests that there is room to substantially raise Kruger entry fees from the present level of $25 per day. In reality, the park agency is unable to charge the revenue maximizing price due in particular to competition from other parks, both locally and regionally. Nonetheless, the fact that we found that the fees could be increased significantly over and above the current fees to maximize the revenue collection is quite striking.

Gerald Kibira, The Structure and Level of Entrance Fee in Serengeti National Park in Tanzania Abstract: Whereas most valuation studies have provided useful insights of protected areas and their benefit in developing countries, they have typically focused more on benefit sharing than on how the adjacent local community will benefit from wildlife conservation and also they have typically focused more on estimating consumer surplus rather than on evaluating user fees as a guide toward designing improved park pricing strategies which is the focus of this paper. Many of the visitors to protected areas, such as national parks, are foreign tourists who incur few of the costs but enjoy many of the benefits stemming from resource conservation efforts. Tourism revenues, rather than being earmarked for park maintenance or resource conservation efforts, are frequently merged with other sources of general revenues.Funding conservation activities in the Serengeti is a big problem which requires revenue management by national park that will ensure sustainability of the social ecological system. Serengeti National Park is regarded as one of the major attraction to the foreign tourists. We applied a twist in the Contingent Behavior (CB) methodology in the context of a developing country, which has never been applied in literature. We find out that as the entrance fee increases tourists tend to switch to substitute park which is the Maasai Mara Game Reserve in Kenya and the demand is elastic. In reality, the park agency is inept to charge the revenue maximizing price because of the competition from other parks, both locally and regionally. Nevertheless, the fact that we found that the fees could be increased significantly over and above the current fees to maximize the revenue collection is important.

Herbert Ntuli, A Bio-economic Analysis of Community Wildlife Conservation in Zimbabwe Abstract: This paper uses a bio-economic model to analyse wildlife conservation in two habitats adjacent to a national park by two types of communities in the context of Southern Africa. One community is made up of peasant farmers operating under a benefit-sharing scheme (CAMPFIRE) while the other is made up of commercial farmers practising game farming in a conservancy (the Save Valley Conservancy). Both communities exploit wildlife by selling hunting licences to foreign hunters but with different levels of success. The park agency plays a central role by authorising the harvest quota for each community. We formulate a bio-economic model for the three agents and optimise the market problem for each agent and compare the outcomes with the social planner’s solution. Our results show that the level of anti-poaching enforcement by the park agency in the local community’s wilderness area is suboptimal while anti-poaching enforcement exerted by the game farming community in the conservancy achieves social optimality. Our model shows that an improvement in community institutions might have a significant impact on growth of the wildlife stock through their role in constraining behaviour. Thus, institutional reforms in benefit-sharing schemes such as CAMPFIRE could see the local community achieve comparable results to the conservancy communities such as the one in the Save Valley Conservancy.

Nqobizitha Dube, Gavin Fraser and Jen Snowball, Perceptions on the natural environment from a rural African perspective: A case of Cylondropuntia fulgida var. fulgida in Gwanda district, Zimbabwe Abstract: Community environmental perceptions are instrumental in environmental management programmes given that perspectives govern human-environment relations. Despite numerous studies on environmental perceptions, little is known about how the rural poor particularly in Africa conceptualize, live with, and respond to pressing environmental issues facing them. As such, this paper uses the case of an invasive alien plant (IAP) (Cylindropuntia fulgida var. fulgida (Cff)) in a rural community (Gwanda district, Zimbabwe) to unveil the conceptualisation of the natural environment from a rural African perspective. This paper discloses the environmental worldview of the community and explains the formulation of the attitudes by the local households towards species in the environment. The study uses two horizontal dimensions of environmental attitudes formulation (New Environmental Paradigm (NEP) Scale and Kellet’s (1996) classification of environmental values). Data was collected using a questionnaire survey, group discussions and key informant interviews. A sample of 156 individuals comprised the study respondents. Results showed the residents of rural Gwanda district to hold both a conservation and utilisation conviction (syncretic view) towards the environment. However, utilisation outweighs conservation. Furthermore, older residents are more inclined to conservation in comparison to the youth. The study also divulged that the origin of a species in the natural environment was insignificant to the host community. However, the livelihood effects that species had (regardless of origins) were the major determinants of attitudes developed towards it.

Session D4
Behavioural &


Co-pierre Georg and Michael E. Rose, Friends in Central Places -- The Value of Formal and Informal Intellectual Collaboration Abstract: Collaboration is increasingly important for successful innovation and in the production of knowledge. Much collaboration relies on social interactions and takes on informal forms like feedback in seminars and at conferences. To assess the importance of informal collaboration, we construct a network of social interaction using information revealed in the acknowledgement section of published articles. We find a significant positive impact of informal collaboration on paper quality as measured by subsequent citations. Articles with well-connected commentators are also more likely to publish in general interest journals. We also document a democratizing effect: Though papers written by authors from very prestigious universities benefit much more from informal collaboration, their bonus has decreased over time.

Michael E. Rose and Co-pierre Georg, Eight Facts about Informal Collaboration in Financial Economics Abstract: To what extent do authors influence each other themselves by collaborating in a research paper? To answer this question, I estimate a peer effects model that resembles a spatial simultaneous autoregressive lag model. This allows me to disentangle peer effects from contextual effects and exogenous effects (Manski, 1992). Control variables originate from CVs of authors, hence creating a new database that tracks individual careers. I find that authors influence each other in the productivity dimension, but less so in career steps. Peer effects are stronger for peers of the same age reflecting other empirical evidence.

Glenn W. Harrison, Andre Hofmeyr, Don Ross and J. Todd Swarthout, Risk preferences, time preferences and smoking behaviour Abstract: There is a rich theoretical literature in economics which models habit-forming behaviours, of which addiction is the exemplar, but there is a paucity of experimental economic studies eliciting and comparing the preferences that economic theory suggests may differ between addicts and non-addicts. We evaluate a set of incentive-compatible risk and time preference experiments conducted on a sample of student smokers and non-smokers at the University of Cape Town in 2012. We adopt a full information maximum likelihood statistical framework, which is consistent with the data generating processes proposed by structural theories and accounts for subject errors in decision making, to explore the relationship between risk preferences, time preferences and addiction. Across different theories and econometric specifications we find no differences in the risk preferences of smokers and non-smokers but do find that smokers discount significantly more heavily than non-smokers. We also identify a nonlinear effect of smoking intensity on discounting behaviour and find that smokers may be more likely to discount hyperbolically than non-smokers, which means they may be more prone to time inconsistency. These results highlight the importance of the theory, experimental design, and econometric trinity and have important implications for theories of addiction.

Marc Piazolo, Fairness dominates human behavior (in South Africa) Abstract: In 2013, we conducted a field experiment on human behavior. All members of Stellenbosch University and the University of Kaiserslautern (Germany) were invited through the internet as well as the general public by regional newspapers to participate in an Ultimatum Bargaining Game. In addition, we conducted surveys in Kayamandi as well as Idasvallei (both parts of Stellenbosch). An inheritance of 12,000 ZAR (1,000 EUR) had to be split up. Three randomly selected participants slipped into the roles of the beneficiaries: Andy had the right to propose the distribution of the inheritance. Berta could either accept or reject the proposal. Carlos had no rights at all. 1,139 participated in our ultimatum bargaining game, 69% being South Africans. As proposer, a large majority opted for an equal split. This was followed by the two power coalitions (6,000-5,000-1,000 ZAR & 6,000-4,000-2,000 ZAR) with 19% of the votes. Less than 4% opted for the proposal of homo oeconomicus (10,000-1,000-1,000 ZAR). When having to accept or reject each of the eighteen different proposals, the notions of fairness and inequality aversion dominated decision making. Every proposal, which resulted in 3,000 ZAR or less for the vetoing person, was rejected by up to 76% of the participants. Statistically significant differences in behavior exist between Germans and South Africans. In general, inequality aversion is much stronger among South Africans. While two thirds of South Africans propose an equal split, less than half of the Germans do. Their average bid for the role of proposer was substantially higher: 2,300 ZAR versus 1,700 ZAR. Additional characteristics influencing the behavior of participants are looked into by econometric analysis. Age, gender, household income, religiousness, risk aversion, education attainment are among the characteristics of interest. Some of these help to explain the international differences in behavior.

Session D5
Exchange Rates


Mark Ellyne and Samson Mbewe, Capital Flight and the Role of Exchange Rates in Nigeria, South Africa and Zambia Abstract: The problem of capital flight presents an interesting paradox towards capital accumulation in Sub-Saharan Africa. Though Africa has been labelled as “the rising continent” by various researchers, we continue to see capital flight and its adverse effects extend beyond the lack of domestic investment capital, to sluggish economic growth and disquieting poverty rates. This paradox highlights the importance of understanding the drivers of capital flight from Africa. Among the many postulated determinants, this study investigates the effect of the exchange rate on capital flight using 3 case studies from Nigeria, South Africa and Zambia for the period 1970 to 2010. By employing Granger’s (1969) causality test, we investigate the causal relation between capital flight and the exchange rate. We further use the Johansen (1988) Method of Cointegration to determine the existence of a long run relationship and estimate a Vector Error Correction Model (VECM) to determine the short run dynamics. Our granger causality test results suggest that the direction of causality between capital flight and the real exchange rate only holds in the period under analysis and therefore, it should not be assumed to hold in different time periods. Our main findings suggest that capital flight from Nigeria, South Africa and Zambia is habitually motivated by portfolio considerations. We find that capital flight from Nigeria and South Africa is driven by expected currency depreciation while capital flight from Zambia is driven by expected currency appreciation in the long run. Our other findings suggest that other macroeconomic policy errors in the form of inflation unpredictability and foreign direct investment also increase capital flight from Nigeria, South Africa and Zambia. We also find that political factors have a significant role in determining capital flight from Nigeria, South Africa and Zambia. We however find inconclusive evidence of the short run effects in all three countries. It is recommended that the imposition of efficient exchange controls can curb capital flight when implemented concurrently with effective macroeconomic management practices by the fiscal authorities.

Lordina Amoah and Meshach Aziakpono, Exchange Rate Behaviour in Ghana: Is there a Misalignment? Abstract: Exchange rates in Ghana has over the last three years been relatively volatile. The cedi has been perceived to be misaligned especially after the redenomination exercise in 2006. In fact, in 2014 the Ghanaian cedi was among the worst performing currencies in Africa. Theory shows that exchange rate misalignment often results in distortion in resource allocation which has the tendency of hampering competitiveness and overall economic growth. Globally, exchange rate misalignment is a subject of strong debate given allegation concerning some economies that have strategically engineered undervaluation strategies to maintain consistent surplus current account positions. This paper investigates the extent to which the real effective exchange rate of the Ghanaian cedi is misaligned from its equilibrium value by estimating the equilibrium value of the real effective exchange rate for the period 1980 – 2013 employing the behavioural equilibrium exchange rate (BEER) approach. The error correction model (ECM) is employed to estimate the long run and short run dynamics of the exchange rate. Results from the Johansen cointegration approach indicate the that terms of trade and openness exert significant positive and negative influence on the equilibrium real exchange rate respectively. Results also show that there is significant misalignment of the exchange rate from 1981 – 1983. Since 2001, the actual real effective exchange rate has been moving in line with its equilibrium trajectory.

André Jordaan and Ndivhuho Netshitenzhe, South Africa's exchange rate and sectoral export performance Abstract: Abstract: The aim of this paper is to analyse the impact of changes in the exchange rate of the rand on South Africa’s export sector. It is important to consider that different export sectors may react differently and sometimes in opposing ways, resulting in a subdued impact on total exports. The issue is examined using the Johansen Maximum cointegration technique and an Error Correction Model (ECM) to analyse the long run effects and the short-run dynamics of the effects of changes in the exchange rate on South Africa’s export volume, total exports, manufacturing exports, mining and agricultural exports for the period 1988-2014. The results show that while there is a long-run equilibrium relationship between the real effective exchange rate (REER) and all the dependent variables (excluding export volumes), a real depreciation of the domestic exchange rate only has a positive long-run effect on manufacturing and mining export performance. In the short run, while the EC model shows that REER depreciation may increase total exports, mining and manufacturing exports, this is not the case for export volumes and agricultural exports. The results also show that manufacturing and mining exports are affected more by their previous values than the exchange rate. In addition, the paper finds that an increase in world income, compared to the exchange rate, has a much larger impact on total exports from South Africa.

Mike Nyawo, Micro-Price Adjustment to the Multi-Currency System in Zimbabwe Abstract: Extended Abstract, The analysis of micro-price adjustments and price setting behaviour of firms is an important part of economic theory. It is the starting point of micro founded macromodels. For example, if price movements reflect market forces, then knowing the time between price changes may lead to improved resource allocation and productivity and may have implications on business cycles and the transmission into monetary policy (Kackmeister 2005). In light of this, however, recent literature has shown large heterogeneity in prices and pricing behaviour of firms at a disaggregated level. There appear to be no particular pattern of price setting behaviour across a group of studies or countries and this suggests that the outcome of the empirical findings is country (and potentially time) specific, hence the need to conduct country specific studies on price setting. There has been a surge of this literature of late as disaggregated data has become available to researchers but very little of this type of work has been done for countries who adopt a new currency and how price dynamics change during the initial adjustment period. In particular, Zimbabwe adopted a multicurrency system dominated by the US dollar in 2009 after a severe period of economic crisis and hyperinflation. In an attempt to restore credibility to the financial system, the government of Zimbabwe adopted the multicurrency system, and prices of commodities started to stabilize. By examining prices at a highly disaggregated level during this initial adjustment period, it is possible to track these changes and mechanisms through which they occurred. This paper will examine this change by looking at the sources of price heterogeneity and synchronicity in Zimbabwe after the introduction of the multicurrency system, and how prices and pricing behavior has changed over the period subsequent to the introduction of the new currency system.

Session D6
ERAN session,
chaired by Mr
Madula, dti


Lesley Wentworth, Azwimpheleli Langalanga and Mark Schoeman, Foreign Direct Investment and Inclusive Growth in Southern Africa Abstract: Foreign direct investment (FDI) has been lauded for its positive spill-overs to host countries: skills transfer, employment creation, and enhancement of competition. The ability of FDI to address economic challenges in host countries has been referred to as sustainable investment which includes attracting the 'right' kind of FDI as opposed to investments which will not lead to any meaningful socio-economic development. South Africa has undertaken policies aimed at harnessing FDI in this direction, alongside its affirmative action and black economic empowerment measures. Recently South Africa drafted legislation aimed at regulating FDI but whose main focal point was the convergence of industrial and affirmative action programs with the attraction and retention of foreign investments. The Promotion and Protection of Investment Bill was preceded by South Africa's termination of its Bilateral Investment Treaties with European countries which were observed by government not to encourage inclusive-growth based FDI. What has not been substantially explored is the role of FDI in driving inclusive growth in a society which suffers from huge inequalities, such as South Africa. Namibia is undergoing similar reform of its investment regulation aimed at inclusive-growth goals. This paper seeks to interrogate how FDI can be harnessed to achieve inclusive growth pathways. This issue is not peculiar to South African but has gained momentum both in the region and abroad. This paper will therefore interrogate the extent to which FDI can be harnessed as a vehicle for inclusive growth in highly unequal regions such as Southern Africa, and the prospects for a regional investment framework which could achieve this. The paper will employ both legal and economic analysis and will draw on international experiences in other parts of the developing world, such as South-East Asia.

Yongama Njisane, Pricing conduct, State aid and the implications for industrial development in South Africa Abstract: The advent of the democratic dispensation in South Africa brought about a shift in the economic policy direction of the country. This shift in economic policy was necessitated by not only the need to address historical socio-economic imbalances, but also the aim to move the South African economy from its erstwhile pariah status and re-integrate it back into the global economy. It is well accepted that the South African economy was and still is characterized by the effects of the historical legacy of the economic concentration and ownership, collusive practices and the abuse of power by firms in dominant positions throughout the apartheid era. Therefore, the adoption of trade liberalisation policies sought to open up the South African economy to international competition and to allow South African firms to compete on a global stage. Similarly, the identification of the manufacturing sector as one of the key drivers of economic activity was aimed at not only enhancing South Africa’s manufacturing capacity for the export markets but also to stimulate downstream industrial activity, with the aim of realising positive employment and productive externalities. To achieve the aforementioned, the South African government adopted a number of State aid initiatives such as investment incentives in order to attract investments into South Africa and the manufacturing sector in particular. Alongside these initiatives by government, the development of competition legislation and the interventions by the competition authorities, particularly in the intermediate industrial goods sector, provide lessons regarding the competitive impact of pricing conduct by dominant firms and the provision of State aid by government on industrial development. This paper uses case studies of the interventions by the competition authorities in the intermediate industrial goods sector to explore the competitive implications of pricing conduct and State aid to the realisation of industrial development objectives.

Ermie Steenkamp, Sonja Grater and Wilma Viviers, Identifying market access opportunities of South Africa's exports in Sub-Saharan Africa Abstract: Since the global financial crisis, South Africa has faced waning demand for its exports in many of its traditional markets and seen its share of global trade decline. This has created uncertainty for export-oriented businesses and affecting the country’s economic growth and employment prospects. The South African government has responded to these challenges by launching trade promotion initiatives at national and provincial level. A common theme is a more vigorous and focused export drive. Key ingredients in this process include and a trade policy framework that supports South-South cooperation and a stronger focus on market expansion into Africa. However, attempting to make sustainable export inroads into Africa can be fraught with difficulty, largely due to market access problems which add to the complexity and cost of doing business in Africa. How does this affect South Africa — particularly in view of the pressure the country is under to extend its reach and influence in this fast-growing and increasingly competitive region? This paper describes how an export market selection instrument, the Decision Support Model (DSM) was used to identify those South African products and services with the highest export potential in Sub-Saharan Africa (SSA), while also differentiating among the various markets in terms of relatively high, or relatively low, barriers to market access—with a specific focus on logistical barriers (for tangible products) and market regulations (for services). A key conclusion of the study is that the DSM offers both short and longer term benefits. In the short term, it permits relatively swift identification of ‘easier-access’ SSA markets. In terms of longer term benefits, the DSM—by also revealing more impenetrable markets—helps to put the spotlight on regional integration constraints and priorities, which in turn can guide the policy-making process at a strategic level.

Wilson Mabasa, The impact of informal traders on the economic development of Limpopo Abstract: PROBLEM STATEMENT The role of the informal sector in addressing the triple challenges of poverty, unemployment and inequality has grown significantly in the last decade. Despite this recognition, the informal traders and informal producers remain largely neglected in the formulation of economic policy. The acknowledgement that the informal sector can contribute to job creation, poverty reduction and income generation has necessitated a thorough investigation into the policy environment and the economic impact. Furthermore, a report by Agrisystem consortium (2008) has identified the need for a comprehensive study as highlighted in the Provincial Growth and Development Strategy (PGDS) which suggested for specific interventions to close and narrow the productive efficiency between the formal and informal economies (1). A recent study by Wills (2009) highlighted that 3.65 million people are participating in street vending which is a dominant form of activity in the informal sector (2). A similar study by Altman (2007) declared that 1.1 million jobs were created in the informal sector between 1997 and 2005 (3). A study by SALGA (2012) reported that 500 000 people are active participants in the informal sector in Limpopo RESEARCH OBJECTIVES The overall objective of this paper was to investigate the economic contribution of the informal sector. METHODOLOGY a. The first part of the methodology focused on the review of existing literature and policy document. b. The second part was based on the questionnaire that was developed to gather information as follows: I. Socio-economic characteristics II. Market environment III. Levels of employment created by informal traders. c. Analyze the contribution of informal businesses PRELIMINARY RESULTS The study has found that the Limpopo Province has the biggest informal trading estimated at 35% of the total economic activity. The Gross value added of informal traders calculated using economic model showed that informal traders contributed R7.52 billion. The number of paid employees in the informal sector has grown to 273 000 in 2012. The study further discovered that the informal sector in Limpopo contributed 3.62% of the Regional GDP and supported 22.6% of the population of Limpopo Province in 2012.

Session D7
Trade 2


Anja Slany and Jana Riedel, New panel data evidence on Sub-Saharan trade integration - Prospects for the COMESA-EAC-SADC Tripartite Abstract: In the year 2008 the member states of the three major trading blocs in southern and eastern Africa agreed on establishing a common free trade area (FTA). This so-called COMESA-EAC-SADC Tripartite is supposed to be an important milestone towards Africa’s continental trade integration. This study analyzes the impact of regional integration among the Tripartite countries on their bilateral exports and evaluates the latest integration efforts. We estimate an extended gravity model on a panel data set using yearly observations from 1995 to 2010. Specifically, we apply two approaches to proxy limited market access and effectively applied tariff rates. Therefore, we combine Sub-Saharan- and country-average import and export tariff rates and indicator variables for the membership in regional FTAs to isolate distinct effects on real exports. We find a robust and significantly negative effect of tariff barriers with respect to the rest of the world. Interestingly, an FTA status does not show any export enhancing effect. From a methodological point of view, we detect a bias in our loglinear specifications when we compare the estimates with those we obtain from Poisson pseudo-maximum likelihood estimation.

Matthew Clance, Banking Crisis and the Heterogeneous Impact on Bilateral Trade Abstract: A financial crisis that started in 2007 and intensified in 2008-2009 led to a renewed interest in research investigating the effect of financial crises on international trade and particularly the margins of trade. This research has usually only focused on the most recent crisis and has typically used only a single country’s exports and/or imports in its analysis. This paper will use a large panel of countries over the time period 1976-2010 for the analysis of the separate effect on the exporter and importer of a banking crisis using a gravity model specification. The typical gravity specification is inappropriate due to the use of fixed effects, so the estimation will use the procedures developed by Baier and Bergstrand (2009) (Bonus Vetus OLS) to approximate the multilateral resistance terms which will be used in place of country-year fixed effects. Using Baier, Bergstrand, and Feng (2014) decomposition of trade, the paper will also include an analysis of the impact of banking crises on the margins of trade. Much of the research focusing on single country’s imports and/or exports has shown a heterogeneous effect across sector and firm size in response to a financial crisis. The paper will also investigate the heterogeneous impact of banking crises on the margins of trade employing a Mixed model assuming the heterogeneity is country-pair specific. It is possible that heterogeneity in results claiming the importance of different margins of trade in the various single country studies could be explained by country-pair specific factors influencing variable and fixed costs differently.

Jason Milton, The SADC Payments Integration System (SIRESS): Progress, Prospects and Challenges Abstract: The SADC Payments Integration System (SIRESS) was developed by the Committee of Central Bank Governors as a cross border payment and settlement system within the SADC region. The system was initially implemented and became operational in the four countries of the Common Monetary Area (CMA): SA, Namibia, Lesotho and Swaziland on 22 July 2013. During the period 22 July 2013 and 30 April 2015 participation in the system was expanded beyond the CMA region to include participants drawn from some of the SADC member states. At present, SIRESS has 5 central banks and 58 commercial bank participants drawn from 9 participating countries. A milestone was reached at the end of April 2015 when settlements on the SIRESS topped the ZAR 1 trillion mark. This represented a significant increase from the ZAR 500billion that was settled as at the end of September 2014. This paper will document the progress and prospects that are associated with SIRESS vis-à-vis other global settlements systems. In essence, the paper will be focused on ascertaining the role that SIRESS can play in enhancing regional integration in Southern Africa. This will be achieved through addressing four questions. Firstly, what is the possibility and implications of more SADC countries and banks joining the system. Secondly, what is the potential impact of SIRESS on regional trade given that the system allows for trade transactions to be settled in real time? Thirdly, will the improved efficiency in the inter-regional financial system as a result of SIRESS facilitate increased transactions by consumers in light of the possibility of various retail streams also be facilitated through SIRESS? Finally, should the system be broadened to include more currencies of settlement and if so what are the implications of this development?

Betchani Tchereni, Greening Economic Growth in SADC: The Role of Trade Policy Abstract: The level of energy poverty in Southern African Development Community (SADC) block is abysmal. Apart from South Africa, the rest of the countries in SADC have less than 50% of their populations electrified. Households still depend on biomass sources of energy such as firewood, animal dung and crop residues for day to day activities requiring energy. In addition, biomass is used in inefficient tools leading to more energy losses. A myriad of solutions have been suggested ranging from renewable energy to energy trade mechanisms. Renewable energy interventions have mainly been responses by the donor community in rural areas through financial support towards solar PVs and water heaters. It is observable however that there is more to be done. Trade policy and regional integration could be seen as major policy shifts to which energy trade must turn its focus in order to accelerate the greening of the growth ladder in Africa. This paper analyses the state of energy trade in the region through reviews of relevant reports and academic literature. In addition the paper seeks to assess the factors behind poor adoption of renewable energy especially for large scale production in order to determine whether SADC region is keen to adopt green growth strategies. The study further discusses the role and potential of infrastructure development in contributing to the greening of the growth path of the region. It concludes by investigating the effectiveness of the SAPP in making modern energy accessible to all in the region.

Session D8
Monetary Policy


Ivan van der Merwe, The role of a Financial Stress Index in the South African Macro-prudential Framework Abstract: Systemic risk is difficult to define and even more challenging to measure. Despite the proliferation of systemic risk measurement tools most are still deficient from a macro-prudential policy perspective. Due to data limitations and/or less-developed financial structures many such measures can also not be properly implemented in developing countries. Furthermore, these measures seldom end up being used to produce a single, easily understandable composite indicator of financial stability. Measures of systemic risk need to be simple to construct, interpret and understand, but many are still rather complex and do not seem to serve the purpose of providing uncomplicated answers. Policymakers in monetary policy spheres have learnt that the communication and implementation of monetary policy is significantly simplified if participants can be informed about the state of monetary policy with a simple measure such as inflation and its deviation from target. Similarly, for macro-prudential the need for an uncomplicated indicator, focusing on measuring how ‘healthy’ the financial system is, becomes essential. In this regard, the so-called Financial Stress Index could prove to be a partial solution. FSIs serve a simple, yet crucial function of measuring the level of systemic stress in the financial system at a particular point in time. It does not measure sources of systemic risk or potential consequences of such risk directly, but provides useful information to policymakers, allowing them to better utilize other tools designed to measure and manage systemic causes and consequences. Consequently, the construction of FSIs has gained prominence in many central banks as of late, including the SARB. This paper focuses on exploring existing literature regarding the development of FSIs internationally, and develops various versions of such a contemporaneous stress indicator for the South African financial system. It also explores the early warning capabilities of such a constructed measure.

Vafa Anvari and Rudi Steinbach, Spillovers from asynchronous monetary policy in advanced countries: the case of South Africa Abstract: The impact of asynchronous monetary policy normalisation in large advanced economies on emerging market economies is currently a topic that is widely debated in monetary policy circles. It is generally accepted that over the next few years the global economy is likely to witness asynchronous monetary policy normalisation in the world’s most advanced economies. The nature and extent of this normalisation could have significant ramifications for the domestic economic outlook, specifically for a small open economy like South Africa with fairly sophisticated and liquid financial markets. In this context, understanding the spillovers associated with such a path, and the interactions thereof with domestic policy, is of particular importance in understanding the implications of these developments on South Africa’s economic outlook. Evidence suggests that domestic financial markets are more closely integrated with those of the USA whereas the Euro Area remains the largest trading partner. This presents a potential dynamic whereby domestic monetary policy might be more directly affected by Fed normalization whilst the ECB’s policies could have a stronger bearing on domestic growth via exports. Using a reduced form New-Keynesian macroeconomic model, calibrated for the South African economy, this paper first investigates the effects of likely policy normalization paths for the Federal Reserve on the domestic economy, before broadening the scope to consider the impact on the domestic economy of possible asynchronous monetary policy normalisation by including other advanced economy central banks such as the ECB.

Harold Ngalawa, Monetary Policy and Interpolation of Informal Sector Time Series in Low Income Countries: Evidence from Malawi Abstract: In nearly all low income countries, official monetary data excludes informal financial transactions although the informal financial sector (IFS) forms a large part of the financial sector. This occurs due to the non-existence of IFS data. However, excluding informal financial transactions in official monetary data underestimates the volume of financial transactions and incorrectly presents the cost of credit, bringing into question the accuracy of expected effects of monetary policy on economic activity. Using IFS data for Malawi constructed from two survey datasets, indigenous knowledge and elements of Friedman’s data interpolation technique, this study employs innovation accounting in a structural vector autoregressive model to compare monetary policy outcomes in the country when IFS data is taken into account and when it is not. Consistent with conventional theories, the study finds that output increases following a rise in either formal financial sector (FFS) or IFS lending. Similarly, inflation rates increase when lending rises in both sectors. In addition, it is observed that consumer prices in Malawi do not respond significantly to lending in either sector. These findings provide evidence that the two sectors complement each other. However, further investigation shows that FFS lending declines when the bank rate increases while IFS loans are not responsive to bank rate variations; and an aggregation of the two is unaffected by bank rate changes. When IFS interest rates are raised, total loans decline, suggesting that lending in the IFS responds to IFS interest rates and not to FFS interest rates. The study also finds that output declines following an increase in FFS interest rates but declines when IFS interest rates go up. The study, therefore, concludes that exclusion of IFS transactions in official monetary data has the potential to frustrate monetary policy through wrong inferences on the impact of monetary policy on economic activity.

Session D9
Markets 2


Anmar Pretorius and Alain Kabundi, A factor analysis of global stock market integration Abstract: This paper employs factor analysis to determine the level of stock market integration for 50 countries – where stock market integration is measured as the explanatory power (or the R-square) of a multi-factor model. Following the APT of asset returns, common sources of global systematic risk are identified for the global stock market. Using exploratory factor analysis, the appropriate number of latent factors is extracted through the principal components estimation technique. Once the latent factors of systematic risk have been identified, they are used as explanatory variables in a regression explaining returns on the all share index of each country. The R-square from these regressions is an indication of the proportion of the country’s returns that are explained by global forces – and thus the level of the particular country’s integration into global markets. The data (from Datastream) includes weekly returns of the all share indices of all 50 countries, as well as the different equity sub sectors available per country. A total of 691 weekly observations is included spanning the period May 1998 until August 2011 across a total of 451 stock market indices. The empirical results indicate the difference between common factors from two sub-samples (consisting of developed and emerging markets respectively); and that stock markets from developed countries are generally more integrated into the global stock market than stock markets from emerging market countries. Focusing on individual countries, France and the Netherlands are among the developed stock markets with the highest level of stock market integration – while South Korea and Japan report the lowest levels of integration. From the emerging markets group, South Africa and Thailand are the most integrated into the global stock market – with China and Pakistan the two countries with the lowest level of stock market integration.

Andreas Freytag and Susanne Fricke, Sectoral Linkages of Financial Services as Channels of Economic Development – an Input-Output Analysis of the Nigerian and Kenyan economies Abstract: Financial services impact a country’s overall economic development. This is of specific importance for African economies. This paper evaluates sectoral linkages of the financial sector for two selected African economies. By means of an Input-Output Analysis of the Nigerian and Kenyan economies for 2007, 2009 and 2011 we determine backward linkages and forward linkages, multiplier effects and variation indices for the financial services sectors. As a number of financial services is increasingly provided by telecommunication enterprises, we additionally determine these linkages for the communication sector. Within the analysis, sectors are weighted with value added and final demand weights. Results differ between the two economies. We find considerably high forward and backward linkages of the financial sector only for the Nigerian economy. Here, changes in final demand for or primary input into the financial sector have a wide and evenly spread impact on the rest of the economy. The financial sector fulfills criteria to be classified as key sector of the Nigerian economy. For Kenya, this can only be confirmed in part. Sectoral linkages are considerably lower than in the case of Nigeria, which may be due to a well-developed mobile financial market in Kenya. Results for the communication sector however yield rather low linkage values and multiplier effects for both economies and do not map the expected role within the countries. All results are confirmed by a robustness test. However, a lack of data coverage especially with regard to mobile money and a high degree of informal transactions could influence the results. Still, our findings confirm the economic significance of the financial sector for both the economies, but less pronounced for Kenya. The sectoral linkages of the financial sector act as channels of economic development due to their role as enabling and inducing mechanisms of economic growth.

Co-pierre Georg and Silvia Gabrieli, A Network View on Interbank Market Freezes Abstract: We study liquidity allocation using novel data of all overnight and term interbank loans settled between European banks. Following the bankruptcy of Lehman Brothers, lenders in the overnight segment become sensitive to counterparty characteristics and start hoarding liquidity by shortening the maturity of their term interbank lending. This aggregate change in turnover is accompanied by a substantial, and consequential, change of the interbank network structure. Banks with higher centrality within the network have better access to liquidity and are able to charge larger intermediation spreads. Therefore, we show the existence of a sizeable interbank lending channel.

Session D10


Talent Zwane, The determinants of household savings in South Africa:a microeconomic perspective Abstract: This study employs panel data estimation models to investigate the determinants of household savings in South Africa. The major attraction of panel data models originate from their ability to overcome the problems of endogeneity, in addition to accounting for unobserved heterogeneity across households. The study utilises three waves of the new unique and rich first national representative longitudinal survey, the National Income Dynamics (NIDS), which tracks the individuals over time. The novelty of NIDS data is that it is available in a panel format and can be used to investigate the structure and impact of different aspects of socio-economic factors on household saving. Motivated by the dwindling household saving in South Africa, the results of the study reveal that savings are strongly driven by income growth, education attainment and employment status. Moreover, savings tends to increase with age and falls after age crosses a certain threshold. On the other hand, the nexus between savings and household size was found to be negative indicating that larger households’ size places an extra burden on their savings prospects. The results point to the fact that achieving increased savings through improving income levels cannot be overemphasised in South Africa. Likewise, the study recommend that both the government and the financial sector should be in the forefront in instilling a savings culture to the South African population through financial literacy.

Anna Orthofer, What we talk about when we talk about savings (and what we measure when we measure them): Concepts and measures of household savings in South Africa Abstract: South African household savings rates have been declining steadily over the last five decades, and hit a low-point of 0.1% of GDP in 2014. Due to the importance of savings on both the household- and aggregate level, the government has introduced several measures to reverse the trend. It is against this background that this paper asks whether our current measurement of savings, as the residual between income and expenditure, is appropriate to guide economic policy in South Africa. Comparing different macroeconomic concepts and measurements of savings, I first show that the measure of savings in the national income accounts greatly understates the household savings rate compared to other measures. Specifically, a balance-sheet perspective on savings yields a significantly higher and historically relatively stable savings rate. While households haven’t been “putting away” money, they have nevertheless grown richer, driven largely by favourable asset price developments and rising corporate savings (on which the household sector holds claims as the largest shareholder). I also examine the impact of taking non-financial savings and wealth (such as human capital accumulation) into account, and conclude that household sector savings on the aggregate are less dismal than the “headline” figure suggests. Using microeconomic data, however, I show that savings should remain on the policy agenda – less because of their aggregate level, but because of their concentration in the top tail of the income distribution. Overall, this paper underscores the importance of being precise in what we talk about when we talk about savings, and in using less conventional data sources (balance sheet and household survey data) to measure the concepts most relevant to the question asked. The paper can be presented in 20 minutes. I will have presented drafts of this paper at least at two occasions prior to the ESSA conference.

Adel Bosch and Steve Koch, Evaluating the quality of South African savings data from the Income and Expenditure Survey (IES) Abstract: Savings are typically measured in the National Accounts of a country or in some countries through the use of household surveys. These measures can provide vastly different results in terms of the savings outcome, mainly due to their composition and purpose. This paper criticality evaluates the savings measure from household surveys. The paper analyses household’s savings in South Africa using data from three waves of the Income and Expenditure survey (IES), namely IES 2000; IES 2005/06 and IES 2010/11. The aim of the analysis is to establish the quality of savings data in South Africa, associated concerns and to present possible solutions. The paper identifies patterns of savings behaviour that is likely driven by underlying data or survey issues and not by economic decision making. The paper further aims to produce additional savings definitions that is in line with global literature, while at the same time, critically evaluating the performance of these definitions.

Mmamoletji Oniccah Thosago, The saving behaviour of households with social grant recipients in Freedom Park, Soweto. Abstract: The South African government has re-implemented and expanded the social assistance programme through social grants since 1994. The main objective of the government’s re-implementation and expansion of the programme is to alleviate poverty within the country. Majority of social grant recipients are located in rural areas as well as townships and informal settlements found in urban areas. Despite the social grants expansion and increase in social grant beneficiates in urban areas, the poverty headcount ratio at national level has been fluctuating, thus not indicating a continuous poverty decrease as intended by the government. Researchers and government officials suggest that perhaps the national poverty headcount ratio could decrease if social grant recipients and their households participate in monetary saving activities. The question that arises from the suggestion is whether households with social grant recipients in informal settlements save a portion of the social grant income, and how these households save? A mixed method research approach is used to answer the question, whereby 222 households with social grant recipients are asked to participate within a questionnaire that consists of both open- and close-ended questions. The 222 households are systematically sampled from Freedom Park, a Soweto informal settlement. Determinants of these households’ savings and saving behaviour are analysed using a cross-sectional multiple regression model.

Wednesday18:00 - 
School of Economics
Welcome cocktail function
Thursday08:00 - 09:00 Registration
Thursday09:00 - 10:00Parallel Sessions E
Session E1
Poverty 1

Daniela Casale and Chris Desmond, The extent of physical catch-up growth amongst malnourished children, and the implications for cognitive function: Evidence from the Birth to Twenty Cohort Study Abstract: In previous work (Casale, Desmond and Richter 2014), we established a strong relationship between poor early nutrition, indexed by stunting at age two, and reduced cognitive function among 5 year olds, using birth cohort data for South Africa. We extend this work on early childhood development in this study by exploring whether there are possibilities for ‘catch-up’ amongst malnourished children. In particular, we investigate a) the extent of physical catch-up growth amongst 5 year old children who were stunted at age 2, and b) whether children who exhibit catch-up growth perform better in cognitive tests than children who remain stunted throughout early childhood. Our analysis draws on data from the Birth to Twenty Cohort Study on a sample of children born in Johannesburg in 1990, which includes detailed information on anthropometry, cognitive function, and other child and household characteristics. Our preliminary findings suggest that physical catch-up growth is not uncommon amongst children in the early childhood period (as is found in other literature, Martorell et al 1994; Adair 1999; Crooksten et al. 2011). However, children who catch up in terms of physical growth (i.e. who are no longer stunted by age 5) still perform significantly worse on cognitive tests than children who never experience early malnutrition, and almost as poorly as children who remain stunted. These findings suggest that the timing of nutritional inputs in the early years is imperative in a child’s subsequent cognitive development, with implications for school readiness and achievement.

Rufaro Garidzirai and Tshediso Joseph Sekhampu, Perceived causes of poverty in South Africa Township Abstract: Poverty is one of the major problems facing human kind today. Poverty is seen as a multidimensional concept alluded to a number of causes. This is more prone in South Africa’s townships built in the periphery of cities, due to the country’s past history of racial segregation. The aim of the study reported here was to investigate the perceived causes of poverty in a South African township of Kwakwatsi. In addition, the impact of a household’s socio-economic factors on their perceptions of the causes of poverty. A quantitative study of 225 households was randomly sampled in 2014. A scale developed by Joe Feagin was used and it groups causes of poverty into; individualistic, structural and fatalistic. Individualistic perceptions puts the blame for being poor on the individual, while structural factors blame the economic and political forces, and fatalistic factors blame unexpected events, such as illness and accidents for poverty. These three perceptions were loaded using principle component analysis to identify the most dominant perception. The analysis showed the individualistic perceptions as the most dominant, implying that residents of Kwakwatsi blame the individual for being poor. In the regression analysis, the age, marital status, education, gender, employment status, income of the participant were significant predictors of all the indices. It was interesting to note that the variable for household size had no significant in all the three indices. The study can be used as an information in the effort to improve the socio-economic conditions of the area.

Josh Budlender, Murray Leibbrandt and Ingrid Woolard, Weakly relative poverty lines in developing countries: The case of South Africa Abstract: Like most developing countries, poverty in South Africa is typically measured using absolute poverty lines. “Strongly” or purely relative poverty lines are understandably considered to be inappropriate for the measurement of poverty in developing countries, despite strong theoretical arguments for the importance of measuring relative poverty in some way. In light of this, the recent introduction of so-called “weakly relative” poverty lines by Ravallion and Chen (2011) and Chen and Ravallion (2013) may be a useful innovation for developing country poverty analysis. This paper considers the usefulness and appropriateness of this weakly relative poverty line methodology for poverty analysis in one particular developing country, which is South Africa. It examines how local empirical evidence relates to the theoretical justifications for relative poverty lines, compares the weakly relative lines to already-existing South African absolute poverty lines, and discusses how poverty measurement using the weakly relative lines may be interpreted. Though some theoretical concerns are noted, the paper argues that the practical appeal of the Chen and Ravallion (2013) methodology makes it a valuable technique for South African poverty analysis, and it should be used to complement already-existing measures.

Session E2


Jacob Twala, Financial Literacy in KwaZulu-Natal - a Case of Umkhanyakude District Municipality Abstract: South Africa faces three distinctive challenges of unemployment, poverty and inequality and the province of KwaZulu-Natal (KZN) is no exception. These challenges are faced in a period of global uncertainty and sluggish economic growth. As correctly pointed out by Struwig et al., 2013, an economic environment of this nature makes it hard for ordinary individuals and limits freedom of choice, especially when it comes to choosing financial products and services. In order to initiate and implement programmes to help improve financial literacy and inform current and potential users of financial products and services, there is a need for a deeper understanding of financial literacy among the people of KZN. The purposes of this pilot study is to produce valuable information on the extent to which people of KZN, particularly in Umkhanyakude District Municipality (UDM) are knowledgeable and have an understanding of financial literacy and the systems which aid in financial management and the improvement of financial literacy levels. The general global evidence indicates that financial illiteracy is greater among the uneducated, women and Africans. The study is conducted qualitatively, entailing the distribution of questionnaires to the selected households in UDM in KZN. A 16 years and older member of a household was selected and requested to answer the questionnaire with the assistance of the trained field worker. A sample size of 1400 households was randomly selected from the total number of 131 851 households in the district. This sample size was selected from each of the five local municipalities within UDM, covering mainly people from rural areas. The questionnaire covered the four pillars of financial literacy; namely: money management, financial planning, choosing appropriate products and financial knowledge and understanding.

Session E3
Water & Energy
Prices and
Policy 2


Jessika Andreina Bohlmann, Heinrich Bohlmann, Roula Inglesi-lotz and Jan van Heerden, How Would Changes in the Energy Generation Mix Affect the South African Economy and Environment: A CGE Analysis Abstract: South Africa is considered to be one of the most carbon-intensive countries in the world, driven by a combination of subsidized electricity prices and a coal dominated electricity generation-mix. The South African government – aware of its dual responsibility of increasing economic growth while limiting its carbon footprint – have laid out ambitious plans to achieve both these goals through its National Development Plan and Integrated Resource Plan policy documents. In this on-going research project, we use a large-scale CGE model for South Africa that includes extensive electricity generation and carbon emissions detail to evaluate how proposed changes in the country’s electricity generation-mix are expected to affect the economy and environment. The policy simulation in this paper specifically looks at the impact of a renewable energy focussed growth path for the electricity generation sector relative to a business-as-usual carbon intensive baseline. We present long-run results for key macro variables and carbon emissions with a view to informing policymakers and participants on both sides of the economic and environmental debate.

Angelika Goliger, Landon McMillan, Wian Boonzaaier and Konstantin Makrelov, The Tipping Point: The impact of rising electricity tariffs at a sector and company level Abstract: The electricity sector in South Africa has been in the spotlight over the past 7 years since supply demand imbalances began in 2008. While much attention has been focused on the negative impacts of load shedding on the economy, fewer studies have focused on the impacts of rapidly rising electricity tariffs. There have been some studies that have attempted to estimate the price elasticity of electricity demand or show vulnerable sectors based on their electricity intensity, but all have struggled to demonstrate the potential impacts on the competitiveness of individual firms and their decisions, and the longer run impacts on electricity demand should certain “tipping points” be breached. For this paper, we will attempt to model where and when such tipping points might be breached using financial information from representative companies in selected sectors, cost information for alternative generation, as well as proposed price increase scenarios for Eskom and municipalities. We will then overlay this with sector level information from the Supply-Use Tables which will feed into a computable general equilibrium framework. The ultimate objective would therefore be to determine the impact of rapid electricity tariff increases at a sector and company level, accounting for spill-over effects to other sectors and the ability of companies to pass through costs to end-consumers.

Nomsa Phindile Nkosi and Johane Dikgang, South Africans Willingness to Pay for Renewable and Nuclear Energy to Avoid Power Outages Abstract: South African households like many households in developing countries are faced with power outages. Household’s welfare is negatively affected since electricity dependence has increased over the years. This paper uses a Contingent Valuation Method to investigate South Africans willingness to pay for renewable energy and nuclear powered energy as mitigation options against power outages. A random parameter Tobit and Probit models are used to estimate willingness to pay to avoid power outages and assess factors determining support for alternative power sources. The number of respondents who are not willing to pay decreases as the outage duration increases. This shows that households tend to be more sensitive to longer outages. On average, households are willing to pay R34 over and above their electricity bill to avoid power outages. There is an overwhelming support for renewable and nuclear energy. Males support nuclear plans more than females, while females tend to support renewable energy more.

Session E4
Firm Behaviour


Godfrey Mahofa, Crime and Firm Entry in South Africa: An Instrumental Variable Approach Abstract: In this paper, we analyse the relationship between crime and the entry of firms across local municipalities in South Africa. We use data on the incidence of crime, sourced from the South African Police Service, and a unique database of business registrations over the period 2003 to 2011, to identify the impact of crime on firm entry. We employ an instrumental variables estimation technique to control for potential bias arising from the fact that crime might be a consequence, rather than a cause of the entry of firms. We highlight the importance of a positive business environment, that lowers the costs of doing business, for local business activity. Our study hence has implications for generating employment and economic growth at the regional level.

G. Charles-cadogan, A Regulator’s Exercise of Career Option To Quit and Join A Regulated Firm’s Management with Applications to Financial Institutions Abstract: We introduce a behavioral model of labor market mobility for regulators who design mechanism(s) that affect firm capital structure, and then cash in later by exercising a career option to join firm management or a consultancy. Our model derives several new results. First, we prove that regulator signals embedded in capital structure induce discrete regimes for the firm’s pricing strategy. Agency cost comprises regulator substitution of firm profit for consumer welfare to increase the value of her career option. Second, we prove that the internal rate of return (IRR) on firm projects involving a former regulator is linear in weighted average cost of capital and regulator human capital beta. This explains stock market reaction to firm announcement of former regulators. Third, we prove that the value of a regulator’s career option increases with firm leverage. So regulator’s have incentives to embed leverage inducing regulatory signals in the firm’s capital structure. And firms have profit incentives to hire former regulators to increase IRR. This explains why strategically levered firms obtain better regulatory outcomes. Fourth, regulator career option vega (price-risk sensitivity) priced under Shepp-Guo information based model versus Black-Scholes-Merton model, indicate that firm value-at-risk, i.e. tail risk and bankruptcy, is greater than it would be in non-regulatory capture regimes. Whereupon we identify warning signals for firm bankruptcy. We find support for our theory in a sample of US commercial banks. Data show that prior to the 2008 crisis, when the trend in average bank leverage and managerial compensation in commercial banks began to increase, high interest rates on bank loans became tax deductible. So wilily nilly legislators qua regulators effectively orchestrated tax revenue (consumer surplus) transfers to capitalize financial institutions leverage and de facto bank manager compensation.

Session E5
Labour Markets


Sandra Makumbirofa and Andrea Saayman, Forecasting demand for qualified labour in the South African hotel industry Abstract: As South Africa’s popularity as a tourist destination increases its need for skilled human capital subsequently increases. The study of skills development and human capital in all sectors of the economy has long been topical as a means to support organisational progression that can eventually lead to economic growth. Estimates suggest that tourism and hospitality employs at least 10 per cent of the global workforce and consequently proves to be a sector that cannot be readily ignored. Included in most of the literature on skills development in the tourism sector is the notion of inadequate skills and capacity. However, due to the complex and consumption-based nature of the tourism sector, and the general scarcity of sector-related information, data on both demand and supply of skills are few and of a qualitative rather than a quantitative nature. This research addresses this gap and aims to forecast the demand for qualified labour in the South African hotel industry. The research methodology is twofold; firstly, hotel turnover is forecasted using univariate forecasting methods and data available from Statistics South Africa; secondly, a questionnaire was distributed to hotels to obtain information on current and expected turnover, current job levels and current qualification requirements from which employment elasticities can be determined (similar to research by the HRSC (1999)). Linking elasticity with turnover forecasts presents an estimate of the future demand for qualified labour in the hotel industry. In addition, qualitative adjustments are made based on information obtained through the survey.

Dieter von Fintel and Johan Fourie, The pre-colonial roots of structural unemployment Abstract: Structural unemployment is usually attributed to skills-biased technological change, whereby surplus unskilled workers are unsuitable to fill high skill vacancies. Such explanations are usually attributed to events during the industrial era. However, the phenomenon may be rooted in pre-colonial history, providing more suitable answers for regions that have characteristically high unemployment rates today. This research turns to spatial mismatches in South Africa to explain structural unemployment, whereby residential location of available labour is geographically isolated from vacancies. In particular, we study how colonial and apartheid institutions locked in pre-colonial settlement patterns; restrictions on migration prevented areas of surplus labour to move in sufficient numbers to areas with more job opportunities. While these restrictions have been lifted, the spatial pattern of high unemployment in former homeland regions persists until today. A cursory view of European settler migration routes and conflict sites suggests that current settlement patterns of the African population were already determined before formal restrictions on African migration and land ownership were imposed. Settler migration routes can therefore serve as an instrumental variable for historical settlement patterns, which in turn have a long-run causal impact on the post-apartheid labour market. We will investigate (using historical census data) whether homeland border discontinuities in socioeconomic variables were absent prior to the imposition of apartheid laws, but arose during this regime and persisted thereafter. If so, this study illustrates how institutions locked in old settlement patterns, but created unemployment by preventing natural adjustments in the labour market that are otherwise facilitated by migration.

Thomas Ferreira, Does Education Enhance Productivity in Subsistence Agriculture? Causal Evidence from Malawi. Abstract: Malawi is a low-income country where the majority of the population live and work in subsistence agriculture. In this setting, it is important to understand the effect of education – which is generally considered as a pathway out of poverty – on people’s livelihoods. The effect of education on subsistence agricultural production has been estimated in many different settings but no studies have dealt with the endogenous nature of education in the production process. This paper contributes to the literature by estimating the causal effect of education on subsistence agricultural productivity in Malawi. To estimate the causal effect of education in agricultural production, a two-stage least squares approach is used, using the introduction of free primary education and the age of paternal orphanhood as two instrumental variables (IV) for education. The causal effect of education on the earnings of the employed is also estimated to gain a deeper understanding of the role that education plays in rural Malawi. This paper finds that there are positive returns to education in agricultural productivity, specifically in maize production and, the total value of all produce. Returns to education are higher in the earnings sector though. A weighted local average treatment effect interpretation of the IV estimates suggests that high ability individuals get educated and select out of agriculture and into the earnings sector where the returns to education are higher.

Session E6
Trade 3


Marko Kwaramba, Neil Rankin and Prudence Kwenda-magejo, Tariff liberalisation and export trade margins in South Africa Abstract: This study investigates the impact of tariff liberalisation on South Africa’s export intensive and extensive trade margins focusing on European Union-South African Free Trade Agreement using panel data methodologies. The study estimates the impact of tariff reduction at the product, country and product-country level exploiting different ways of measuring trade margins. The estimation at product level is disaggregated according to different product classifications. Disaggregating estimation according to capital, consumer, intermediate and raw materials the results at the extensive margin show that it is only consumer goods that do not respond positively to tariff reduction. This suggests that South Africa does not export much of these categories, as they are easily manufactured in the EU market. These results are further confirmed under the Rauch classification, as homogenous products show a weaker relationship with tariff reduction. This shows that similar products are not easily traded, even if there is a tariff reduction. The implication therefore is that South African exporters should differentiate their products to increase trade with the EU. For the intensive margin, the results largely show that tariff reduction is associated with more export of similar products across time. Results at country and product-country level, for both the export intensive and extensive margins show that tariff changes lead largely to an increase in the number of varieties traded. This result is robust to different specifications. The impact of tariff liberalisation is further enhanced if the product was traded before the trade agreement. This implies that trade agreements largely promotes the diversification and intensity of product trade if there are pre-existing trade flows.

Francois Karl Steenkamp and Lawrence Edwards, The product characteristics of South Africa’s export growth Abstract: Classical trade theory along the lines of Heckscher-Ohlin states that trade between countries is explained by comparative advantage, which results from a combination of cross-country differences in factor intensity and cross-country differences in factor abundance. Guided by classical trade theory, this paper investigates whether South Africa’s export growth, particularly growth along the extensive margin, provides insight into its factor abundance. In order to address the objective of this paper, an extended version of the Baldwin (1971) commodity composition approach is employed. Instead of examining whether a country’s export structure can be explained by its relative factor endowments, this paper examined whether changes in a country’s export structure can be explained by its relative factor endowments. The analysis benefits from the use of highly disaggregated product level trade data at the 6-digit level and corresponding revealed factor intensity data at the product level developed by Shirotori, Tumurchudur & Cadot (2010). Initial results contradict existing evidence pointing to the capital-intensity of South Africa’s export structure (Alleyne & Subramanian, 2001). South Africa’s export growth reveals it to be natural resource abundant and human capital abundant.

Session E7

Dan Ben-moshe, Dependent Factor Models Abstract: The recent economics literature has emphasized the importance of allowing for many sources of unobserved heterogeneity that could be related in complicated ways. This paper studies factor models with arbitrarily dependent unobservables. We provide necessary and sufficient conditions for identification of the joint distribution of the unobservables. We show in an earnings dynamics model that identification is possible even with multiple sources of arbitrarily dependent unobserved heterogeneity. Estimators of the joint distribution converge uniformly and have tight confidence bands around their theoretical counterparts in Monte Carlo simulations. In an application to Tobin's Q theory we allow for Tobin's Q and financial constraints to both be unobserved and arbitrarily dependent.

Nicky Nicholls and Alexander Zimper, Modeling expectations: do likelihood judgments exhibit an inverse-S shape? Abstract: The Health Retirement Survey (HRS) asks individuals about their likelihood judgments for specific events such as, e.g., their retirement date, survival to a given age, etc. Economic models that use this data typically interpret reported likelihood judgments as subjective probabilities that enter as linear decision weights into the individuals' expected utility (EU) maximization problem. Empirical evidence suggests, however, that individuals are not EU but rather cumulative prospect theory (CPT) decision makers whose decision weights are not linear but exhibit an inverse S-shape. This paper analyses a survey that was designed to see in how far reported likelihood judgments exhibit such an inverse-S rather than a linear shape. Our finding that an inverse-S shape is predominant supports the notion that the likelihood judgments reported in the HRS could be directly used as decision weights in CPT maximization problems such as, e.g., savings and consumption decisions over the life-cycle.

Olusegun Ayodele Akanbi, External Debt Accumulation in Sub-Saharan African Countries: How Fast Is Safe? Abstract: This paper empirically examines the rate of debt accumulation that limits the probability of debt distress. The estimations are based on a panel of 45 sub-Saharan African (SSA) countries over the period 1972–2012 using the dynamic probit estimation techniques. The results from the estimations suggest that countries with poor governance rating can sustain a lower rate of debt accumulation while those with a good governance rating are able to sustain a higher rate of debt accumulation for a given probability of debt distress. A low-income country with a poor governance rating would not be able to accumulate any debt while for a middle-income country with poor governance rating is able to tolerate annual debt accumulation of up to 5 percent of exports. Low-income and middle-income countries with a medium governance rating can sustain up to 1.5 percent and 12 percent annual debt accumulation respectively. With good governance rating the rate of debt accumulation should not exceed 12 percent and 30 percent of exports for low-income and middle-income respectively. Given its current status, sub-Saharan African countries’ rate of debt accumulation is regarded as being unsustainable. This study has extended the debate on external debt sustainability and provides a benchmark for determining the financial commitments that should be offered to these countries.

Session E8
Fiscal Policy 1

Hammed Amusa and David Fadiran, Can Property Taxation Contribute to Cost Control: Empirical evidence from South Africa's Municipalities Abstract: In recent years, the incentive effects for public officials has formed an important part of debates discussions about implementing tax structures within decentralized governance structures. Emanating from these discussions is the hypothesis that by raising fiscal awareness, property taxation may work as a disciplining device that could assist in monitoring costs across local governments. The institutional setting in South Africa is setup in such a way that such a hypothesis can be tested empirically, since we can categorize municipalities within the local government sphere into those with and without a property tax regime. Hence, this presents a unique opportunity to assess whether or not the case of South Africa conforms countries with similar decentralized structures where, empirical evidence suggests that local governments with property taxation achieve significantly lower unit costs in the delivery of assigned functions. In this study we will employ propensity score matching to examine whether property taxes can contribute to controlling service costs across South Africa's municipalities

Mark Schoeman, Public Debt and Post-Crisis Fiscal Policy in South Africa Abstract: Almost nine years after the onset of the global financial crisis, South Africa is still struggling to consolidate the public debt it accrued by running countercyclical fiscal policy. Large deficit spending necessitated by the downturn in growth and upturn in unemployment-induced social spending caused South Africa’s public debt level to escalate to 43.9% of GDP by 2014. This rapid increase in the level of public debt has caused great concerns from many camps about the sustainability of South Africa’s debt path. This study identifies and analyses the key components of South Africa’s debt sustainability and short-term fiscal policy effectiveness in the post-crisis period. It judges South Africa’s countercyclical fiscal stance in response to the crisis against the major theoretical debates and empirical evidence in the literature. The risks of South Africa running large fiscal deficits are then evaluated with regard to both the level of public debt, and its associated interest payment burden. A variation of the Domar sustainability analysis is used to project South Africa's possible debt paths into the future. The study finds that South Africa’s debt dynamics are a cause for concern, where persistently high, or even exploding level of debt are possible outcomes unless serious fiscal consolidation is undertaken. Time-trend and scenario analysis is then used to trace the effects of the crisis on South Africa’s interest rate and interest payment burden of public debt. Despite low post-crisis interest rates on public debt, the study finds that the interest payment burden of South Africa’s debt is crowding out other forms of government spending. The study ends by highlighting the need for fiscal consolidation in South Africa and briefly investigating the role fiscal policy rules can play in achieving consolidation goals.

Raymond Alenoghena, Financial Market Development and Fiscal Deficit Financing in Nigeria Abstract: The Nigerian government has engaged in both domestic and external financing of it debts arising from its fiscal budget deficit. By government debts we look at total borrowing of the Nigerian government (at state and federal) whether in local or foreign currency. Economic theory and empirical literature has demonstrated that both sources of fiscal deficit have implication on the overall macroeconomic conditions of the country. The negative consequence of debt overhang experienced by Nigerian government arising from external debt obligation had led the government to engage more in domestic sources of financing its fiscal budget deficit. Financing budget deficits through domestic financial market has implications on both financial intermediation and stock market development. While several studies have investigated the effects of external debts on the Nigeria economy, less attention has been paid to the consequence of financing budget deficit internally from the domestic financial markets. The study seeks to investigate the impact of government fiscal deficit financing on the development of the Nigerian financial markets. A unique contribution of this paper is the adoption of hidden co-integration methodology that is specifically deployed to establish whether the long run relationship between fiscal deficit and financial market development is direct or indirect. While this method has been used in many other field like energy and trade, its application to fiscal policy issues is new and evolving. More specifically the study is designed to determine whether domestic borrowing has actually crowd in or crowd out private sector investment in Nigeria and also establish the nature and direction of the causal relationship between domestic financing of fiscal deficit and financial market development. Consequently, policy recommendations would be made on how to further improve the performance of the country’s financial markets.

Session E10
Health 1
Geol Sim

Katherine Eyal and Justine Burns, Up or Down? Intergenerational Mental Health Transmission and Cash Transfers in South Africa Abstract: We investigate the relationship between adolescent and parental mental illness, and the role income shocks in the form of cash transfers play in this relationship. The state of mental health care in South Africa is poor, and the prevalence of mental illness is high. Access to treatment is limited. The consequences of untreated psychiatric disorders are profound, especially in the formative period of adolescence. A dearth of research and data exists in South Africa in this area. We use the National Income Dynamics Survey, the only recent nationally representative survey which collects data both on mental illness and socio-economic factors. Cash transfers are found to be particularly important as a protective factor against teens developing mental illness, and specifically for those teens with parents who suffer from mental illnesses. Pensions are also found to be a positive factor for teen mental health. Using a number of methods, we find that the impact of parental depression on child depression is high - one third of children (adult or teen) who have parents who suffer from depression will themselves suffer from depression.

Chijioke Nwosu, Impact of Depression on Earnings in South Africa Abstract: It has been established that health plays an important role in the determination of economic growth in general and productivity in particular. Research on the impact of health on productivity/earnings has mainly focused on the role of physical health. Moreover, the importance of mental/psychological health has been emphasized in recent times. However, empirical evidence on the impact of psychological health/depression on earnings is scant in developing countries in general and South Africa in particular. South Africa has been identified as having a substantial depression incidence, as high as 27%. Therefore, it is important to investigate the impact of depression on earnings/productivity in the country. Data is from the nationally representative National Income Dynamics Study panel dataset. Two challenges in uncovering the pure impact of depression on earnings are reverse causality and unobserved heterogeneity. We exploit the timing of depression and earnings to overcome the problem of reverse causality while using sibling fixed effects corrected for within-family correlation to account for unobserved heterogeneity. The results show a negative impact of depression on earnings, a result that is robust to model specification.

Thursday10:00 - 10:20 Tea
Thursday10:20 - 11:20Parallel Sessions F
Session F1
Economics of
Education 3


David Lam, Arden Finn and Murray Leibbrandt, Schooling Inequality, Returns to Schooling, and Earnings Inequality: Evidence from Brazil and South Africa Abstract: Human capital models imply that both the distribution of education and returns to education affect earnings inequality. Decomposition of these “quantity” and “price” components have been important in understanding changes in earnings inequality in developed and developing countries. This paper provides theoretical and empirical analysis of the interactions of schooling inequality, returns to schooling and earnings inequality. We focus on two main questions. What is the relationship between inequality in schooling and inequality in earnings? How do changes in returns to schooling affect earnings inequality when returns differ by schooling level? We derive new analytical results that are used to guide empirical analysis of changes in earnings inequality in Brazil and South Africa. While both countries have had declines in schooling inequality, only Brazil has translated those into declines in earnings inequality. In South Africa, rising returns to schooling at the top have offset equalizing changes in the schooling distribution.

Stephen Chisadza, A Bivariate Probit Model of the Transition from School to Work in the Post-compulsory Schooling Period in South Africa Abstract: This paper looks at the impact that employment outcomes have on the school enrolment decisions of young adults during the post-compulsory schooling period. This is achieved through jointly modelling the probability of school enrolment with the probability of being employed. The study is based on young adult data from South Africa. In the study, we develop bivariate probit models segmented by gender and establish that this modelling procedure is more appropriate that single equation models. The findings will show that for females early parenthood is a significant factor in discouraging enrolment and formal work. For males we find that their perceptions of the labour market is an important determinant of both their schooling and work decisions.

Manoel Bittencourt, Democracy and Education: Evidence from the Southern African Development Community Abstract: I test the hypothesis that democracy in the Southern African Development Community (SADC) has had a positive effect on primary and secondary education during the 1980-2009 period. The results, based on panel time-series data and analysis (I use the Fixed Effects estimator to account for statistical endogeneity and heterogeneity and Fixed Effects with Instrumental Variables, ie globalisation and the end of the cold war are the contemporaneous external sources of variation to democracy, to deal with reverse causality in thin panels), suggest that democracy, and the more representative governance that is associated with it, has played a positive role on quantity of education, and to a lesser extent on quality of education as well, in the community. The results are significant not only because democracy is in its infancy in the continent and to make it work is an aim in itself in Africa, but because education is an important feature of growing economies as the SADC's.

Session F2
Firm Behaviour
and Employment


C. Friedrich Kreuser, Towards a Firm Understanding of South African Manufacturing: Introducing the South African Private Enterprise Dataset Abstract: All but a few studies on the South African economy have focussed exclusively on either labour, household or macroeconomic data. While these data sources are informative, within their respective fields, the lack of consistent firm level data has been a limiting factor in the analysis of issues such labour demand, export propensities and investment decisions, amongst others. This paper attempts to address this limitation with the introduction of the South African Private Enterprise Dataset (SAPED). This dataset pools seven of the available firm-level datasets currently available in the public domain. With the introduction of the SAPED, this paper seeks to answer two main questions. The first relates to differences in survey design and the identification of those variables most consistently reported over surveys. The paper shows that while differences in survey designs, especially with regards to sampling frames, pose a binding constraint to the generalisability of results, trends in firm-births, export-status and skill-composition may be identified when restricting analysis to specific firm-size clusters. The second question relates to the external validity of the data. Comparing the wage data in the SAPED against those observed in the PALMS shows that, while relative wages of different occupational categories follow broadly similar pattern, significant heterogeneity exists amongst firms of different sizes. With managers receiving relatively more than production workers in larger firms, and skilled production workers earning more than unskilled production workers in larger firms. In absolute terms wages reported in the SAPED are consistently around 2 and 1.5 times greater than wages in the PALMS series for managers and production workers respectively. Finally, an application of the Translog cost function shows that while capital and managerial workers are complementary inputs, capital and all types of production workers are substitutes, managers and production workers are compliments.

Lawrence Edwards, Wayde Flowerday, Neil Rankin, Gareth Roberts and Volker Schoer, Restructuring of the South African economy: 1994 – 2014 Abstract: The aim of this report is to provide an overview of the economic developments in South Africa since the first democratic elections with a focus on the changing structure of production and employment. This paper analyses sectoral shifts in production and employment, changes in firm characteristics and overall trends in labour market outcomes utilizing various firm and labour market surveys including the Post-Apartheid Labour Market Survey (PALMS), Large Sample Survey (LSS). Using a Chenery-style decomposition it provides a detailed analysis at the sectoral level of output and employment changes due to changes in domestic demand, exports, imports and technology. The sectoral level analysis is then complemented by an analysis of firm level data looking at changes in the characteristics of firms and their total factor productivity. The final section provides a detailed analysis of employment and earnings trends over the last twenty years. Our findings indicate that the post-Apartheid labour market has benefitted those at the top of the income and skills distribution the most and jobs and wages for those in high-skilled occupations have increased substantially relative to low-skilled occupations. Part of this is explained by between sector changes in the South African economy. Sectors which have traditionally employed large numbers of low-skilled workers have been contracting. However, most of the observed change in labour demand has been driven by within sector changes. Within sectors the labour-intensity of production has been decreasing and the skills-intensity increasing. Furthermore, the size distribution of firms seems to be changing too – the employment share of smaller firms, the types of firms which are arguably most likely to employ people with the profile of the currently unemployed, has been falling.

Frederick Fourie and Andrew Kerr, RED3x3: Informal sector employment creation in South Africa: What can the SESE enterprise survey tell us? Abstract: The NDP projects employment growth of 2 million in the informal sector up to 2030, but has no specific policy proposals to support the informal sector. This paper analyses the employment performance and constraints of enterprises in the informal sector, with a focus on firms with employees and, in particular, paid employees. Whilst one’s overall impression of the informal sector may be that of mostly 1-person street traders or spaza shops, we find that 25% of informal sector enterprises have paid employees. In 2013 these employing enterprises had more than 1.2 million income-earning workers (i.e owner-managers plus paid employees) – three or four times the direct employment of the mining sector. They increasingly operate in sectors such as construction, financial and other services. We use the Survey of Employers and Self-employed (SESE), which surveys owners of non-VAT registered enterprises. Whereas the QLFS provides information on the informal sector from the employee side, SESE provides data on enterprises, their owners and their employees. We use the 2013 data, released only recently, in conjuction with data from the first three rounds (2001, 2005, 2009) to analyse patterns of employment (paid and unpaid) of informal firms. We describe the characteristics of informal firms, including their age, size, location, employment, profitability and sector, and explore the characteristics of successful informal firms and the constraints on employment growth. Linkages to the LFS data also enable us to consider the personal and household characteristics of those involved in informal firms. Regression analysis is used to get a multivariate grasp of the relationship between enterprise performance (including employment) and the characteristics of firms and firm owners.

Session F3

J Paul Dunne and Santigie Mohamed Kargbo, Intraregional and Interregional FDI in Africa: Markets-driven, Natural resources or Efficiency-seeking? Abstract: The concentration of FDI in few large and/or resource-rich economies in Africa has received considerable attention in the recent literature and to debate over the development impact of these investment flows. There is however, little work that has considered the drivers of international investment flows, across the different types of economies. This paper provides an empirical analysis of the drivers of intraregional FDI, including markets, natural resources and relative labour costs. It then considers how well they explain investment flows in both resource and non-resource rich countries and whether they can explain the pattern of investments from the OECD and emerging market economies. Using recent bilateral FDI stock (UNCTAD, 2014) and the Hausman-Taylor IV estimation technique, the results suggest significant differences between the drivers of intraregional FDI and investments from the OECD and emerging market economies. Large markets and lower labour costs are significant in attracting intra-African investment to resource-rich African economies, while investments from the OECD and emerging market economies are driven by large markets to resource rich countries and by the presence of cheap labour to non-resource rich African countries. The availability of high-skilled labour is important in attracting investment from emerging markets to resource rich countries. The results also show an adverse effect of natural resources on FDI from the different sources.

Ceren Erdogan, Matthias Busse and Henning Mühlen, China's Impact on Africa - The Role of Trade, FDI and Aid Abstract: Over the last 15 years, China has become a major economic partner of Sub-Saharan African countries. In 2012 China became Africa’s largest trade partner. In terms of foreign direct investment (FDI), Chinese FDI flows to Africa increased more than tenfold in the last decade turning China into the largest developing country investor in Africa. At the same time, Africa’s growth performance has improved significantly. Following two decades of negative growth rates in the 1980s and 1990s, Africa’s Gross Domestic Product (GDP) per capita on average grew by around two percent since 2000. In view of this development, we investigate the question as to whether China’s increased trade,FDI and aid relations with African economies have contributed to the observed growth surge in Africa. In terms of methodology, we use a Solow-type growth model and panel data for the period 1991 to 2011 employing a standard OLS fixed-effects model. Depending on the partner country or product type, trade and FDI are likely to be endogenous with respect to economic growth. To mitigate both concerns, we also use the system Generalized Methods of Moments (GMM) estimator. We find that African economies that export natural resources benefit from China’s rising demand for raw materials due to both positive changes in their terms-of-trade and increasing exports of natural resources to China. On the other hand, imports of Chinese manufactured goods negatively affect African growth indicating displacement effects of African firms due to competition from China. Finally, we do not find a significant impact of Chinese FDI in Africa on African growth which may point to an insufficient FDI environment in African countries.

Session F4
Markets 3


Haakon Kavli and Nicola Viegi, A two-country DSGE model with portfolio flows and financial intermediaries Abstract: The paper presents a two-country DSGE model with a risk constrained financial sector that intermediates portfolio flows. Portfolio flows arise as demand for financial assets from foreign investors changes relative to demand from domestic investors. Risk shocks that only affect global investors cause strong flows out of shares and modest flows out of bonds. Risk shocks that affect both the global and emerging market investor causes strong outflows from emerging market bonds and small inflows to emerging market shares. The transmission channel that links portfolio flows to credit in emerging markets is the financial intermediary’s balance sheet. A portfolio inflow implies an injection of cash on the balance sheet. The cash reduces demand for savings or equivalently increases supply of credit. This affects the interest rate on deposits and changes the optimal consumption and labour by the household. Global policy makers can absorb shocks before they create a portfolio flow. Simulations show that financial shocks (eg: risk) can be absorbed by appropriate changes in the supply of global risk free assets. Global real shocks (eg: income) can be absorbed by keeping the supply of global financial assets fixed and allowing the prices to adjust. Local emerging market policy makers may attempt to use macroprudential policy to break the transmission channel to credit. The policy works by limiting the total risk exposure of the financial sector. Simulations show that tighter macroprudential policy does not succeed in reducing the impact of portfolio flows.

Christelle Grobler and Ben Smit, Enhancing the financial sector linkages in the Bureau for Economic Research’s core macroeconometric model Abstract: The global financial crisis highlighted the importance of incorporating the financial sector into macroeconometric models. The aim of this paper is to present the enhanced financial sector linkages and the results of financial sector shocks to the Bureau for Economic Research (BER)’s core model. The BER employs a suite of models approach in its analysis and forecasting of the South African macroeconomy. Its core macroeconometric model is a medium sized semi-structural demand-orientated model with specific supply-side elements. This multiple-equation model is estimated with a cointegration approach for long-term behaviour, while allowing for dynamic error-correction in the short term. Apart from introducing a finance-neutral measure of potential output, a role for credit and assets markets was investigated. The incorporation of measures of lending standards (as surveyed by the BER in its Financial Sector Survey), lending rate spreads, some macroprudential policy levers such as capital adequacy and liquidity ratios, asset prices, and aggregated measures such as a financial conditions index were explored. The aim was to broaden the monetary transmission mechanism in the model so that financial markets have an explicit impact on real variables in addition to the usual interest rate and exchange rate channels. For example, trends in asset prices (affecting for example household net wealth) and lending standards should impact on real household consumption and private sector fixed investment (particularly residential fixed investment). While central banks have widely adopted DSGE-type models, many national treasuries and other institutions use models similar to the BER’s core model. There is a vast literature on incorporating the financial sector into DSGE-type models. This literature is rather limited for more traditional forecasting models. An additional objective was to summarise and add to this literature in documenting the changes to the BER’s model.

April Mthupha and Kutlwano Ramaboa, Investigating the Share Price on the Jse Rafi 40 in Reaction to Public Company Announcements Abstract: Understanding market nuances and the application of financial models allows prospective and existing investors the opportunity to make informed decisions based on relatively predictable future returns. Despite investors’ aspirations to grasp the advantageous nature of the market, it has been proven over time that not all market movements are predictable. When the market over or under-delivers, a window of opportunity is created for astute investors. Using traditional event study methodology, this paper therefore seeks to determine the importance of the timing of event pronouncements on the share price of quarterly, interim and annual earnings announcements for securities incorporated in the JSE/RAFI 40. Only 39 of the RAFI 40 companies that had earnings announcements pertaining to the company during a 5 day window period from October 2007 to September 2014, were included in the study. CAPM was used to calculate the expected stock market returns for the estimation window, then abnormal returns calculated for the event window, then the significance of the abnormal returns determined in post-event window period. The evidence indicates that although abnormal returns are inevitable around the time of a public announcement, not all are considered statistically significant, but there is a cumulative impact of the abnormal returns dependent on the type of earnings surprise. Thus the RAFI 40 index exhibits a moderate form of market efficiency where some shares are priced more efficiently than others, explaining how it has managed to outperform other indices in the market.

Session F5
Exchange Rates


Darrol Stanley, Levan Efremidze and Jannie Rossouw, Trading of the South African Rand Utilizing Entropy Analytics Abstract: This paper examines the effectiveness of Entropy Analytics on the trading of the South African Rand (Symbol R; Code ZAR). The Rand is the anchor currency of the Common Market Area between South Africa, Lesotho, Namibia and Swaziland (LNS countries). The LNS countries issue their own currencies, but their currencies are linked to the Rand with the Rand currency circulating freely in the LNS countries. The importance of Rand currency trading has signally increased within South Africa itself. This is due to regulatory changes and the rise of Exchange Traded Notes (ETNs). This paper focuses on only one type of ETN: the USD/ZAR currency funds. One such example is the recently formed ABSA NewWave USD ETN. This currency relationship has been subjected to numerous market timing trading methods. The currency relationship has not been subjected to an analysis utilizing Entropy. Entropy is a relatively un-tested financial methodology. It is part of the rapidly expanding field of EconPhysics looking at randomness and disorder. The concept has further been expanded to research of the financial markets (Pincus, 2008; Maasouni, 2002; Molgedey, 2000). No research has been done on Entropy and the USD/ZAR relationship. This paper will test the USD/ZAR price series utilizing Sample Entropy (SaEn). The test period will be the last ten years ending June 30, 2015. Results will be risk-adjusted after estimated trading costs within an ETN environment. The objective behind the study is to facilitate a new market trading technique by introducing a relatively un-tested investment methodology that could be pragmatically utilized in investment management of South African portfolios by both individuals and professionals especially with the ever increasing ETNs traded, both in number and volume, on the Johannesburg Stock Exchange.

Nasha Nikita Alexandre Mavee, Axel Schimmelpfennig and Roberto Perrelli, Surprise, Surprise: How Unexpected Economic News Drives the Rand/U.S. Dollar Exchange Rate Volatility Abstract: In this paper, we investigate the role that economic news/surprises play as determinants of the daily Rand/Dollar exchange rate volatility; distinguishing between domestic and global news, since the outbreak of the 2008 global financial crisis. We use the Citi macroeconomic surprise index (measured as the difference between actual macroeconomic data releases and Bloomberg survey median consensus) for the United States, the euro zone, China, emerging markets, and for South Africa as explanatory variables of volatility. We examine the link between local and external macroeconomic surprises and exchange rate volatility using a Vector Autoregression (VAR) framework using the implied conditional variance from a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model as a measure of volatility; adding control variables, reflecting other factors that affect exchange rate volatility – including, the changes in commodity prices - for robustness checks. Our preliminary results suggest that while the Rand/Dollar exchange rate volatility responds significantly to both local and external economic surprises, external surprises have a larger and more persistent impact on the Rand/Dollar volatility. These findings suggest that, the Rand’s extensive depreciation and increased volatility in the aftermath of the global financial crisis has primary been driven by external news spillovers during and after the crises amidst the subsequent expectation of policy rates normalization going forward coupled with the decline and increased volatility of global commodity prices.

Tony Nchokoe Matlasedi, Richard Ilorah and Stephen Zhanje, The impact of the Real Effective Exchange Rate on South Africa’s trade balance Abstract: South Africa is currently confronted with a huge deficit in the current account of the BOP as reported in the SARB Quarterly Bulletin (March 2015). The balance in the fourth quarter of 2014 was at a deficit of R207 billion representing ±5.4% of the country’s GDP and part of it came as a result of a seemingly perpetual trade deficit which was reported at R35 billion for the 4th quarter and a cumulative R69 billion for the year 2014. On the other hand, the Rand has taken a beating against most major currencies throughout the year 2014. On January 09th 2014, the rand was trading at R10.81 to the US dollar, thus succumbing to its weakest level since 2008 (Pressly, 2014). The Rand also hit a near seven-year low against the pound sterling, trading at R17.70 on the same day (Pells, 2014) and from December 2013 to December 2014, the Rand lost about 9.5% of its value against the dollar. Against this background, it is clear that in South Africa, the trade balance (deficit) and the exchange rate seem to be moving together. Thus, the proposed study aims to determine to what extent the movements in the Real Effective Exchange Rate impact on South Africa’s trade balance. Empirical studies have shown that there exists a nexus between trade balance and the exchange rate, thus, the Auto Regressive Distributed Lag (ARDL) approach to cointegration by Pesaran, Shin and Smith (2001) will be employed on quarterly South African data spanning the period 1980Q1-2014Q4 to find out the impact of the Real Effective Exchange Rate on South Africa’s trade balance in the short and long run. The J-Curve phenomenon as well as the Marshal Learner condition will also be ascertained by the study

Session F6
Fiscal Policy 2

Kabeya Clement Mulamba and Fiona Tregenna, The crowding-out effects between components of municipal expenditure Abstract: The main objective of this paper is to empirically test whether municipal expenditure on governance and administration is crowding-out other categories of municipal current expenditure, notably municipal current expenditure on trading, economic and environmental, and community and public safety services. The secondary objective is to detect the crowding-out effects between categories of municipal current expenditure. Budget information for a sample of 141 municipalities for the period of 2008/2009 - 2013/2014 was collected and analysed by adopting a dynamic panel data framework proposed by Arellano and Bond (1991), Arellano and Bover (1995) and Blundell and Bond (1998). Three dynamic panel functions of municipal expenditure categories were estimated using the First-Differenced Generalised Method of Moments and the System Generalised Method of Moments. Empirical evidence showed that municipal expenditure on governance and administration did not crowd-out other categories of expenditures. Instead, it was discovered that municipal expenditure on trading services were crowded-in by municipal expenditure on governance and administration. In respect to the secondary objective, it was found that there were crowding-in effects between categories of municipal expenditures.

Kabeya Clement Mulamba and Fiona Tregenna, Convergence of municipal expenditure in South Africa Abstract: The main objective of this paper is to examine whether there was convergence of municipal expenditure in South Africa. Convergence describes a situation in which there is a rapid growth rate of real per capita total expenditure for municipalities that had an initial lower level of expenditure, while those with initial higher levels exhibit a slower growth rate. Municipal budget information was collected for 54 municipalities for the period 2005/2006 to 2014/2015, and regression techniques were applied to estimate the functions of municipal total expenditure. Empirical results show that there was absolute and conditional β-convergence of real per capita municipal total expenditure for the period under consideration. The coefficient of variation (CV) were calculated to tract the evolution in the dispersion of both municipal expenditure and own revenue. The obtained CVs were then used in a graphical representation, which attested to the existence of σ-convergence for expenditure and own revenue.

Sabelo Mtantato and Sasha Peters, A Review of Direct and Indirect Grants in South Africa: Case study for selected infrastructure grants Abstract: Intergovernmental fiscal transfers are a dominant feature of public finance in many countries where there is more than one level of government including South Africa. This is driven mainly by differences with respect to the revenue raising abilities and powers. In South Africa, intergovernmental transfers in the form of direct and indirect conditional grants were introduced in 1998/99 and since then, conditional grants had evolved over time. Conditional grants have been key in the funding of infrastructure and reduction of infrastructure backlogs in various sectors. Recently, there has been an increasing trend in the use of indirect grants as opposed to direct grants in funding of key infrastructure delivery in South Africa without evidence to show whether such a shift improves performance, this paper seeks to provide such evidence. To accomplish this and using both an expenditure performance and infrastructure/service delivery approach, the study has utilized education, health, electrification and sanitation infrastructure grants as a case study. The rationale for choosing these conditional grants is the fact that they have both indirect and direct components. Results with respect to the expenditure approach show that direct grants outperform indirect grants. The only exception is the indirect component of electrification grant. On infrastructure delivery performance, the non-availability and incompleteness of data on targets and subsequent delivery and delivery targets not properly aligned to the actual delivery presented a biggest challenge to clearly conclude on infrastructure delivery performance. However in cases where data was available, for example in education, the indirect grant registered low target attainment. On electrification, indirect grant outperforms direct component but the later also performed well on average and exceeded 100% of its planned target in some years.

Session F7
Redi 3x3:


Thando Vilakazi and Simon Roberts, REDI3x3: Understanding firm behaviour and the implementation of competition policy as part of an inclusive growth agenda for South Africa Abstract: The paper will assess the realities and challenges of implementing competition policy to address the exertion of market power unilaterally by large firms or through collusive arrangements. Through reviewing the theoretical framework and literature linking competition policy and barriers to entry with outcomes such as job creation and inclusive growth, the paper develops a framework for understanding the centrality of competition legislation as a microeconomic tool towards achieving more inclusive outcomes in the South African economy. The paper then draws on specific case studies from recent South African competition cases, impact assessment studies, and cross-country research in key sectors such as fuel, fertilizer trading, cement, sugar and commercial poultry to demonstrate the role of competition policy in addressing strategic barriers to entry and participation in key economic sectors of the South African economy. [Submission for REDI 3X3 panel: Inclusive Growth]

Gaylor Montmasson-clair and Reena Das Nair, Redi 3x3: Channelling Economic Regulation to stimulate Inclusive Growth: Lessons from South Africa’s Renewable Energy Experience Abstract: The world is currently facing a triple challenge of sustainability on economic, social and environmental fronts. The current growth model is clearly unsustainable and a paradigm shift is urgently required to set economies and populations on a renewed development path. The transition to an inclusive green growth model, stemming from the concept of sustainable development, has been recognised as a ground-breaking way forward. Infrastructure development is one area which the state and economic regulators can leverage to foster inclusive growth. Infrastructure development has so far not been done in an inclusive manner and the potential of economic regulation has not been harnessed accordingly. Furthermore, the role that regulation can play in fostering inclusive growth through creating opportunities and removing barriers to entry by stimulating competitive rivalry remains largely under-researched. The analysis of the Renewable Energy Independent Power Producer Procurement Programme in South Africa for the commissioning of large-scale renewable energy generation capacity provides valuable insights on these issues. Owing to the renewable, clean nature of the electricity produced, the programme is assumed to be in support of a growth model more conscious of environmental and climate change issues. The inclusive nature of the programme from an economic and social perspective however remains more questionable and requires an in-depth analysis. This paper reviews the development of South Africa’s renewable energy sector from an economic regulation and inclusive growth lens. The regulatory framework governing the sector is examined, looking at the policy and institutional environment, and their role in contributing to inclusive growth objectives. The paper investigates the role that regulation can play in stimulating inclusive growth, particularly through the promotion of both competitive and socio-economic outcomes. The paper also looks at the importance of understanding vested interests in dampening inclusive growth outcomes through regulation.

Session F8
Income Mobility

Rulof Burger, Stephan Klasen and Asmus Zoch, Estimating income mobility when income is measured with error: the case of South Africa Abstract: There are long-standing concerns that household income mobility is over-estimated due to errors in income measures, especially in developing countries where collecting reliable survey data is often difficult. We propose a GMM estimator that exploits the existence of three waves of panel data to simultaneously estimate the extent of income mobility and the reliability of the income measure. Our estimator is more efficient than 2SLS estimators used in other studies and produces over-identifying restrictions that can be used to test the validity of our identifying assumptions. We also introduce a nonparametric generalisation in which both the speed of income convergence and the reliability of the income measure varies with the initial income level. This approach is applied to a three-wave South African panel dataset. The results suggest that the conventional method over-estimates the extent of income mobility by a factor of 4 and that about 20% of variation in reported household income is due to measurement error. Nonparametric estimates show that there is relatively high (upward) income mobility for poor households, but very little (downward) income mobility for rich households, and that income is much more reliably captured for rich than for poor households.

Thomas Ferreira, Measuring Economic Mobility in Namibia using Repeated Cross-sections Abstract: Namibia has experienced sharp declines in poverty over the last two decades. Estimates from the World Bank suggest that the poverty rate at the national poverty line declined from around 70% in 1994 to 29% in 2009. Studying economic mobility in the country would provide great insights into understanding the sharp declines in poverty. Traditionally, econometric studies of economic mobility have hinged on the availability of panel data. For Namibia, however, no panel data exists. To overcome this limitation, this paper exploits a method developed by Dang et al. (2014) that uses repeated cross-sections to estimate bounds on the joint probability of staying in or out of poverty, or moving into or out of poverty over two periods. The method produces particularly narrow bounds for Namibia, when compared to other studies, and suggests that from 2003 to 2009, between 21.8% and 23.2% of the population moved out of poverty while between 10.5% and 18.9% of the population remained in poverty.

Session F9
Behavioural and


Ece Yagman and Malcolm Keswell, Economics of Language: Accents, Trust, and Discrimination in a Social Exchange Setting Abstract: Mounting evidence in experimental economics has shown that the ascriptive characteristics of a subject in a strategic setting is predictive of behaviour. However, in real world social interactions, individuals receive signals as a "package". In this paper, we investigate whether visual and audial signals are predictive of trust behaviour. Subjects were recruited to play a trust game when the only information they received was the race and linguistic background of their partners. Player As were randomly paired with player Bs of the same/different race, and asked to play the trust game, after looking at a photograph and hearing a 10 second audio clip of their player B partners. The audio clip was designed to reveal the extent to which the player B subject spoke with a discernible non first-language English accent. We also use attribute assessments on trust game participants by a group of peers not participating in the experiment to control for endogeneity. We find that a mother tongue English accent has a positive and significant effect on trust. Offers increases by 11% if player Bs have a mother tongue English accent and do not share the same race as Player A. This effect is especially pronounced for Black males. In particular, we find a significant in-group bias that appears to be strongly non-linear in accent: Black males trust other Black males about 19.5% more when their player B partner has a mother tongue English accent. By contrast, females in general seem less sensitive to the audial signals. Finally, we also find that these magnitudes are about half as high when one controls for the probability of being an unconditional truster (offering the entire endowment) or unconditional non-truster (making a zero offer) suggesting that subjects who are at either extreme of the trust spectrum are displaying anchoring behaviour.

Melt van Schoor, Imperfect Outcomes in the Ultimatum Game - Results from an Agent-Based Simulation Model Abstract: It is well established in lab and field experiments that real-world subjects in the Ultimatum game exhibit behaviour that contradicts the predictions of the game theoretic solution based on subgame perfection. Proposers given an amount of money to divide between themselves and a responder, who can reject the offer so that neither gets anything, typically give substantially more than the minimum and responders often reject low offers. To many, this suggests that subjects are motivated by fairness norms or inequality aversion, but others have suggested that experimenters are observing the effects of imperfectly rational behaviour. A paper by Gale, Binmore and Samuelson (GBS) criticizes the use of the subgame perfect equilibrium as a solution concept in this context and illustrates how subgame imperfect behaviour can persist in an evolutionary learning model based on the simple replicator dynamic. Critically, their model incorporates noise, or agents switching their strategies randomly, at a low rate. In this paper, I implement an adaptive agent-based simulation model of agents playing the ultimatum game. The model is closely based on GBS but features the possibility of "random drift" affecting the distribution of strategies since it does not have infinite populations of agents. Results show that this drift can prevent the system from getting "stuck" at certain subgame-imperfect equilibriums unless the population is extremely large. A further simulation illustrates that results are highly sensitive to the distribution of errors made by agents: if errors are more likely to be small then the system reverts more easily to the subgame perfect result. Despite these results, I argue that the evolutionary model gives important insights for understanding experimental results in the Ultimatum game.

Dambala Gelo Kutela, Cooperation under alternative punishment institutions: Experimental evidence from commons’ dilemma Abstract: Although common property right has been observed to outperform state property right in sustaining commons thereby generating efficiency gain, observations in the field reveal a great deal of variation in the resource outcomes. In this paper, using a common pool resource (CPR) game framed field experiment, we examine whether cooperation in resource appropriation varies with alternative enforcement institutions. Our treatments included open access regime (baseline treatment), external/third party enforcement institutions (collective punishment and individual random fine punishment) and peer/diffused punishment mechanisms of the forest commons management. We found that, compared to open access regime treatment, all the treatments considered sustained cooperation (reduce resource extraction level), but peer punishment instrument appears to be the strongest deterrent of free-riding behaviour. Among externally imposed enforcement instruments, collective punishment performed better than individual random fine treatment. Overall, the analysis shows that peer punishment mechanism (endogenous institution) proves to be effective instrument to correct coordination problems of commons management than external enforcement alternatives. However, there is evidence that the efficacy of the former depends on the cost of enforcement. In terms of policy choice, our results corroborate significance of devolving authorities to enforce commons management rules to locals than state enforcement in decentralized management of these resources.

Session F10
Economic Growth
Geol Sim

Shingie Chisoro and Roula Inglesi-lotz, Exploring the relationship between energy Research and Development (R&D) investment and economic growth using a comparative analysis Abstract: My paper takes a departure from the traditional mainstream models of economic growth that treat labour and capital as the primary factors of production; towards energy-based models which take into account the role of energy in the growth process, capable of limiting economic growth. This is, especially, relevant in the South African context where energy sustainability challenges continue to impose strong constraints to economic growth; and hence traditional theories fail to fully explain SA’s growth process. This paper explores the relationship between energy research and development (R&D) investment and economic growth in South Africa. The study shall address the question: How much should South Africa spend on energy R&D investment in relation to other countries in order to achieve high levels of economic growth and how does increased R&D investment in the energy sector lead to higher economic growth. This paper uses a cross-country comparative analysis using the BRICS nations. I look into the historical trends in energy R&D expenditures along the development path of the BRICS nations using data on gross domestic product. This allows me to establish the kind of relationship that exists between energy R&D investment and economic growth in each country and draw comparisons between South Africa and its ‘peer’ nations. A comparative analysis helps in understanding how different countries have achieved higher economic growth through increased R&D investment and serves as a benchmark with regard to how much South Africa should spend on energy R&D. However, comparisons across countries, although they serve as a benchmark to performance, need to take into account the inherent differences between countries.

Gupta Rangan, Lardo Stander and Andrea Vaona, Openness and Growth: Is the Relationship Non-linear? Abstract: Despite almost a century of studies and recommendations, there is still no consensus in the literature regarding the openness-growth nexus. Using a novel, Lucas (1988)-type augmented two-sector monetary endogenous growth model appropriate for a small, open economy characterized by human capital accumulation and productive government expenditure, we analyse the nature of the relationship between openness and economic growth. In the augmented-form, external openness enters the human capital accumulation function directly and has a standard positive impact due to knowledge spillovers. Productive government expenditure also has an impact on human capital accumulation, but relies on seigniorage revenue, besides taxation, to be financed. The productive expenditure is a negative function of the degree of openness, since the money demand function, and hence, seigniorage revenue is itself dependent negatively on the level of openness. Specifically, the theoretical findings indicate two, opposing effects of openness on growth - a direct effect of openness on growth through the human capital accumulation function, and an indirect effect of decreasing seigniorage revenue on growth through decreasing productive government expenditure on human capital. We show conditions under which the resultant openness-growth curve can be u- or inverted u-shaped, but do not specify theoretical functional forms or values to unknown parameters in the model to provide a concise theoretical result. Rather, using a sample of 26 exact model-match countries over a sample period of 1980-2012, we rely on a non-parametric, data-driven empirical approach to provide empirical impetus to the theoretical outcomes reported. We show that the relationship between openness and growth is nonlinear and specifically, inverted u-shaped. The result suggests that openness can only have a positive impact of growth after a certain threshold-level, below which, the effect is negative.

Mohammad Salahuddin and Jeff Gow, The effect of the Internet on economic growth in Southern African countries: A combination of panel and time series approaches Abstract: This study examines the relationship among Internet usage, economic growth, financial development and trade openness using panel data for a panel of Southern African countries for the period 1990-2012. It estimates an encompassing model of short and long-run effects using the Pooled Mean Group regression technique. The findings indicate positive long run relationship between Internet usage and economic growth at 1% level of significance. The relationship in the short-run is insignificant. Both financial development and trade openness stimulate economic growth in the region. However, the short-run association between economic growth and these variables are insignificant. Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS) methods are applied for individual countries. Results from these estimates support the panel results for most of the countries. Based on findings, the study recommends that the policy makers of these countries must recognize the importance of the Internet in their economies and subsequently promote investment in building and expanding Internet infrastructure taking into cognizance the digital divide issue both within countries and across the panel.

Thursday11:25 - 13:05
AGM, Presidential Address & Questions to the Editor of the SAJE
Thursday13:05 - 14:00 Lunch
Thursday14:00 - 15:20Parallel Sessions G
Session G1
Inequality 1

Servaas van der Berg and Debra Shepherd, South Africa is not a Latin American country: Prospects for wage redistribution Abstract: Inequality has declined strongly in most Latin American countries, reversing earlier trends. Central to this was a reduction in wage inequality, caused by reduced convexity in the ‘returns’ to education (as conventionally measured). Improvements in education, on the other hand, were more likely to give rise to Bourguignon’s ‘paradox of progress’, where educational improvement sometimes worsens wage inequality. Given South Africa’s history, much policy attention is focused on reducing inequality. Attempts at setting future distributional targets – such as the National Development Plan – often seem unrealistic. To assess what is realistically achievable, it is useful to consider both past history and factors that influence distributional outcomes. Earlier decompositions of inequality by income source show that the largest source of income inequality between households (ignoring household size) lies in the distribution of wages across households. This points to the importance of wages for understanding distributional prospects. This paper therefore shows trends in the convexity of wage income using Mincerian returns to education. Simple simulations show the likely implications of the reduction in convexity would be for wage inequality. The first set of scenarios focus on employment: Given an unchanged household structure, the possible effect of more jobs on wage distribution will be estimated, assuming that wages of those currently unemployed will reflect their predicted earnings from a Mincerian earnings function, plus a stochastic element. A separate set of scenarios regarding wage levels will then be tested, including a linear return structure to education that generates the same aggregate wage bill. Thereafter, scenarios will be tested relating to the education of the labour force, under alternative return structures. These basic comparative-static micro-simulations will be used to test how sensitive measures of poverty and distribution are to changes in these variables. The implications for policy will then be discussed.

Rahul Anand, Siddharth Kothari and Naresh Kumar, Labor Market Dynamics and Inequality in South Africa Abstract: What determines the labor market outcomes of individuals in South Africa? Also, what is the role of unemployment in persistently high inequality in South Africa? To answer the first question, we use a matching algorithm to construct a panel dataset out of the Quarterly Labor Force Survey (QLFS), which allows us to track the same individual over time. The panel dataset is used to analyze which individual characteristics matter for the job-finding rate and employment-exit rate (defined as probability of an individual transitioning from unemployment to employment and employment to unemployment respectively). While prior work experience and gender are found to be important determinants of the job-finding rate, education attainment and race of an individual are important determinants of the employment-exit rate. Using stock-flow equations (Shimer, 2012), we also conduct counterfactual exercises to quantify the role of these different transition rates on unemployment. Finally, we test whether the informal sector is a segmented market or whether informal employment acts as stepping stone into the formal sector. Next, we explore the relationship between high unemployment and inequality in South Africa. Using data from the National Income Dynamics Survey, we find that although lower levels of unemployment would reduce inequality, its impact on Gini coefficient is small. Our preliminary simulations suggest that a 10% point reduction in unemployment will result in a 3 percent fall in Gini. However, achieving a similar reduction solely through transfers would require a 40% increase in government transfer (more than 2 percent of GDP).

Anthea du Toit and Martin Wittenberg, Decomposing changes in South African earnings inequality 1994-2011: The role of skills and institutions Abstract: Indications are that South African earnings inequality increased since 1994. During this period, the South African labour market was subject to a range of influences, including the enactment of several important pieces of labour legislation, growing union power, increased openness to trade, rising educational attainment combined with signs of worsening quality of education and the rise of the HIV/AIDS pandemic. In terms of global trends, South Africa has also been exposed to the microcomputer revolution, which has had a dramatic influence on the production technology and labour productivity of companies worldwide. This paper uses a decomposition method to examine changes in South African earnings inequality, in order to distinguish between the relative importance of price effects, compositional effects and other effects such as institutional factors or measurement error. While the results indicate that skills biased technological change (SBTC) or globalisation may have been responsible for the increase in earnings inequality in the top half of the distribution, there is less support for these theories in the bottom half. There is also some evidence that rising compositional effects have led to increases in inequality, although the effects are limited. Changes in the bottom half appear to have been relatively unaffected by skills. As a result, we conclude that institutional factors have probably been a more important driver of changes in overall earnings inequality. Higher union power, higher minimum wages and lower discrimination as a result of legislative changes are all predicted to lead to a reduction in earnings inequality, and are therefore consistent with the observed trends. Furthermore, institutional rigidities may have resulted in wages that cannot fully adjust in reaction to other factors such as SBTC and globalisation, so that the burden of adjustment has been left to employment

Session G2
Health 2

David Khaoya, Murray Leibbrandt and Ingrid Woolard, Income Related Health Inequalities in South Africa Abstract: The measurement approaches for health inequality assume the existence of a ratio scale variable. However, the health information available in surveys such as self assessed health (SAH) is given in the form of categorical variables. The standard concentration index is not always readily applicable to measure health inequality as it results in ar- bitrariness of health inequality. In this paper we solve this problem by scaling SAH using predictions of interval regression that can also be interpreted as health utilities or quality adjusted life years (QALYS). We apply the corrected concentration index on scaled SAH of adults in the National Income Dynamics Study of South Africa to esti- mate the extent of income related health inequality. The corrected concentration index is recommended because it is best suited for bounded health outcome variables such as SAH. We then decompose the inequality into factors that contribute to the inequality as well as the change in inequality over time. We nd that income related health inequality is distributed in favour of the rich in South Africa. This is explicable by disparities in income and education.

Claire Vermaak and Tamlyn McKenzie, The prevalence and opportunity cost of disability in South Africa Abstract: Disability hampers individuals from participating fully in society, and thus carries great potential individual, social and economic costs. This paper estimates disability prevalence for South Africa using data from the 2011 Census, and estimates some of the opportunity costs of disability to individuals and households. The paper identifies disability both in terms of individual activity domains and also on aggregate, using the UN Washington Indicator on Disability. The paper shows that 7 million people or 17 percent of South Africa’s population have one or more moderate disability, while 1.6 million people have severe disabilities. The data also show that disability prevalence varies greatly with age. The paper uses multivariate analysis to estimate some opportunity costs of disability to individuals and their households, focusing on education and employment status. Children with disability are significantly less likely to attend school, with the lowest attendance occurring amongst children with severe walking or communicating difficulties. There also appear to be long-term educational impacts, as adults with disability have completed significantly fewer years of schooling than those without disability. Multinomial logit analysis indicates that adults with all impairment types are less likely to be employed, and more likely to be economically inactive, than those without disability. Adults with most impairment types are also less likely to want to work. Amongst economically active adults, those with severe disability are significantly less likely to be employed. The presence of a person with disability in the household decreases the likelihood of other household members being employed, but raises their likelihood of wanting to work. The paper therefore suggests that disability lowers educational attendance and attainment, and decreases labour market access. These opportunity costs arise not only for the person with disability: a household member having disability hampers other individuals from searching for and finding employment.

Alfred Mukong, Social Networks and Maternal Health Care Utilisation in Tanzania Abstract: Social networks are increasingly being recognised as having an important influence on the health market outcomes, as they facilitate the exchange of information on health and health care related issues. Networks reduce search costs by providing information to peers about the appropriate health care providers and details about the functioning of the health care system. In this paper, we examine the impact of information externalities generated through network membership on maternal health care utilisation in Tanzania. We further propose new approaches for quantifying the size of one’s network. An econometric approach that minimises the problems of omitted variable bias is adopted. Using the 2010 Demographic and Health Survey data for Tanzania, a country characterised by low levels of maternal health care utilisation we find that social networks may enhance antenatal completion and early antenatal check-up probabilities by an additional 6-35 percent and sometime up to 59 percent. The results suggest that failure to adequately control for omitted variables would lead to substantial under-estimation of the network effect. Finally, we show that irrespective of the measure of the size of the network, high quality networks have better outcomes than low quality networks.

Session G4

Mduduzi Biyase, Microeconomic Determinants of Migration and Remittances in South Africa Abstract: We use the National Income Dynamics Survey (NIDS) data for the period 2008-2012 to estimate the microeconomic determinants of remittances of migrants to their household of origin. A Tobit, Heckman Selection and Two-Part models were applied to analyse the determinants of the probability and the amount of remittances received by the household of origin. The findings reveal that most of the variable coefficients such as the age of the household head, household income, gender and employment status significantly affect both the probability and the amount of remittances received by the household of origin.

Oluwatobi Enigbokan, Beverly Edkins and Olukunle Ogundele, Relevance of Migration Theories in the identification of influencing factors for Nigerian and Zimbabwean migrants in South Africa Abstract: Nigerians and Zimbabweans form the largest group of African migrants in South Africa that keep growing despite being impacted by violence due to xenophobic behaviour. Factors such as the expectation of higher incomes have been identified by various economic theories as influential on migrants’ choice of host country. However, there have not been existing studies to identify specific factors influencing these group in South Africa. The aim of the study is to identify the specific factors that contribute to migrants’ decision to leave their home country for South Africa. More so, to understand international migration theories that can best explain the migration pattern for this migrant group in South Africa. Focus group method was adopted for data collection for the study. This is due to the difficulty of access to migrant population data as the persistence of international migration data paucity remains a reality in Africa. In other to attain quality results, members of the focus groups were selected based on their experience, gender, marital status, vocation and years of stay. Thematic analysis was used to analyse the transcripts of the discussions held with the focus groups. The results reveal that non-economic factors are as important as economic factors in explaining a migrant’s decision making process. Network Theory of migration is found to be the most appropriate for describing the factors that influence migration to South Africa. The presence of existing migrant social networks influenced the migration decision of many of the immigrants. The networks established by these migrants in the host countries continue to serve as a coping mechanism, even in view of the hardships and discriminations they face. It is also a strong pull factor that draws new migrants into the country, although, the underlying reasons for migration may either be a political or economic push from home countries.

Marcel Kohler, An Empirical Analysis of Energy Efficiency in South Africa Abstract: Improvements in energy efficiency are accepted as one of the most cost-effective means in reducing energy consumption and CO2 emissions internationally. This empirical study focuses on the economy-wide determinants of energy efficiency in South Africa in an effort to identify and understand the driving forces behind changes in the economy’s energy use and in so doing informing the country’s energy efficiency policy. Method: In determining the drivers of South Africa’s energy efficiency the empirical model employed estimates both a long run and a related short run equation for determining energy efficiency using a co-integration approach. In the long run E/Y = f((K/Y, GFCF), where: E is technical energy use discounting for both energy quality and industrial structure, K is the capital stock, Y is real GDP and GFCF is investment. The short run equation relates the change in energy use to the lagged error of the long run equation and to the capital/output ratio. Result: In the long run the study finds that the level of energy use in South Africa is very closely related to the country’s capital stock. The R2 for this equation is high, at 0.94. In the short run the study finds that a rise in the capital/output ratio reduces the country’s energy use, while a fall in the capital/output ratio increases its energy use. Discussion: The research suggests that it is the relationship between energy and the country’s capital stock that has to be changed, if the SA economy is to become more energy efficient. In promoting energy efficiency, energy policy in SA should focus its attention on monitoring the economy’s energy/capital ratio. This is preferable to drawing conclusions regarding changes in energy efficiency by monitoring the economy’s energy/output ratio as this study indicates is fraught with difficulties.

Session G5
Markets 4


Kofi Agyarko Ababio and John Muteba Mwamba, Comparative Performance Assessment of Expert Subjective Ranking of Stocks in the Financial Industry: The Use of Multi Criteria Analysis Abstract: Financial performance and investor suitability evaluation is very crucial for selecting assets in any industry to form a portfolio in a highly competitive environment. An optimum portfolio must be built from individual stocks that have good financial and suitability measures. Therefore, a precise and correct performance evaluation is critical as it reflects the competitiveness of a company. This paper seeks to analyze whether the Analytical Hierarchy Process (AHP) combined with financial ratios criteria can be used to determine the stock rank in the financial industry. The paper only considers and focuses on the financial performances only. A structured questionnaire is given to a randomly selected investment professionals both in academia and the industry to solicit their views in selecting one individual stock that has best financial performance. The study is expected to show if there is homogeneity in using financial ratio criteria to rank stocks among investment professionals from same industry in two different stock exchanges.

Mccpowell Fombang and Charles Adjasi, Financing structure and Firm Innovation in selected Sub Saharan Africa Countries Abstract: This paper examines the nature of capital structure and its effect on firm innovation amongst selected African firms. Innovation within firms in Africa is negligible due to a number of factors but an increase in finance can contribute in driving up innovation. The capital structure of a firm may therefore play a significant role on firm’s innovation. However the extant literature appears inconclusive on this. Despite the existing controversy, little empirical research has been conducted particularly in African enterprises to explore how different financing structure impacts the innovation among firms. The existing literature is skewed toward developed economies. This paper examines the various financing options available to African enterprises and how its effects firm innovation. Using the World Bank Enterprise Survey database, three Sub-Saharan Africa countries – Kenya, Senegal and Nigeria have been used for the analysis. Preliminary results from the analysis of ordinary least square in the panel framework indicates that debt and equity finance have mixed relationships with the various categories of innovation indexes in different countries. Size of the firm is seen as a key determinant of enterprise innovation in the economies studied. After further analysis, policy recommendation will be made.

Nicolaas van der Wath, A total return index for South Africa Abstract: Total return indices (TRIs) are used by investors to track the cumulative price gains and yields of different respective assets. However, international investors lack country specific TRIs to easily compare country yield and volatility –something which could be of great value. With this aim in mind, I develop a TRI for South Africa, and investigate its usefulness and practical value. To make the TRI practical and representative of the South African economy, I based it on the asset portfolio of South African households. In this regard, I identified the five most important asset classes, namely bonds, shares, cash, commodities and houses. Then I developed a sub-TRI for each asset class by fusing financial market data by means of principle component analysis. These five sub-TRIs were then blended again, this time according to their respective weights in the household asset portfolio. The result was a TRI that tracks the value of a basket of assets, representative of South African households’ asset holdings. I found the growth rate of this TRI was very similar to the typical financial conditions index (FCI), especially that of the South African Reserve Bank (SARB). This TRI growth rate, which leads economic growth by three to six months, can thus be used as an early indicator of turning points in the business cycle. A volatility index was also derived from the TRI; it highlights periods of shocks in the financial system such as the international financial crisis and quantitative easing (QE). From all these, we are now able to measure the total return of the household portfolio, compare it with other investments, isolate the additional savings component to household assets. We can also use the TRI-derivatives as gauges of financial conditions and real economic activity.

Dawid van Lill, Balance Sheet Policies and Financial Stability Abstract: Central bank balance sheets have occupied the center stage of monetary policy discourse since the initial rounds of quantitative easing employed by the world’s major central banks. These so-called unconventional measures are the direct result of the primary policy rate reaching the zero lower bound in many advanced economies; as central banks sought to stimulate depressed financial markets. Concurrently, research on the real economic implications of balance sheet measures has risen strongly. Nevertheless, there remains a dearth in the literature on the effect that manipulation of central bank balance sheets can have on financial stability. This paper seeks to understand the role of balance sheet policies in improving financial stability within an economy; both as preventative and curative policy measure. Measurement of financial fragility is a contentious issue in the literature. We adopt the approach taken by Goodhart, et al. (2006)., which is extended into a dynamic setting in the form of a New-Keynesian DSGE model. The model incorporates the core principles of their framework; most importantly a heterogeneous banking sector with active interbank market with the possibility of default for banks and firms; similar to the work of de Walque (2010). In addition, collateralized repurchase agreements are introduced to take into account the relationship between the banking sector and the monetary authority.

Session G6
Economic Growth


Johannes Kemp, Ben Smit and Stan du Plessis, Estimating and explaining changes in potential growth in South Africa Abstract: Estimates of potential output growth in SA have declined from around 3.5% prior to the Global Financial Crisis (GFC) to between 2% and 2.5% currently (SARB MPC statement, March 2015; IMF, 2014; Anvari et al, 2014; Ehlers et al, 2013). A similar slowdown has been experienced in several other countries, including most members of the G20 (IMF, 2015). The purpose of this paper is to (i) estimate SA’s level of potential output growth both before and after the GFC using a multi-variate filter technique based on Blagrave et al (2010, 2015) and (ii) attempt to explain the apparent decline in the growth potential by investigating the underlying drivers of potential GDP growth using a Cobb-Douglas-type production function (similar to Blagrave et al, 2015; IMF, 2015). It is found that potential growth has declined to between 2% and 2.5% post-GFC. It is also determined that the biggest driver of the post-crisis decline in potential growth has been lower productivity growth.

Kotikoti Tleane, An Analysis of Economic Growth and Inflation in South Africa Abstract: There is a high level consensus among many economists, policy makers and practitioners that one of the fundamental objectives of macroeconomic policy in both the developed and developing economies is to sustain high economic growth together with low, one-digit inflation. It is against this background that this paper aims to explore whether there exists a relationship between inflation and economic growth in South Africa’s economy. The objectives of the paper are to determine the threshold effects in the relationship if any and to determine whether inflation has any systematic influence (positive or negative) on economic growth in South Africa’s economy. Previous studies will be reviewed to analyse the relationship between economic growth and inflation. In its econometric analyses the study will use four variables, GDP as a proxy for economic growth, CPI as a proxy for Inflation, INV as a proxy for foreign direct investment inflow and GPOP as a proxy for population growth. The time series data covers a period of 34 years, thus from 1980 to 2014. The paper will carry out Stationarity test using Augmented Dickey-Fuller test and Phillip-Perron test. Empirical results will be achieved by first examining the short-run and long-run relationship by applying co-integration test and the associated Error Correction Model (ECM) and secondly applying of the Granger causality test to determine the direction of causality between the variables. In line with the findings, the paper will either conclude whether there is any relationship between the selected variables or whether there is a causal relationship between economic growth and inflation. To this end, the paper will therefore recommend policies to address the issue of inflation and its impact on economic growth in South Africa.

Yoseph Getachew, Redistributive policies and growth-inequality tradeoffs Abstract: During the last three decades, inequality has risen in most countries in the world, in many of them, there is a steep increase. Public spending, whether in the form of public investment or transfer is usually justified as a means for redistribution. During most of the 1980s and the 1990s, government expenditure has mainly trended upwards. Such a marked rise in public spending in the face of a rising inequality emphasizes the need for a well specified analytical framework, within which the relationship between public policy choices and the inequality-growth nexus is systematically addressed. In this paper we analyze the mechanism through which fiscal policy has effect on inequality-growth trade-offs. To do so we develop a growth model where both growth and inequality are endogenously determined. In the model, individuals are different in terms of their initial capital wealth. The credit markets are incomplete. Firm level production takes place using a constant elasticity of substitution production function with public and private capitals. The government uses consumption and income taxes to finance productive government expenditure and a transfer program. The government also redistributes income through a negative income tax program. Two main channels are identified through which fiscal policy could have influence on the inequality-growth nexus. The first is a direct income effect on the post-tax and -transfer income distribution. The second is an indirect substitution effect on the private-public capital ratio that influences the pre-tax and -transfer income and determines the distribution of the next period investment and income.

Bernard Njindan Iyke and Nicholas Odhiambo, Real Exchange Misalignments And Economic Growth In Ssa: Panel-Data Evidence Abstract: This study investigates the impact of real exchange rate misalignments on economic growth in sub-Saharan Africa (SSA). Our dataset consists of fifteen (15) countries spanning the period 1970-2010. We examined this linkage in a piecewise fashion. Firstly, we verified the Balassa-Samuelson (BS) effect for these countries and found the BS effect to exist. Then, we constructed an index of real exchange rate misalignments, which takes into account the BS effect. Then, using short-panel data techniques (i.e. within-effects estimators and GMM estimators), we estimated a standard simple and a fully-specified neoclassical panel regression model. As a robustness check, we also employed a conventional measure of real exchange rate misalignments. Our results suggest that real under-valuations enhance economic growth; whereas real over-valuations mar economic growth in the selected SSA countries in our sample. In particular, our results indicate that a percentage change in real under-valuation generates an approximately 2.8 per cent change economic growth. Our findings remain unaffected by endogeneity, serial correlation, heteroskedasticity and the choice of real exchange rate misalignment measure. Our findings are also broadly consistent with the findings of previous studies such as Ghura and Grennes (1993), Gala (2008), Rodrik (2008), Gluzmann et al. (2012), and Vieira and MacDonald (2012). The main policy implications stemming from these findings are that: (i) Authorities in these countries could deploy real under-valuations as policy tool to move idle resources from the less-productive non-traded goods sectors to the more-productive traded goods sectors; and (ii) authorities should setup policy frameworks that suppress real over-valuations to the barest minimum.

Session G7
Economics of
Education 4


Annika Barbara Bergbauer, The English Treatment - How to overcome socioeconomic predetermination in education Abstract: South Africa’s bimodal education system, divided along language lines, is a legacy of Apartheid. Learning outcomes in formerly all-white schools, where English and Afrikaans are the mediums of instruction, outpace schools that instruct in one of South Africa’s nine official African languages. This paper describes the South African education system as a dual outcome-generating process, divided among language groups. Data basis is the IEA prePIRLS 2011 test of the reading skills of 4th graders in developing countries. Students attending schools where English is the medium of instruction are found to achieve the highest prePIRLS scores – average South African prePIRLS scores are below the international benchmark. English-instruction schools are widely preferred to African-instruction schools. The great majority of learners attend schools that persistently lag in prestige, resources and results, - attributes typically associated with African-instruction schools. Thus, English-instruction schools represent an escape from lower quality education and to upward mobility. Among all English-instruction schools, only 35% of learners always speak English at home. Superior test results for English-instruction over mother tongue-instruction may seem counterintuitive, but my analysis identifies a treatment effect to English-instruction for children of African background. My regression analysis identifies socioeconomic endowments as a key literacy driver implying a predetermined life path. By isolating schools from the bottom wealth quintiles with student test scores above the international benchmark, I observe disadvantaged students achieving unexpected success. Shifting focus from school-level to individual-level analysis adds to the literature of economics of education in South Africa. For those unlikely achievers, soft factors such as individual student and teacher motivation, dedication, and rapport shape learning outcomes. This paper concludes that socioeconomic predetermination in education in South Africa can be overcome by an interplay of school choice and individual motivation.

Janeli Kotze, Investigating cognitive performance differentials by socio-economic status: Comparing Sub-Saharan Africa and Latin America - Towards a new methodology Abstract: This paper provides a new perspective on the varying efficiency levels among different education systems by comparing data from six Sub-Saharan countries and fourteen Latin-American countries. Researchers have always been faced with a trade-off between the accuracy of the socio-economic status (SES) measure within countries and the comparability of the measure across countries when comparing the relationship between SES and education across countries. This has often caused measures of SES to be incorrectly used to compare relative wealth across different countries and contexts. This research paper sets forth a new methodology to adjust the traditional measures of SES and make it more comparable across countries and surveys. Furthermore, the comparable SES measure is applied to compare children in equally impoverished circumstances across countries, sub-samples and data sets to enable the identification of the most disadvantaged children across the world more accurately. More specifically this method will be applied to the SACMEQ (Sub-Saharan Africa) and SERCE (Latin America) education data sets and compare the educational outcomes of those students living under the $2 a day poverty line. A prominent result is the remarkably good performance of Kenya. Even though it is a low income country with limited educational resources, it manages to provide a much larger proportion of students with sufficient mathematical skills than middle-income countries such as South Africa, Uruguay and Costa Rica. Another results that stands out is the difference in the quality of educational outcomes between Mozambique and Malawi, two very poor countries. Mozambique has one and a half times as many children living in poverty as Malawi, but half of these poor Mozambican students are proficient in numeracy, whereas only a small number of poor Malawian children.

Paula Armstrong, Teacher characteristics and student performance: An analysis using hierarchical linear modeling Abstract: This research makes use of hierarchical linear modelling to investigate which teacher characteristics impact significantly on student performance. Using data from the SACMEQ III study of 2007, an interesting and potentially important finding is that younger teachers are better able to improve the mean mathematics performance of their students. Furthermore, younger teachers themselves perform better on subject tests than do their older counterparts. Identical models are run for Sub Saharan countries bordering on South Africa, as well for Kenya and the strong effect of teacher age is not observed. Similarly, the model is run for South Africa using data from SACMEQ II (conducted in 2002) and the effect of teacher age on student performace is also not observed. It must be noted that South African teachers were not tested in SACMEQ II so it was not possible to observe differences in subject knowledge amongst teachers in different cohorts and it was not possible to control for teachers’ level of subject knowledge when observing the relationship between teacher age and student performance. Changes in teacher education in the late 1990s and early 2000s may explain the differences in the performance of younger teachers relative to their older counterparts observed in the later dataset.

Anderson Gondwe, Education and earnings in Malawi: panel data evidence Abstract: Using the Malawian Integrated Household Panel Survey data, the paper finds large and positive returns to education in Malawi suggesting that education is a good investment. Our sample is limited to economically active individuals aged between 15 and 64 years with positive earnings. The returns increase with the levels of education. Interestingly, females have higher returns to education than males with similar skills at all levels of education. The paper sheds light on the importance of distinguishing between formal and informal employment sectors when estimating rates of return on education in developing countries. Furthermore, studying Malawi’s informal sector is important as it accounts for 89% of total employment. Based on the findings, the study recommends education policies that improve female education and higher education in general. Our results are robust to different model specifications and compare favourably with those observed in previous studies in Malawi and other Sub-Saharan African countries.

Session G8
Public Finance


Krige Siebrits, Interaction of formal and informal institutions: Evidence from road safety legislation Abstract: Policies aimed at changing behaviour have a mixed record: while some measures based on economic incentives have elicited the desired behaviour, others have failed to do so (Bowles and Polanía-Reyes, 2012; Gneezy, Meier and Rey-Biel, 2011). The new institutional economics (NIE) suggests two simple yet powerful explanations for the limited effectiveness of economic incentives: weak enforcement sometimes blunts the ability of sanctions to influence behaviour, and the conduct of economic agents sometimes is conditioned so strongly by informal institutions (e.g. habits, values and norms) that the incentives created by policies fail to induce the behaviour desired by policymakers (see, for example, North, 2005: 27-28). This paper will use an international dataset compiled by the World Health Organisation (2013) and a set-theoretic technique known as fsQCA (fuzzy-set qualitative comparative analysis) to demonstrate the relationships among formal institutions, enforcement and informal institutions in the context of road safety outcomes. More specifically, it will show that diligent enforcement and strong norms supporting adherence enhance the efficacy of laws to promote road safety. Although not surprising, the findings of the paper will be important for two reasons. Empirical evidence of the links among formal institutions, enforcement and informal institutions remains scant, and road safety institutions and outcomes have not been used to present such evidence before. In addition, the paper will demonstrate the usefulness of fsQCA as a technique for studying such links.

Frederik Booysen, Celeste Campher, Tshepo Moloi and Alistair Munro, “Show me the Money”: Incentivizing the Social Discounting Task Abstract: Simon (1995) incorporates altruism into the utility function using the notion of interpersonal or social distance. The Social Discounting Task (SDT) is employed as a corresponding measure of altruism. With one exception, the conventional laboratory experiments on social discounting conducted to date, do not employ real incentives. In Economics experiments real pay-offs is a methodological prerequisite for incentive compatibility. Empirical evidence shows that outcomes in experiments offering hypothetical pay-offs are different from those in experiments paying subjects real money. This paper investigates the extent to which incentivizing the Social Discounting Task (SDT) impact on the resultant social discounting function. A conventional laboratory experiment was conducted with a total of forty-six under-graduate students. A pencil and paper instrument was administered to study participants. Subjects received a show-up fee of R30 and completed a standard Social Discounting Task (SDT). On arrival at the experimental venues, subjects were assigned to two different venues. Subjects in one venue completed the standard, non-incentivized task, while an adapted version of the standard task offering real pay-offs was administered to subjects in the other venue. At the completion of the experiment, a random incentive system (RIS) was used to calculate subjects’ earnings. Both the treatment and control groups, who were debriefed as to the purpose of the study following completion of the experiment, were paid. Subjects on average earned R150. Median cross-over points were determined for each arm and corresponding social discounting functions were estimated. Findings suggest that subjects paid in real money, contrary to expectations, are in fact more altruistic than subjects offered hypothetical pay-offs. These differences however were not statistically significant. Studies with larger samples are required to establish the extent to which incentivizing the Social Discounting Task (SDT) impact the social discounting function.

Ada Jansen and Estian Calitz, Towards discovering the role of formal and informal institutions in tax gap analyses in South Africa Abstract: One of the challenges of the post-apartheid government in South Africa was to inculcate that democratic constitutional rights imply tax compliance. Before the constitutional change of 1994 various factors threatened tax compliance: in the business community exchange controls were circumvented; the anti-apartheid slogan “no taxation without representation” eroded the personal and small business income tax bases; and the country’s integration into international trade and financial markets opened its economic borders for tax leakage. Resurgence of compliance problems occurred in recent times when poor delivery of public services resulted in non-payment of taxes. There has been increasing international concern about tax base erosion (see the OECD’s (2013) report). In a comparative study of tax compliance, Gordon and Li (2009) concluded that developing countries, when applying similar tax rates as developed countries, on average collect one third less tax revenue (as a percentage of GDP). Even during trying times after the international financial crisis, the IMF, the OECD, the UN and the World Bank, who collectively advised developing countries on how to improve tax compliance (IMF et al, 2011: 10), stated that “(t)he vicious circle of low tax morale and compliance - which reduces the lifeblood for funding public services - needs to be broken”. This raises the question: what drives high tax compliance? This paper aims: 1) to identify the various forms in which tax disobedience leakage manifested in South Africa since 1980, and document the policy measures to combat it; 2) to assess the methods to measure tax gaps through a literature review, and the factors influencing tax compliance (formal and informal institutions); and 3) to suggest a basic theoretical model for quantitative analyses of the impact of these explanatory factors. An extension (data permitting) includes regression analyses of the possible impact of identified factors on the observed compliance trends.

Session G9
Poverty 2

Farisha Panday, Role of Decision Science Modelling and Systems Analysis to Enhance Sector Integration in South Africa Abstract: The national development and growth of a country is imminent in ensuring a sustainable future for generations to come. The various sectors of the South African economy namely: health, education, and the like, are underpinned by the nexus between the social, economic and environmental aspects of the country. Sector integration can be enhanced by applying decision science modelling and systems analysis for sustainable growth. Decision science modelling and systems analysis have independently shown potential in supporting policy maker’s decisions and interventions that impact a country. It is proposed to investigate whether a combination of the two approaches could be viable within the current sector arrangements. Sector integration involves the integration of highly complex systems, thus the investigation is approached in stages, with the view of the research being a continually iterative process. The various sectors will be analysed to determine their intra- and inter-dependencies which will be used to assist in the development of a methodology that could support the decision making process. It is envisaged that key factors influencing policy development and decision making in the country will be identified during this investigation. There is an earnest need for sector cohesion in realising a sustainable future for South Africa and decision science modelling and systems analysis presents a promising way to support policy makers in policy development.

Kotie Viljoen, Derick Blaauw and Rinie Schenck, Picking waste for a “dollar or a dime”: An income analysis of street waste pickers in South Africa’s informal economy Abstract: High levels of unemployment in South Africa forces many unskilled people into the informal economy, where they have to resort to a variety of income-generating activities. The activity of collecting and selling recyclables presents virtually no barriers to entry, making it a viable option for many people with low levels of schooling and other forms of human capital. Many street waste pickers in South Africa therefore make a living collecting other people’s waste. Like many other participants in the informal economy, street waste pickers vulnerable to high levels of insecurity and low incomes (Bonner, 2008:7; Heintz & Jardine, 1998:32). As a result street waste pickers may be trapped in the lower tier of the informal economy and in a state of poverty and deprivation (Viljoen, 2014). The aim of this paper is to assess the street waste pickers’ income and to determine the factors that influence their income. Little research focusing on street waste pickers has done, and when done it mostly takes the form of case studies focusing on the socio-economic position of waste pickers on dump sites. This paper uses the results of the first ever country wide study among street waste pickers in South Africa, using a mixed method research model. Structured interviews were conducted between April 2011 and June 2012 with 914 street waste pickers and 69 buy-back centres in 13 major cities across all nine provinces in South Africa. The income of the 914 street waste pickers is analysed. A statistical, cross-sectional and logistic regression analysis is applied to test whether variables identified in the literature have an influence on their income, the significance thereof and the extent to which it explain some of the income variation.

Rochelle Beukes, Ada Jansen, Mariana Moses and Derek Yu, Exploring the eligibility criteria of the Child Support Grant and its impact on poverty Abstract: One of the most important policy objectives in the post-apartheid South African economy is to reduce poverty. Although economic growth and job creation are the preferred sources of alleviating poverty and inequality, it is undisputable that social grant expenditure has contributed significantly to reduce poverty (Van der Berg at al. 2009). The media recently reported on proposals tabled by the Department of Social Development (Fin24, 2015) to extend the age eligibility of the child support grant (CSG) to 21 years (currently children up to 18 years are eligible). This sparked an interest to investigate the impact of changes to the eligibility criteria of CSG on poverty. This paper plans to conduct various simulation exercises to examine these changes. Some of the specific simulations include changing the age eligibility, investigating the impact on poverty if the CSG is more effectively targeted (if all age-eligible children receive the grant), and changing the income threshold of the means test. In particular, the following questions will be addressed: (1) what would have happened to poverty rates if all age-eligible children applied?; (2) what would have happened to poverty rates if the age eligibility criterion is extended?; and (3) what would have happened to poverty rates if the monthly child grant income amount is revised upwards? We also investigate the fiscal implications of these simulations. Person and household data from the 2010/2011 Income and Expenditure Survey will be used to conduct the analysis.

Session G10
Exchange Rates

Lordina Amoah and Meshach Aziakpono, Exchange Rate Development and the Macroeconomic Economic Performance in Ghana: An Overview Abstract: The exchange rate regime in Ghana has undergone significant transformation since 1960. The fixed exchange rate regime was adopted under the Bretton Wood agreement until 1983 when exchange rate liberalization programs were launched. The liberalization followed a very slow trajectory until 1992 when the floating system (inter-bank exchange rate system) was completely embraced. Ghana is currently pursuing the managed float exchange rate system where the forces of demand and supply are allowed to determine the exchange rate, but with some intervention from the monetary authorities. In the same way, there have been substantial changes in the structure and performance of the economy. GDP grew at an average rate of 3.04 percent from 1960 to 1970. After 1970, the economic fortunes of Ghana took a turn for the worse. There was a decrease in the GDP growth rate between 1970 and 1980 to 1.78 percent. The rate of inflation increased from 3.03 percent in 1970 to 122 percent in 1983. Persistent control of prices by the government in most sectors of the economy launched the economy into deep balance of payment problems. The poor performance of the macroeconomy pushed the government to adopt the Economic Recovery Program (ERP) in 1983. The objective was to introduce pragmatic macroeconomic policies to address the distortions and grow the economy. The exchange rate was one of the key macroeconomic tools used to stabilize the crumbling economy of Ghana. Since the launch of the ERP macroeconomic indicators have improved relatively and the exchange rate continues to play an important role in adjustment and stabilization of the economy. The objective is this paper is to conduct a qualitative analysis to examine the interaction between the various exchange rate policies and key macroeconomic indicators in Ghana since the launch of the economic recovery reforms.

Azwifaneli Nemushungwa, Volatility of the South African rand Abstract: Exchange rates across the world have fluctuated widely predominantly after the fall of the Bretton Woods system of fixed exchange rate as many countries adopted floating exchange rate system. South Africa, like other emerging market economies, is experiencing high exchange rate volatility. The rand is one of the most volatile currencies in the world. Since 1996, five episodes of substantial real exchange rate depreciation, which were followed by a steep appreciation thereafter. Given the fact that exchange rate variability affects the performance of other macroeconomic variables in any economy, this necessitates the need to examine the behaviour of the rand in South Africa. To this end, this paper explores the volatility of the South African rand for the period 1961 to 2013, using non-econometric methods (tables and figures) obtainable from SARB, BIS, Bloomberg. Investec Wealth and Investment and Commission of Inquiry(1985) Furthermore, it explores the South African foreign exchange (rand) market and also analyses the performance of the rand relative to other currencies The review on the South African foreign exchange market and the evolution of the South African exchange regime identified that due to its international appeal, increase in daily turnover, being the proxy for other emerging currencies due to its convertibility amongst other factors, the South African rand is more volatile. Secondly, since 2000, large movements in effective exchange rate occurred as the country adopts a more flexible exchange rate regime. As from the year 2000, the sole objective of the SARB has been inflation targeting. This has led the rand to be volatile. Gupta (2012) states that inflation volatility can impede growth even inflation on average remains restrained and advocated. The implication is that the SARB should respond to exchange rate fluctuations.

Azwifaneli Nemushungwa, Exchange Rate Volatility and Export Growth in South Africa: An ARDL Bounds Testing Approach Abstract: The adoption of the flexible exchange rate system in 1973 resulted in significant volatility and uncertainty in exchange rates. Since its adoption of flexible exchange rates system in the mid 1990’s, the South African rand has been very volatile. The requirement by South African government to promote exports in an environment of a flexible exchange rate requires a comprehensive understanding of how the highly fluctuating rand impacts on the South Africa exports and the resultant effects on the economy at large Against this backdrop, this paper empirically investigates the impact of exchange rate volatility on the South African exports using the ARDL bounds testing procedure proposed by Pesaran et al. (2001) and monthly data for the period 2000 to 2013.Furthermore; it measures real exchange rate volatility and also examines the stability of the long run coefficients and the short-run dynamics. The study results confirm that exchange rate volatility has insignificant negative long run impact on South African exports. Besides, the real exchange rate has significant negative long-run effects on South African exports. The coefficient of error correction term for exports model, is positive and statistically insignificant and is therefore not supportive of the validity of the long-run equilibrium relationship between the variables. The stability tests show no evidence of any significant structural stability.

Melvin Khomo and Meshach Aziakpono, The behaviour of the real effective exchange rate of South Africa: Is there a misalignment? Abstract: The study presents a recent application of the behavioural equilibrium exchange rate (BEER) method to empirically analyse the behaviour of the South African rand over the period 1985 to 2014. We apply cointegration methods within VECM and DOLS frameworks to establish the equilibrium real effective exchange rate and to determine whether the observed exchange rate is misaligned from its equilibrium level. A regime switching model is used to further explore the exchange rate’s misalignment behaviour. Results from the study confirm the existence of a cointegrating relationship between the real effective exchange rate and a set of economic fundamentals that include the terms of trade, external openness, capital flows and government expenditure. The study confirms that the exchange rate is misaligned from time to time with the Markov regime switching model correctly capturing the misalignment series over the period studied as alternate shifts between overvaluation and undervaluation episodes.

Thursday15:30 - 17:10Parallel Sessions H
Session H1
Inequality 2

Ratjomose Machema, Murray Leibbrandt and Ingrid Woolard, Economic Stratification in Post-Apartheid South Africa Abstract: One of the little understood paradoxes in development economics is the co-existence of economic affluence amidst pockets of poverty. The extremes seem to be diverging away from each other - with the poor becoming poorer and the rich richer. The formation of these new patterns of inequality raises questions concerning economic advantage of high ranked groups and the economic disadvantage of low ranked groups. This paper contributes to the understanding of these group differences by focusing on South African context. The main goal is to both elucidate the degree of assimilation by using the concept of economic stratification on the South African context, and to offer a newer perspective on the transformation the country has undergone in the past 20 years. Stratification is defined exclusively along income as it is easy to quantify. The paper attempts to answer two questions. First, “do the differences and distances in the income distributions between identifiable groups mirror stratification in the country?” Second, “do the changes in the South African income distribution suggest the emergence of new strata replacing race as the defining stratum?”As a supplement, we also examine the extent to which changes in a range of different income sources interact to account for changes in the household income distribution and income stratification. We use information from datasets collected in 1993, 2000, 2008 and 2012, and for our analytical strategy, we apply a combination of the Analysis of Gini (ANOGI) decomposition approach, the Gini’s transvariation concept and a counterfactual shift-share micro-simulation technique. Preliminary results indicate that racial decomposition is suggestive of the population composed of two income groups – bipolarization - whereas regional decomposition shows evidence of cohesive tendencies towards equality of incomes – convergence.

Anthanasius Fomum Tita and J Meshach Aziakpono, Financial development and income inequality in Africa. A panel heterogeneous approach Abstract: Income inequality has recently been identified as the second greatest worldwide risk that threatens social peace and global stability by the World Economic Forum on its 2014 global agenda. Rising income inequality has resulted in social unrest in many African countries and six of the ten most unequal countries in the world are found in Africa. Yet Africa has recorded annual growth rate of about 4.8% over two decades. Theory suggests a linear and non-linear relationship between financial development and income inequality. Thus rising inequality in the face of robust growth in Africa could be attributed to the limited role of the financial sector to support economic activities. However, empirical evidence to justify this links has not been well established in Africa. Thus, the question of how the financial sector relate to income inequality has not been adequately answered in Africa. The purpose of this study is to empirically establish the finance-income inequality relationship in Africa using the standardised world income inequality dataset (SWIID) Solt (2014). The study employs the augmented mean group (AMG) estimator to take into account for slope heterogeneity across countries in the analysis of this relationship. Our findings will provide insights on the different effects of financial development on income inequality since the method of analysis does not assume homogeneous effect across countries. This will assist policy makers to design tailored-made financial sector policies to address income inequality. Finally, our result will add to the scant empirical literature in Africa on the finance-inequality nexus

Peet Strydom, Labour's declining income share Abstract: Recent research is emphasising the world-wide development of unequal income distribution that has worsened since the 1980s. The theory of production has been applied in explaining the long-term declining share of labour in total income. This explanation of functional income distribution is primarily based on neo-classical production theory with its typical outcome of symmetric distribution patterns. By amending the restrictive assumptions of neo-classical theory, while expanding the theory of production beyond perfect competition, it appears that the value of the elasticity of substitution of the factors of production is important in explaining non-symmetric distribution patterns. These excursions show that non-neutral technological progress is reducing the relative price of capital goods whereby cheaper capital is easily substituted for labour as the capital-intensity increases. Technological progress prevents the impact of diminishing returns as capital increases. The policy proposals based on this analysis challenge conventional expositions that isolate capital as the source of unequal income distribution.

Martin Wittenberg, The top tail of South Africa's earnings distribution, 1994-2011 Abstract: We analyse high incomes in South Africa's household surveys using both nonparametric and parametric techniques. In order to do so we need to deal with several measurement problems. Firstly, the surveys are contaminated with a number of outliers, which will influence the distribution in the top tail. Secondly, individuals can respond to the earnings question either by giving a Rand amount, a bracket or by outright refusal. Neglecting the bracket responses and refusals seriously distorts the distribution of high earners. We deal with both issues by multiple imputation. Our results indicate that the earnings distribution is "heavy tailed", with a Pareto coefficient around 1.8.

Session H2


Sophie Kasse-kengne, Securitization: Post Financial Crisis responses of BRICS’ Regulators Abstract: Successful securitization in BRICS (Brazil, Russia, India, China, South Africa), the emerging markets spearhead, has been challenged by underdeveloped debt markets and improper legal frameworks. USA concluded its first deal in 1977 while they respectively contracted only in 1993, 2005, 1991, 1997 and 1989. After about 20 years of sporadic transactions, consistent growth started showing in the early 2000s when suddenly interrupted by the Global Financial Crisis. This paper focuses on how BRICS’ regulators responded as securitization is fingered as a partial cause. Using the review of regulations, we first provide insights on the existing regulatory frameworks before the crisis and secondly analyse their evolution during/after the crisis. We found that domestically, BRICS carried out major reforms. Before, Brazil regulated each product differently under the general public offerings regulatory framework, but between 2008 and 2013 has aligned its reporting and accounting on securitization to international standards and introduced risk retention rules. Russia move from one law only on Mortgage Backed Securities, the use of mostly foreign Special Purpose Vehicles to a 2013 regulation that enlarges the assets base for securitization and establishes local Special Purpose Vehicles. In India securitization was limited to banks and financial Institutions but in 2007 a new regulation considered securitized instruments as securities and provided best practices guidelines. China suspended the credit Assets Backed Securities and Asset Securitization of Securities Companies started in 2005, allowed their resumption in 2012/2013 with clear “administrative regulations” and added a new product, the Assets Backed Notes. South Africa enacted three Securitization Notices before and strengthened them with more regulations between 2007 and 2012 limiting banks involvement, precising the Special Purpose Vehicles status and integrating the Basel requirements regarding securitization. The implications are, even though to be perfected, these regulatory reforms have released participants’ confidence and increased regulators' control.

Marko Kwaramba and Calvin Mudzingiri, Taxes Rates, Economic Crisis and Tax Evasion: Evidence using Zimbabwe and South Africa Bilateral Trade Flows Abstract: Theoretically the relationship between tax rates and tax evasion is ambiguous. This study investigates the relationship between tariff (tax) rates and tax evasion using highly disaggregated trade data between Zimbabwe and South Africa. The study uses cross sectional data analysis. The analysis is divided into three periods; Zimbabwe pre-crisis (1980 to 1999), crisis (2000- 2008) and post crisis period (2009-2012). The results show different responses of tax evasion to tariff changes in these three periods. During the pre-crisis period, decrease in tariff rates is associated with reduction in tax evasion while during the crisis period, decrease in tariff rates is associated with an increase in tax evasion. Finally, the post crisis period is associated with decrease in tax evasion as tariff rates change. The results suggest that tariff reduction during economic crisis is not always associated with decrease in tax evasion. This implies that during crisis period, no matter what happens to border tax rates, the need for survival (minimisation of costs) supersedes the tariff rate changes. The indicates that South Africa has been a major supplier of Zimbabwe products during the crisis period. Further disaggregating products using Rauch classification, shows that tariff evasion has been higher on differentiated products than homogeneous products. This might imply that homogeneous products were mostly characterised by duty free rates compared to differentiated goods.

Henry Cockeran and Waldo Krugell, Measuring South Africa’s susceptibility to crises Abstract: South Africa has to address the challenges of slow economic growth, poverty and inequality in the face of precarious macroeconomic imbalances – foreign capital funds deficits of savings to investment, tax income to government spending and exports to imports. Burger (2008) showed that economic volatility in South Africa decreased during “the great moderation” in the U.S. and other G-7 economies, but Smit et al. (2014) showed that a sharp slowdown in foreign capital flows and the subsequent reversal of current deficits would have a severe impact on the economy. South Africa has been grouped with the “fragile-5” and “suspect-6” countries. Recently, the possibility of the tapering of quantitative easing has strengthened the U.S. dollar and put upward pressure of emerging market bond yields. But just how susceptible is the South African economy to an external shock? This paper sets out to extend a “resilience indicator” developed by Rojas-Suarez (2015) to the case of South Africa. We will construct the indicator for South Africa using factor analysis and compare the values before and after the financial crisis with those of a number of emerging market economies. Susceptibility to an external shock means that the credibility of policy and policymakers in South Africa, is more important than ever.

Session H3
Resources &


Dambala Gelo Kutela, Edwin Muchapondwa and Mintiwab Bezabih, Climate risk, risk preference and agricultural input demand in Ethiopia: Does input type matter? Abstract: In this paper, we investigate the effects of risk preference and climatic risk in terms of rainfall variability on agricultural inputs demand. For the empirical analysis, we used rural household’s survey data, which was matched with experimentally generated risk aversion measures and village level rainfall data. Using instrumental variable (IV) Tobit and Censored Absolute Deviation (CLAD) estimators, we show that both risk-aversion and rainfall variability raise demand for manure, but attenuate that of chemical fertilizer. These results imply that manure use is widely adopted in areas characterized by rainfall variability and missing insurance market where risk-averse farmers cannot pass on risk to third party. The converse is true for fertilizer demand. Thus, whereas public programs such as irrigation scheme and weather-index-based insurance market interventions can spur the demand for fertilizer, they are likely to deter adoption of sustainable land management practices in terms of manure application. Moreover, poverty reduction through reducing risk aversion, leads to the same outcome.

Realeboga Ngwanaeng, Johane Dikgang and Sunita Prugsamatz, Assessment of meat consumption patterns in South Africa Abstract: Assessment of meat consumption patterns in South Africa Realeboga Ngwanaeng , Johane Dikgang and Sunita Prugsamatz Abstract This paper looks at meat consumption patterns with an emphasis on how attitudes of “low meat consumers” differ from those of typical meat consumers. To achieve the objective of the paper, we use the Tobit model to analyze data from Johannesburg households. Interestingly, females were found to be the main meal planners and mainly responsible for purchasing food. In view of this, the fact that females accounted for a majority of our sample sheds more light into consumption patterns. Thirty four percent of the respondents are classified as “low meat consumers”, thirty one percent of the respondents as “average meat consumers”, while “high meat consumers” account for thirty percent of remaining respondents. Low meat consumers can be categorized as being health conscious and of the view that meat is not essential for a balanced diet. They are not willing to become vegetarian, but will limit their meat consumption in the future. Five percent of the respondents identified themselves as vegetarian, and were generally more concerned with health and the negative environmental impact’s from the livestock sector, hence they did not consume any meat products. Keywords: consumption, environment, health, meat. Department of Economics and Econometrics, University of Johannesburg, Johannesburg, South Africa. Emails: Fakultet for samfunnsvitenskap og teknologiledelse , Norwegian University of Science and Technology (NTNU), Dragvoll NO-7491, Trondheim, Norway.

Kerri Brick and Martine Visser, Risk Attitudes and Adaptation: Experimental Evidence from a Flood-Prone Urban Informal Settlement in South Africa Abstract: This study characterizes the risk attitudes of a sample of individuals living in a flood-prone, urban informal settlement, assuming Prospect Theory as the primary model for decision-making under uncertainty. A number of Cape Town’s informal settlements are situated on the low-lying, flood-prone Cape Flats, where inadequate infrastructure combined with a high water table leave residents extremely vulnerable to flooding. Vulnerability to flood risk and the associated diminished wellbeing and damage to property and possessions that are experienced in the aftermath, are determined, in part, by participants’ adaptation strategies. In this context, the objective of this paper is to determine the extent to which risk attitudes are related to choice of adaptation strategy. Risk attitudes are elicited from participants’ choices over a series of lottery tasks for real monetary prizes. Lottery tasks are provided in either a gain, mixed or loss framing. The results indicate that individuals adopting more effective (and costly) adaptation strategies are more risk averse. This result implies that attempts by local authorities to encourage uptake of adaptation strategies must take into account risk attitudes. For example, city officials might supplement ongoing education initiatives with proactive measures to incentivize even risk-seeking individuals to engage with adaptation (for example, through the provision of a subsidy on building materials).

Heinrich Gerwel, Beatrice Conradie and Anthony Black, Agricultural efficiency analysis: A tool for informing agricultural and land reform policy in the Eastern Cape? Abstract: The measurement of agricultural productivity and efficiency at the magisterial district level has never been embarked on before for the Eastern Cape. The value of such disaggregated data lies in the way it can inform policy. With agricultural development highlighted in both the NDP and Provincial development plan as potential drivers of inclusive, pro-poor growth, it is important, for example, to know how to allocate scarce investment funds. This paper draws on on-going research that uses Data Envelopment Analysis to measure efficiency of input use at the magisterial district level for the commercial farming areas of the province, by following the methodology employed by Coelli and Prasada Rao (2003). We proceed from the productivity maps (1976 and 2002) to an analysis of the likely determinants of productivity in these years. This disaggregated data will then be discussed in relation to how it could influence approaches to public investment in the agricultural sector, as well as attempting to make the land reform process more viable in terms of allocating land relative to performance in the sector. The main premise of this research is that evidenced based policy making is crucial to sustain the land reform process, as well as the viability of the agricultural sector in the province.

Dambala Gelo Kutela and Edwin Muchapondwa, Forest commons, rural saving and investment: Evidence from Ethiopian villages Abstract: In this paper, we evaluate the impact of a Joint Forest Management (JFM) on precautionary saving, investment in child education and participation in off-farm self-employment activities among forest-using households in Ethiopia. Exploiting exogenous variation in customary right across communities using selected forest for intervention as an instrument, we identified the impact of Ethiopian JFM program on these outcomes. We also employed alternative identification strategies including propensity score matching and difference- in- difference (DID) to test robustness of our results. The analysis was based on the data collected from selected villages in Gimbo district, in south western Ethiopia. Our analyses show strong evidence that participation in the program deters livestock asset holding suggesting a decrease in demand for precautionary saving. Moreover, we found that the program has spurred investment in child education and participation in off-farm self-employment. Policy implications are discussed.

Session H4


Gideon Boako and Alagidede Paul, Hedges and Safe Havens: An Examination of African Stocks and Global Economic Factors Abstract: Data of ten African stock markets and global variables (such as gold, cocoa, crude oil, the U.S economic policy uncertainty index, the implied volatility of the S&P 500, the S&P 500 returns, etc.) representing either economic and financial factors or risk aversion of investors collected on a daily close-to-close basis falling in the period 2 February 2002 to 29 December 2014 are used for the study. The paper aims at providing empirical analyses of the nature and extent of the dependence structure between global factors and African financial markets. Specifically, the following unanswered questions are addressed in the paper: what is the nature and extent of the dependence structure between African stock markets and global economic factors – pre, during, and post the 2007 global financial crisis (GFC)? To what extent can African markets offer better diversification opportunities for international portfolio investors? Answering the above questions is critical to understanding how the African markets are becoming more reliant on global economic factors and how this reliance has been influenced by the GFC, as well as the implications for hedging, risk reduction, and portfolio management. We answer the questions with an examination of the risk-return trade-off of portfolio investments in the African markets, by specifying an extended CAPM with the global factors and a dummy variable capturing the GFC. Next, the time-varying nature of volatility spread across the stock markets and global factors are examined using GARCH-type models. Our examination of dependence structure is ultimately executed with quantile regression (QR) due to its relative robustness in modeling outliers and establishing more comprehensive dependence relationships among asset classes. Of particular importance are the investigations of whether global economic shocks to the African markets increase/decrease monotonically, and whether the dependence structure increases/decreases in bearish (lower quantile) or bullish (upper quantiles) periods of the market.

Haakon Kavli, Asset allocation based on nowcasts of economic activity, inflationary pressure and monetary policy Abstract: Paper submitted for "financial practitioner" session chaired by Brian Kantor Abstract: We use state-of-the-art dynamic factor models to nowcast the economic activity, inflationary pressure and monetary policy stance in two very different emerging economies: China and South Africa. We construct a simple and intuitive trading rule based on the nowcasted factors. We increase the equity allocation as monetary policy becomes more expansionary, inflationary pressure abates and economic activity rises. The approach generates statistically significant outperformance in pseudo out-of-sample tests for both South Africa and China. The model was constructed in April 2015, and true out-of-sample performance for May, June, July and August will be presented at the conference in September.

Thandolwamahlase Sibisi and John Mwamba, An extended empirical analysis on asset allocation in the BRICS stock markets Abstract: Markowitz (1952) proposed mean-variance optimization for portfolio theory, whereby the goal is to maximize returns and minimize variance. This technique uses historical mean, variance and correlation. However, many studies have underlined the drawbacks of using these inputs. This paper uses three different optimization techniques, namely copula models that remedy the dependence structure between returns; multivariate GARCH models that remedy the static nature of the Markowitz optimization; and the Black-Litterman model which is forward looking instead of using a historical mean, and compares these models’ performance to the benchmark, Markowitz model. Using the data from BRICS stock markets we find that all the models yielded higher risk-adjusted returns than the Markowitz model, therefore proving empirical success in addressing the drawbacks previously highlighted in previous studies.

Peter Baur, Analyzing price setting behavior in the market for 'Fine Art' Abstract: This research takes an in-depth approach, to analysing the relationship between the price for 'Fine Art' that is acquired in the secondary art market and the return to an investor who invests in 'Fine Art' in the primary art market. The approach taken is to understand the concepts of ‘meaning’ and how this ‘meaning’ is interpreted from symbolic images. An analysis of the market for art and ‘shared value’ are explored pointing out that the market for 'Fine Art' is highly inefficient and besieged by pricing rigidities induced through informational constraints. Information is a key feature in determining the ‘real’ value for art, and the role of information in determining value and ultimately a price is explored within the pages of this text. The 'Value of Information' is used to map the relationship that exists between the secondary art market and the primary art market, particularly the forward and backward transmission mechanisms between the two independent, yet interrelated markets. The research demonstrates that an investor who chooses to invest into 'Fine Art' is very different from one who chooses to invest in the stock market. While an investor may choose to invest in either or both of the markets, the decision-making process involved in investing in 'Fine Art' is different from the decision-making process of investing into the stock market. The findings of this research suggest that an in-depth assessment of the decision-making process of the investor should be built into the pricing index for 'Fine Art' so as to better capture the fundamentals of the art market and thus improve on the efficiency of an art price index.

Session H5
Labour Markets


Heinrich Bohlmann, The Impact of the 2014 Platinum Mining Strike in South Africa: An Economy-Wide Analysis Abstract: In this paper we measure the economy-wide impact of the 2014 labour strike in South Africa’s platinum industry. The strike lasted five months, ending in June 2014 when producers reached an agreement with the main labour unions. The immediate impacts on local mining towns were particularly severe, but our research shows that the strike could also have long lasting negative impacts on the South African economy as a whole. We find that it is not the higher nominal wages itself that caused the most damage, but the possible reaction by investors in the mining industry towards South Africa. Investor confidence is likely to be, at least, temporarily harmed, in which case it would take many years for the effects of the strike to disappear. We conduct our analysis using a dynamic CGE model of South Africa.

Derek Yu, Rochelle Beukes, Simba Murozvi and Tina Fransman, Under-employment in South Africa Abstract: With the introduction of the Quarterly Labour Force Survey since 2008, a newly derived variable, namely under-employed, has become available. This variable is derived according to the "time-related" approach (i.e. those who are employed, but would like to work longer hours and are available to work longer hours in the near future). However, it is argued that under-employment could also be derived according to the "inadequate employment situations" approach (e.g. under-utilization of skills). There are virtually no in-depth studies that investigate under-employment in South Africa. Hence, this paper aims to investigate the extent of under-employment according to various definitions, before examining whether the characteristics of the under-employed are significantly different from those of the other employed, unemployed and discouraged workseekers.

Chris Garbers, Rulof Burger and Neil Rankin, The impact of the agricultural minimum wage on farmworker employment in South Africa: A fixed effects approach Abstract: Through the use of the fixed effects estimator, this paper estimates the impact of the agricultural minimum wage on farmworker employment in South Africa for the period 1997-2007. Our identification strategy makes use of a "natural experiment"-type setting where we have identified periods of exogenous variation in the minimum wage to identify the causal effect of interest. The findings indicate that formal unskilled farm employment decreased by approximately 20% as a result of the regulation of which 12% is directly attributable to higher unskilled labor costs resulting from the wage floor. There is also evidence of skill and capital intensification resulting from the minimum wage as well as an increase in subsistence agriculture employment.

Refilwe Lepelle, A Decomposition Analysis of Spatial Employment Dynamics in South Africa. Abstract: The South African economy has undergone a structural shift away from the tradable sector towards the non-tradable sector over the past decades. The shrinkage of the tradable sector is one of the sources of high unemployment and slow employment growth mainly because it is the largest employer particularly for semi and low skilled workers. Some regions in the country still remain marginalised post-independence in terms of employment and income levels. One of the contributing factors to this regional variation is the regional industry composition. This persistence of regional disparities in employment and income is of great concern. There is therefore structural and spatial dynamics to the problem of high unemployment and slow employment growth in South Africa. This study analyses the evolving industrial and spatial composition of employment in post-Apartheid South Africa by employing the Shift-Share decomposition technique using the Population Census data from 1996 to 2001 for 354 magisterial districts. The decomposition attributes changes in employment across magisterial districts to the national effect, regional industrial mix effect and regional competitive effect. This study contributes to existing literature by combining the spatial dimension to the study of the structural change in the South African economy, employing the decomposition technique to the analysis of regional employment disparities as well as providing insight on the changes in employment at a disaggregated level (magisterial district). The results reveal that employment growth is largely driven by region-specific factors particularly the regional competitive effect and the regional industry-mix. The national effect had an overall negative impact on employment creation. This finding has a significant policy implication as it highlights the importance of regional characteristics in employment creation and employment growth. The results enables policy makers to formulate policies which promote regional economic growth in order to achieve balanced growth.

Session H6
Money and
Banking 2


Mark Ellyne and Benjamin Jourdan, Did the National Credit Act of 2005 Create a Credit Boom and Bust? Abstract: This paper examines the major credit expansion following the promulgation of the National Credit Act (NCA) of 2005 until the credit crunch of 2013 and subsequent collapse of African Bank Investments Limited (ABIL). This case study contains what may be the first empirical analysis of the impact of the NCA on South Africa’s credit markets. The first part of the study is a policy analysis that reviews the history of credit in South Africa that led to the creation of the National Credit Act. From the time the NCA was passed, massive growth in credit led to a boom, which peaked in 2007 and then fell in the wake of the 2008 U.S. financial crisis. Owing to the financial crisis, unemployment increased–especially for low-income black and coloured populations--which led to distressed unsecured credit borrowing by these populations. The paper explains how the mechanisms of the NCA, which sought to expand credit to historically disadvantaged populations so that they might escape poverty, were the same mechanisms that allowed consumers to become over-indebted in times of distress. Part two of the paper contains a quantitative model analysis to: (i) identify credit booms; (ii) model credit growth and identify the role of the NCA; and (iii) analyse credit risk, measured by the size of bank provisions (as a proxy for non-performing loans), and determine if it was linked to earlier credit expansions. We find evidence that the NCA appears to have facilitated the conditions for the 2007 credit boom. We also model bank credit risk (provisions) and find that past credit growth affects bad loans with an average 6-quarter lag. This study may have lessons for other emerging economies who are struggling with problems of opening credit markets to lower income consumers while needing to protect financial sector stability.

Paul Dunne and Elizabeth Kasekende, Financial Innovation and Money Demand: Evidence from Sub-Saharan Africa Abstract: While the effect of financial innovation on money demand has been widely researched in industrialised countries, because of its major role in monetary policy, few studies have focussed on developing countries. This is surprising as there has been a considerable growth in financial innovation in Sub-Saharan Africa in recent years, which could have important implications for developing country macroeconomic policy. This paper investigates the development of financial innovation and its impact on money demand in the region using the pooled mean group (PMG) estimation procedure by Pesaran et al (1999) for 35 countries between 1980 and 2013. The results indicate that there is a negative relationship between financial innovation and money demand with the use of both proxies of financial innovation, (M2/M1) and private sector credit as a percent of GDP. This implies that financial innovation plays a crucial role in explaining money demand in Sub-Saharan Africa and given such innovations as mobile money in the region this can have important implications for future policy design.

Elizabeth Kasekende and Eftychia Nikolaidou, Financial Innovation and Money Demand with a Focus on Mobile Money: The case of Kenya Abstract: Over the last few decades, most countries’ financial systems have experienced a growth in financial innovation that has important implications for the stability of money demand and hence for monetary policy. This is particularly true for those developing countries that are seeing a growth in innovations such as ‘mobile money’. This paper provides a case study of Kenya, an economy that has been at the forefront of such innovation in the developing world, most importantly the introduction of mobile money in 2007, a financial innovation that is gradually being adopted by other countries. It specifies and estimates money demand equations, allowing for the impact of a variety of financial innovations, using the ARDL approach to cointegration over the period 2000 Q1 to2014 Q2. The results suggest that there exists a long run relationship between money demand measured by M1 and its determinants when mobile money is accounted for and that it not only affects money demand positively but also leads to a decrease in the interest rate elasticity of demand. There is, however, no evidence of a long run relationship using broad money or the standard proxies of financial innovation

Mokgadi Maleka, The impact of the National Credit Act (NCA) on Credit Risk in the South African Banking Sector Abstract: There has been increasing focus on banking system stability worldwide, particularly due to the recent financial crisis experienced developed and developing countries and the resultant adverse economic effects. The stability of the banking system is more important as it is crucial for the achievement of the country’s development goals. Credit extensions by banks are also a core component for facilitating economic and social development in the country. The problem is that once the risk attached to credit extensions reaches a point of being excessive, it can have a destabilising effect on the banking system and economy. In the past the types of credit controls programs have been used as mechanism to constrain inflation in the economy. South Africa has experienced a rapid increase in credit extension since 2001, which prompted the implementation of the National Credit Act (NCA). The intention was to regulate the credit industry and to improve the practices thereof. More recently, further concerns have been raised by regulatory authorities around the possibility of an assets bubble in the economy as results of the level of unsecured credit extended in the country. The objective of this study is therefore to investigate the impact of the National Credit Act on credit and systematic risks in the banking system. This is important, as investigating and understanding the impact of credit control such as NCA on risk in the banking system is critical to supporting the country’s development strategies. The question is whether the introduction of the NCA has been successful in reducing credit risk in the banking system or not, if the NCA was successful, how it has achieved that. The structured interview was undertaken within the banking industry experts such as executive or bank managers who have been responsible for implementing and managing the impact of NCA within the organization.

Jimmy Alani, Money and Interest Rates in Uganda Abstract: The paper analyses the influence of money on interest rates in Uganda within the 1983 to 2007 period. The theoretical analysis involves the idea that the lenders of money make their decisions based on real interest rate, the nominal money supply and the future value of the money supply because their aim is to make profits in real terms. The other idea states that the borrowers of money make their decisions based on the real money balance (i.e. demand for money), nominal interest rate and the future value of the real money balance because their aim is to use the borrowed money to spend on the goods and services they demand for investment or executing their planned activities. To the borrowers the nominal interest rate is the price of money, whereas to the lenders the real interest rate is the price of money. Both the lenders and borrowers desire to earn income using the money supplied or borrowed and the future value of either the real money balance or money supply is directly proportional to aggregate income. Based on results from the relevant regressions conducted the paper finds that (a) money supply has a positive influence on the nominal interest rate, but a negative effect on real interest rate (b) the demand for money has a positive influence on real interest rate, but a negative effect on the nominal interest rate and (c) real income has a positive influence on either nominal or real interest rate. JEL Classification: E43 Key Words: Real Interest Rate, Nominal Interest Rate, Real Money Balance, Money Supply, Real Income.

Session H7
Sport & Tourism

Gavin Fraser, Ferdi Botha and Robert Fraser, Determinants of success of golfers on the Sunshine Tour: a multi-equation analysis Abstract: There has always been a fascination with which production variables result in optimal efficiency and success. Production functions have been around for a long time but only in the mid-1980s were they used to determine the success of professional golfers. Empirical studies have shown that there is a strong relationship between golfers’ scores and, hence, earnings and particular golfing skills. Initial studies of golfing success assumed a direct relationship between the success of golfers and their skill level and specified single equation models. This approach was questioned and a subsequent study developed a structural model of golfing success that used a multi-equation approach. This study will adopt the multi-equation approach in determining which golfing skills result in success for professional golfers on the Sunshine Tour. The study uses statistics taken from the Sunshine Tour website for the 2011 – 2013 seasons for the top golfers to reveal the determinants for success. Many studies in this area have covered the PGA Tour and the European Tour, however there has been no studies done on the Sunshine Tour. The study confirms the indirect relationship between the golfer’s scores, ranking and earnings. A low average score is associated with a better overall ranking and hence higher earnings.

Luke Humphrey and Gavin Fraser, 2010 World Cup stadia investment: Does the post-event usage justify the expenditure? Abstract: This paper provides an ex-post analysis of the utilisation of the stadia which were built for the 2010 FIFA World Cup. The South African government invested large sums of public money into making significant upgrades to existing stadia as well as towards the development of new stadia, in order to meet FIFA requirements. This paper determines whether the substantial investments into the stadia infrastructure is justified by the utilisation of the stadia in the aftermath of the tournament. By using a modified cost-benefit analysis, the monetary construction costs of the stadia are compared to the benefits, which have been derived using indices and stadia utilisation rates as a proxy. Generally, the results suggest that there has been a significant decline in the utilisation of stadia following the 2010 World Cup. Furthermore, the results indicate that the costs of the stadia for the 2010 World Cup are significantly larger than the benefits, thus holding the sporting legacy of the event highly questionable. The 2010 World Cup has left the country with an expenditure legacy of an oversupply of stadia, thus making some of the stadia unsustainable. The results of this study appear to be in line with existing empirical research, which suggests that the stadia tend be underutilised and pose as a financial burden for South Africa, subsequent to the event.

Kelcey Brock, Gavin Fraser and Ferdi Botha, Sport consumption patterns in the Eastern Cape: Cricket spectators as sporting univores or omnivores Abstract: Since its inception, consumption behaviour theory has developed to account for the important social aspect that underpins or at least to some extent can be used to explain consumer behaviour. Modern consumption behaviour theory is anthropocentric in nature, with people and societal influence at the forefront of the theory. To date, empirical studies on consumption behaviour of cultural activities (for example, music and arts), entertainment and sport have used Bourdieu’s (1984) omnivore/univore theory to suggest that consumption of leisure activities is bound up in social ties. To date, no such investigation has been conducted in the context of sport in South Africa. The aim of the study therefore is to investigate whether South African cricket spectators are sporting omnivores or univores, thus, essentially investigating whether sports consumption behaviour in South Africa is bound up in social ties. A number of positive economic and social effects could result from gaining a holistic understanding of sports consumption behaviour in South Africa. Given these ramifications, the secondary goal of the research is to identify motives for consumers making specific sport consumption decisions, and determining whether certain characteristics can be attributed to these consumption decisions. Recommendations based on the findings of the research could help various stakeholders understand sports consumption patterns in South Africa, which could in turn lead to the realization of positive economic and social benefits. The study made use of a questionnaire, administered to cricket spectators in the Eastern Cape at four different limited overs cricket matches in the 2012/13 cricket season. Using individual binary probit models and post estimation F-tests, the results indicate that consumption behaviour of sport within South Africa predominantly differs on the grounds of education and race. This suggests that there are aspects of social connotations underpinning sports consumption behaviour within South Africa.

Session H8
Trade 4


Mustafa Sakr and Andre Jordaan, Emerging multinational corporations: Theoretical and conceptual framework Abstract: Overall statistics published by the United Nation Conference for Trade and Development (UNCTAD), clearly exhibit that emerging multinational corporations (EMNCs) have gained a growing momentum in the global outward foreign direct investment (OFDI) landscape. Over 1990 to 2011, foreign assets held by top EMNCs have doubled 52 times. Similarly, OFDI outflow from emerging economies (EMs) has grown 24 times faster than the average world OFDI outflow. They thus accounts for 18% of world OFDI, while being negligible in the beginning of nineties. Such developments raise plenty of critical research questions. First and foremost, what are the key drivers standing behind the boom of EMNCs? Second, how long does it take for EMs based corporations to initiate their go multinational strategy? Third, what are the main penetration modes adopted by EMNCs to expand their activities outside the border of their national economy? Last but not least, what are the main types of EMNCs? As such, and to consider all aforementioned issues, this paper is organized into four sections. The first section describes the concept of EMNCs and then the theories explaining EMNCs evolution will be discussed. The remaining sections are considering the types of EMNCs and the entry modes adopted by them to go multinational.

Roseline Misati, Financial integration and economic growth in the COMESA AND SADC regions. Abstract: Abstract This study used panel data methods to examine the relationship between financial integration and economic growth in the COMESA and SADC regions. Using FDI and portfolio flows as a share of GDP, Chinn-Ito index of financial openness and debt flows as measures of financial integration, the study found that the relationship between financial integration and growth is largely insignificant in the combined sample of COMESA and SADC regions. However, the relationship changes when the two regions are separated. Whereas two of the indicators of financial integration are significant in the COMESA region, only one indicator of financial integration is significant in the SADC region implying that financial integration is more important in the COMESA region than in the SADC region. The results support the growth retarding theories of financial globalization and the convergence hypothesis in the COMESA region while the neoclassical trade theories find strong support in the SADC region. These results imply, first, that financial integration has different growth effects for different regional groupings and thus integration policies should not be universally applied. Second, these results imply that further enhancement of trade integration policies offer more promising outcomes for economic growth in the SADC region than financial integration policies while the converse is true for the COMESA region

Kwena Matjekana, Regional Economic Integration Challenges for SADC: Seeking a viable approach. Abstract: Regional economic integration in the African continent has, for a considerable time, often being part of the agendas when African leaders meet. The objective has been a creation of an all-inclusive African Economic Union. The idea is a noble one in view of the potential risk of marginalisation of Africa in the global trade and economic development. With the passage of time, however, it has been apparent that the dream has been elusive. What has been achieved to a moderate extend is some progress towards conclusion of regional integration arrangements (RIAs) at a sub-regional level or the creation of a regional economic community (REC). Recent global developments, among others, the fragility of the emerging democratic environment, the realignment of socio-economic forces, the financial crises, and the inter-continental economic partnership arrangements (EPAs) have presented formidable challenges to the progress of the economic integration projects. The African continent is home to up to about ten RECs, some of which overlap in membership. These RECs are at different stages of development and are facing a number of challenges including low inter- and intra-regional trade. This paper focuses on the challenges facing Southern African Development Community (SADC) seeks to advance possible routes that it can follow toward fully integrated REC. Lessons are drawn from the European Union (EU) in terms of the route and the approach. The paper draws on historical developments from the formation of a free-trade-agreement (FTA) to a fully integrated monetary union. KEY WORDS: Regional integration agreements, Trade, Regional Economic Community, SADC, EU, Foreign Direct Investment JEL: F1, O1 Kwena Matjekana Department of Economics University of Limpopo Email Address:

Session H9
Money and


Olufemi Saibu, Financial Reforms, Structure and Competiveness of Nigerian Banking Industry Abstract: This paper investigates the extent to which financial reforms impacted on degree of bank competitiveness and structure in the Nigeria since 2001. A unique contribution of this study over any other studies on Nigerian banking industry is the use of a detailed bank-level panel data set, and measuring competition using the PR-H-statistic and the time varying Lerner index. The estimation of Lerner index provides the first ever documented empirical evidence on the evolution of competitiveness in the Nigerian industry. The empirical results show that the estimated H- statistic is 0.46 and it is statistically significant at 1% level. The null hypothesis of both monopoly and perfect competition are therefore rejected. The intuition of the empirical analysis result of the study over the sample period is that Nigerian Banks earned their revenue under conditions of monopolistic competition. Intuitively, the empirical results suggest that the factor prices are important for the Nigerian banks in the pricing of bank products and services. From the result, Wages/Salary and price of capital contribute the most to the value of H- statistic. The Lerner index also provides an alternative to the popular PR-H index for determining bank competitiveness and market power. The Lerner index was estimated to be (0.77) which gives further evidence on market power and the degree of competitiveness of banks in Nigeria All tests and diagnostic statistics also lend credence to the goodness of fit and the robustness of the model. The findings lend support to previous research findings, particularly in developing countries that financial reforms and bank innovativeness have direct implication on both bank competiveness and market structure.

Tumisang Bertha Loate, Investigating the bank lending channel using disaggregate bank loans Abstract: This paper investigates the monetary policy transmission through the bank-lending channel in South Africa during the period 2002Q1 to 2014Q3 using disaggregated loans. The paper aims to answer two questions: does the effect of the bank channel depend on bank sizes? And has the volatility of the banks’ balance sheet changed over time? To answer the first question, I estimate two Bayesian structural vector autoregression (SVAR) models. The first model (benchmark model) is a six-variable model which represents the banking sector and has the following variables: policy instrument; consumer, corporate and mortgage loans; credit impairment; and inventories. The second model is a seven-variable model which discriminates between different loan portfolios for the big and small banks. For the last question, I re-estimate the two models using a time-varying parameter VAR (TVP-VAR) with stochastic volatility. The results for the six-variable SVAR model are consistent with the literature. That is, following a monetary policy shock, banks extend credit to the corporate sector and contract credit to the household sector. The effect is particularly significant for consumer loans, where credit contract by almost 0.4% in response to a 100 basis point policy rate increase. The results for the second model indicate that consumer loans increases for the small banks. The response for corporate loans is only significant for the big banks. Lastly, small banks experience higher credit impairment two quarters prior to the big banks. Possible reasons include non-diversification of loan portfolios and that low income earners default quicker than the middle or high income earners. The results for the TVP-VAR indicate that the variables are more responsive during period of increasing risk, like the financial crisis. The results suggest that during period of uncertainty, monetary policy have a stronger influence.

Session H10
Economic Growth


Beatrice Desiree Simo-kengne, Johane Dikgang and Sunita Prugsamatz, Causal relationship between Meat consumption and economic growth in SEAFO countries: Evidence from panel Granger causality test Abstract: This paper investigates the causal relationship between meat consumption and the growth rate of output in a panel of six member countries of the South East Atlantic Fisheries Organisation for the period 1990 to 2009. We apply a bootstrap panel Granger causality approach on a bivariate VAR comprising of per capita meat consumption and real per capita GDP growth; hence allowing for both country specific effect and cross-sectional dependence. Our empirical results display a unidirectional causality running from economic growth to meat consumption, which implies that, rising living standards leads to significant increases in meat consumption. Moreover, the absence of reverse causation from meat consumption to economic growth tends to substantiate the detrimental meat effect on the health and environment, which indeed contributes to the economic decline.

Khathu Todani, South Africa Economic Growth Spillover to SADC Abstract: Against the backdrop of sluggish economic activity in South Africa, questions are being asked on the potential spillover effects to the rest of Africa. The main concern is that the slowdown in South Africa’s growth could potentially serve as an impediment to growth in major South African trading partners in Africa. This paper focuses on the potential spillovers from South Africa to Southern African Development Community (SADC) countries. SADC countries have been growing robustly recently, recording an average growth of around 5.2% between 2010 and 2011, and if there are significant growth spillovers from South Africa to these countries, the risk exists that the rest of SADC may also start slowing down. This paper aims at shedding some light on the existence and the magnitude of growth spillovers from South Africa to SADC, i.e. it seeks to examine the impact of South African economic growth on growth in the rest of SADC. This question is important because the existence of such spillovers would imply that slowdown in economic activity in South Africa is likely to have negative impact on growth in the region with the potential of negative “spillbacks” to South Africa. The empirical framework is a pooled panel growth regression model that is standard in the growth literature. The dependent variable is real GDP growth rate. Independent variables are also standard growth regression variables, which amongst others, include measures of physical capital (gross domestic investment as % of GDP); human capital (secondary school enrolment); trade openness (import plus export as % of GDP); and macroeconomic stability (inflation). South Africa’s real GDP growth rate as well as weighted growth rate in each of the other SADC countries (one in each specification). Data is sourced from the IMF’s International Financial Statistics and the World Development Indicators. Preliminary results seem to suggest that South Africa’s growth has significant explanatory power for growth in SADC.

Ronald Rateiwa, Financial structure gap and economic growth: Evidence from selected countries in Africa Abstract: The importance of financial development to the economic growth process (the “finance-growth nexus”) is well researched. The subject has been theoretically postulated and empirically supported. One of the early empirical studies to demonstrate the correlation between financial development and economic growth include the work of King and Levine (1993a), whose seminal work inspired further empirical work on the finance growth-nexus. For a comprehensive review of theory and empirical evidence of the finance-growth nexus, see Gertler, 1988; Levine, 1997 and 2004; Aziakpono, 2011; Harris, 2012 and Levine et al, 2013, inter alia. The general consensus from these empirical studies on the finance-growth nexus is that financial development matters for economic growth, at both micro- and macro-economic levels. A survey of literature on the finance-growth nexus revealed that the bulk of studies on this subject focused on the relationship between financial development and economic growth. Little scholarship has been committed to understanding what an optimal financial structure is; and how deviation from such an optimal financial structure (the financial structure gap) would influence economic growth. To this end, this study contributes to the finance growth nexus but investigating the effect of the financial structure gap on economic growth. The study will use time series annual data from Africa’s three biggest economies (South Africa, Nigeria and Egypt) for both bank and stock market development for the period 1965-2012 and 1980-2012, respectively. Results from the study will make a modest contribution to the finance-growth nexus by investigating the effects of the financial structure gap on economic growth, which effects have not been sufficient studied.

Emilie Kinfack, the determinants of economic growth in Africa: evidence from Bayesian Model Averaging Abstract: This paper assesses the determinants of economic growth in sub-Saharan Africa (SSA) with focus on the importance of trade variables and regional trade integration. In other words, the paper investigates the extent to which regional trade integration, amongst other variables, contributes to the economic growth of SSA during the period 1970 to 2013. To account for endogeneity of a number of repressors, including regional trade integration, and model uncertainty, the paper makes use of the two-stage Bayesian Model Averaging (2SBMA). The findings of the paper show that regional trade integration contributes to economic growth provided that countries reach a given threshold of export per GDP. The result is robust with different measures of regional trade integration

Thursday19:00 - 
Smuts Dining Hall
Gala dinner
Friday08:00 - 09:00 Registration
Friday09:00 - 10:40Parallel Sessions I
Session I1
Health 3

Amanda Musandiwa, Johane Dikgang and Sunita Prugsamatz, Knowledge, health and meat consumption: Analyzing South African consumers’ meat consumption habits and the potential for more information on meat labels to alter buying behavior Abstract: High levels of meat consumption are associated with negative health outcomes and climate change. This paper analyzes demand for meat labels information and explores the role knowledge and health considerations play on meat consumption of various types. The data suggests that South Africans ate chicken, beef, lamb, pork, fish and goat about 2.67, 2.17, 0.77, 0.68, 0.92 and 0.1 times per week respectfully. Moreover, more information on nutrition and production processes is required. However, approximately half of the sample is willing to pay more for additional information on meat labels. Those who are willing to pay for additional meat label information are willing to pay 5.65% more in meat prices on average. The results from the logit models reveal that only education is a significant predictor of willingness to pay for more information. Most importantly, it appears that more information on meat labels is unlikely to change South African consumers eating behavior.

Muna Shifa, Subjective well-being, income aspirations, and relative status in poor economies Abstract: Decades of social science studies have confirmed that individuals tend to compare themselves to others and/or oneself in the past in evaluating their own current well-being. However, the empirical evidence on how relative status affects well-being in poor economies is very limited and inconclusive. Using panel data from Ethiopia, this paper provides empirical evidence on how income aspirations and relative status affect individual utility in the context of poor economies. The analysis uses various self-reported indicators of satisfaction with life as a measure of individual well-being (utility).

Laura Rossouw, Poor health reporting: do poor South Africans underestimate their health needs. Abstract: Self-reported health variables in household survey data are a cost-effective method of calculating population health status. However, studies focusing on morbidity and the accuracy with which self-reported data captures true health status, often finds self-reported health measures to be problematic. The subjective nature of self-reported health status provides an opportunity to empirically calculate differences in reporting behaviour across sub-groups, which in turn can be used to make inferences about health perceptions. Using the WHO study on global ageing and adult health (SAGE), this research is aimed at showing that different wealth groups in South Africa use different reporting scales when evaluating their own health. More particularly, the poor found to use a different reporting scale than the more affluent, and this leads them to report much better health levels than they actually have. SAGE South Africa (a nationally representative dataset that covers the adult population) contains vignette questions, which provides the opportunity to use the relatively novel anchoring vignettes approach to test for reporting heterogeneity. Vignettes are hypothetical health scenarios that respondents are asked to rate on a Likert scale. Since these hypothetical scenarios they represent a fixed health state, any systematic variation in the way that respondents rate the vignettes are indicative of the use of different reporting scales. The hierarchical ordered probit model is applied to test for reporting heterogeneity using these vignettes. The results show that the poor systematically underestimate their ill-health. Possible reasons for this systematic underestimation of ill-health could be the use of different comparison groups, asymmetric access to health information or that the poor as a vulnerable subgroups shift their perceptions of their health due to their inability to cope with the economic costs of illness. Policies aimed at decreasing health inequalities amongst South Africans should also address the differences in health perceptions between the poor and the non-poor.

Ralitza Dobreva, Who is healthier? Investigating South African patterns of reporting heterogeneity in self-rated health Abstract: An individual’s own opinion about his or her overall health is subjective, yet widely used in research because of its all-encompassing nature. The self-rated health measure (SRH) has strong advantages: for example, it has been shown to be a significant independent predictor of mortality and it is strongly associated with a variety of other measures of physical and emotional health. An important strand of the literature is concerned with the comparability of SRH between groups – specifically, with distinguishing the differences due to “true” health from those due to reporting styles and any systematic patterns of measurement error. Using the three waves of the National Income Dynamics Study (NIDS), this paper explores the systematic differences in SRH reporting styles between demographic and economic groups (e.g. by gender, race, education and employment status) in South Africa using the latent variable method developed by Lindeboom and van Doorslaer (2004).

Session I2

John Paul Dunne and Nan Tian, The Determinants of Civil War and Excess Zeroes Abstract: This paper considers the determinants of civil conflict, using a zero-inflated Poisson (ZIP) modelling approach that deals with the problem of excess zero observations. We argue that the dependent variable in civil war research is often zero-inflated, containing extra zeroes that relate to two distinct data generation processes. Despite their continued use in the literature, traditional probit and logit models have limited capacity in dealing with this issue and can lead to inaccurate results. This is illustrated by estimating the model in Elbadawi and Sambanis (2002). Using their data and the ZIP approach, we find significantly different results, offering information about the data generating process of heterogeneous zeroes in the database. A general greed-grievance model is then estimated on a sample of 134 countries, over 54 years, providing some interesting results. While the standard probit and Poisson models tend to show opportunity variables as the main determinants of civil conflict, as found in other studies, the zero-inflated models better support grievance effects. In particular, contrasting earlier studies, ethnicity and inequality are found to play a significant role in civil war risk.

John Paul Dunne and Nan Tian, Conflict, Economic Growth and Spillover Effects in Africa Abstract: While there is a large empirical literature on the determinants of conflict, much less attention has been given to its economic effects. The studies that exist tend to focus on the economic effects of conflict that take place within conflict afflicted states, with only a few studies considering the likely spillover effects on other countries. This paper makes a contribution by providing an update on the earlier work and also attempting to improve upon the approach taken. In particular, it develops a theoretical improvement by moving beyond the measurement of spatial spillover as measured by geographical distance and allowing for economic and political distances. Using a dynamic panel estimation approach, the results suggest that conflict has a strong negative transnational link on directly contiguous countries growth, but no impact was observed for non-contiguous countries. Controlling for economic and political distances or similarities leaves the results unchanged. This, in turn, implies that the negative contagion effects of conflict is limited only to directly contiguous countries, and is not only determined just by geographical distance, but also depends on country linkages across economic and political dimensions.

Carolyn Chisadza and Manoel Bittencourt, Globalisation and Conflict: Evidence from sub-Saharan Africa Abstract: Over the last half century, sub-Saharan African countries have experienced transitions towards more open and inclusive economies, as well as more democratic institutions. Stephen Pinker (2011) advances that conflict has decreased over time because of increased globalisation and all that it entails, which encourages non-violent forms of interactions among nations. Making use of this hypothesis, we study the effects of globalisation on conflict in 48 countries. We use panel data from 1970 to 2010 which include baseline POLS, fixed effects and instrumental variables. We find that overall globalisation significantly reduces episodes of conflict in the sample. Furthermore, we decompose globalisation into its three key elements (social, political and economic) and find that social and political globalisation drive the results, after controlling for heterogeneity and endogeneity.

Nthabiseng Tsoanamatsie and Manoel Bittencourt, Education and Conflict in sub-Saharan Africa Abstract: We investigate the relationship between different levels of education and conflict in sub-Saharan Africa Many sub-Saharan African countries have experienced conflict since independence and these countries have also seen an increase in educational attainment in the last half century. We use a panel dataset covering the period between 1975 and 2012 from 48 sub-Saharan African countries and the empirical strategy includes Pooled OLS, the baseline model, as well as Fixed Effects with Instrumental Variables and GMM estimators to account for endogeneity. We use the proportion of people (working population) in agriculture, industrialisation and urbanisation as instruments to education in the FE with IV model. We expect education to have a negative effect on overall conflict, but we also anticipate different results given the different levels of education on differing forms of conflict. The preliminary results show that both primary and secondary education have a negative and significant effect on most forms of conflict. They also show that university education has a non-linear relationship with conflict; the impact on conflict is initially positive, then it becomes negative over time. These results are significant as they show that higher number of people enrolled in university will not only result in higher human capital accumulation and higher growth and development, but to less conflict.

Bonginkosi Mamba, André Jordaan and Matthew Clance, Globalisation and Conflicts: A Theoretical Approach Abstract: This paper is aimed at providing insights into the interplay between trade and conflicts. It also provides an overview of conflict areas on the African continent and the potential impact on trade. The motivation is drawn from a large number of debates advocating globalisation as being a double edged sword given arguments drawn from the Liberal premise which tend to suggest that globalization, through integration and economic interdependence dampens the likelihood of conflicts, whilst the opposite holds for Structuralist theorists. Maps constructed from the Correlates of War (COW) project provide further details on both conflict areas and conflict intensities on the African continent. It is evident from the maps that between the period 1823 and 2003, fewer African countries engaged in inter-state wars. On the other hand, the period 1824-2006 registered the largest number of African countries engaging in intra-state conflicts. The 1990s in particular recorded some African countries having participated in more than two intra-state wars during this period.

Session I3
Labour Markets


Jimmy Alani, Determination of Whether Uganda's Technological Progress is Labor Intensive Abstract: The paper determined whether technological progress was labor deepening in Uganda within the 1971–2009 period. Theoretical models were developed and transformed into econometric models before conducting statistical tests. Worldwide appropriate data on capital stock do not exist. As a result aggregate capital stock is usually estimated by proxy. To avoid estimation of capital stock by proxy, the capital stock series were estimated from annual disposable income, annual real GDP and annual investment expenditures based on the Cobb-Douglas production function. Labor force series may not give a true estimate of labor stock because in an economy labor exists both in the formal and informal sectors. Yet, in economics labor stock is measured in terms of man-hours. Uganda’s technological progress was found to be labor deepening because tests revealed that the rise in marginal product of labor was higher than that of marginal product of capital. By decomposing technology into output, capital productivity and labor productivity, Uganda’s technical progress was confirmed to be labor deepening because labor productivity had a greater contribution to technological progress than capital productivity. Also, the study found out that within the feasible region of production capital productivity as well as labor productivity had a negative influence on economic growth because (a) laborers could have worked less than required and enjoy more leisure and (b) firms could have used less capital to make profits, respectively than the required. Labor productivity growth could have influenced economic growth through the growth in labor. Capital productivity growth could have affected economic growth through growth in capital stock. Labor productivity growth could have been caused by growth in capital-labor ratio. Growth in capital productivity could have been caused by growth in labor-capital ratio. Therefore, technological progress through appropriate management of productivity and input ratios are important for rapid economic growth.

Andrew Charman and Leif Petersen, REDI3x3: Temporal and spatial enterprise change in a township informal economy: evidence from Delft South, Cape Town. Abstract: The paper will present the results of a socio-spatial investigation of the change in the scope and scale of micro-enterprises in Delft South over the period 2010-2015. In 2010 a team of researchers undertook a survey of informal micro-enterprises in Delft South. The researchers introduced a new approach to researching township businesses in a spatial context. The method utilised a ‘small area census approach. The objective of this research approach is to identify all existing micro-enterprises within an area of sufficient size to adequately reflect the local spatial dynamics of business distribution. The Delft research resulted in the identification of 902 micro-enterprises. The spatial position of each business was recorded and most businesses were photographed. In-depth interviews were undertaken with 287 businesses owners in the sectors of spaza shop retail, educare and liquor trading. In May–June 2015 the researchers will be returning to the field to resurvey the area; the objective of the research is to identify measurable evidence of enterprise growth and positive change. This second generation research project provides an opportunity to explore temporal social and spatial changes in the make-up of informal businesses and their distribution (numbers of enterprises / sector, types of businesses, locality, and basic demographic information on the business owner). Of particular interest is the question of how previously identified informal businesses change over time and how the business environment also changes, in terms of the ordering between high street and residential areas. The 2010 data provides a unique opportunity to provide answers to these questions through resurveying the site. The paper will present evidence on: i) the change in micro-enterprise composition, ii) change in enterprise spatial distribution, and ii) change in enterprise dynamics, particularly in the spaza and liquor retail sectors.

Derick Blaauw, Rinie Schenck and Anmar Pretorius, “The times they are a changing”: The changing nature of day labouring in South Africa’s informal economy Abstract: Day labour markets in South Africa function in essence as a ‘catchment area’ for workers who have lost their formal employment, or who have never had the opportunity to hold a steady job (Theodore et al., 2015). The prospects of entry or re-entry into the formal sector are limited. Previous research described the socio-economic dynamics within this informal activity with surprising findings in terms of the role of migrant day labourers (Blaauw et al., 2013). The constant changes in this segment of the informal economy necessitate the repeat of this country wide research project. The first phase in this process revealed wholesale changes in the dynamics of the day labour market in South Africa. This paper draws on a mixed method research approach. It incorporates elements of an ethnographic study of ‘day labourers’ (both South African and foreign) in Pretoria in 2014 as well as the first results of the latest round of survey research in 2014 / 2015 in Pretoria and Potchefstroom. The characteristics and ratio of foreign to local day born day labourers have changed significantly from the previous research done in this part of the informal economy. The ratio of foreign born day labourers to that of South Africans has more than doubled in the space of seven years. The paper investigates casual employment and the relations between South Africans and foreign nationals in the day labour market against the backdrop of the current wave of xenophobic violence in South Africa.

Simon Ssekabira Ntege, Wage Inequality and Ability Sorting in South Africa’s Private and Public Sectors, Amidst Transition Policies Abstract: Since the early 1990s, South Africa instituted policies (e.g. AA) to enable it transit from apartheid to a democracy; that would allow individuals equal chance to acquire skills, access employment across sectors, and be fairly remunerated. Overtime, skills levels would convergence across sectors, eliminating sectoral wage inequalities and wage-motivated self-selection into different sectors. Workers distribution across sectors would then mirrors a random distribution of the country’s ability. However, the public and private sectors differ in their objectives, and thus in the abilities they seek for in employees, and the way they remunerate those abilities. Wage maximising individual self-selection themselves into these sectors based on the sector-specific skills and other skills they posses. Thus worker-distribution across sectors may not be mimicking the countries population distribution of abilities in the interim, and may be amplifying sectoral wage inequality. This study will assesses how the level of inequality is affected by self-selection into South Africa’s public or private sector, based on comparative advantage and acquired skills, and compares it with inequality that would accrue if workers were to be randomly assigned to sectors as targeted by transition policy. Statistics South Africa’s 2006 labour force survey panel data is to be used to estimate wage equations, embracing policy pass-trough influences over time, as well as sector specific ones. Sectoral specific variances of wage residuals will then be compared with that of the aggregate-sample to establish the sector-specific impact on inequality. A comparative advantage model is utilised to separate the impact of self-selection across sectors, from that due to workers’ acquired skills.

Session I4
Trade 5


Tankiso Abel Thibane, The role of international institutions of global governance in steering globalization Abstract: Globalization refers to the increasing integration of economies around the world, particularly through the movement of goods, services, capital, labour and technology across international borders. Globalization is a historical process, as it traces back to the 14th century during the origins of civilization. During the Classical Gold Standard Era (1870-1913) the state of the global economy was stable and prosperous due to increases in international trade. But, in the aftermath of the Gold Standard and specifically, between 1920 and 1929 there was increasing global economic instability. The world economy experienced a contraction, which came to be known as the Great Depression that lasted for four years (1929-33). As a result, after the Second World War of 1939-44 three institutions were created to manage the world economy and to prevent another Great Depression, namely; the IMF, the World Bank and the WTO. The post-war role of the Fund was to support the Bretton Woods fixed exchange rate system, while the role of the Bank was focused on reconstruction and that of the WTO was to promote trade liberalization. The post-World War II rise of globalization was driven by international trade, especially since the 1950s, labour flows in the mid-1960s and FDI during the 1980s. With the end of the Cold War in the 1990s technological flows became dominant, while international migration started to play a role during the course of the 2000s. Globalization coincided with the post-war roles of these institutions, by forcing them to reform their roles, in order, to make them relevant to the changing global economic environment. The role of these institutions in steering globalization has been quite extraordinary, although, they had a variety of strengths and weaknesses. They have fairly managed to help restore and sustain the benefits of globalization, and mitigated negative effects resulting from globalization.

Christine Makanza, The role of Non-Traded Goods in Current Account and Exchange Rate Determination Abstract: Most general equilibrium models of the current account assume the evolution of the current account is caused by traded goods sector changes and focus on developed countries. However, emerging markets are typically characterised by a relatively large non-traded goods sector, which affects macroeconomic fundamentals. Although literature recognises the relevance of the non-traded goods sector for macroeconomic aggregates such as output and the exchange rate, there are very few studies that analyse how non-traded goods affect the determination of the current account. To address this gap, this study develops a small open economy Dynamic Stochastic General Equilibrium (DSGE) model of the current account that allows for a distinction between traded and non-traded goods sectors. The model is used to analyse how the intratemporal elasticity of substitution between traded and non-traded goods influences the determination of the current account, and the relative importance of shocks from the non-traded goods sector in explaining the current account and macroeconomic variables, compared to their traded goods sector counterparts. The model is calibrated to South Africa, an economy with a large current account deficit and a large non-traded goods sector. The results show that non-traded goods play a significant role in the determination of the current account, with half the variation in the current account explained by non-traded goods productivity shocks. In addition, a large proportion of variation in the exchange rate is explained by risk premium shocks, but the contribution of these shocks decreases with the introduction of non-traded goods in the model. The model provides a good fit to stylised facts, suggesting that the non-traded goods sector is vital for the evolution of the current account and exchange rate.

Dale S Mudenda, Tariffs and Retail Price Dispersion: Intranational Evidence for Zambia Abstract: The impact of trade socks on within-country integration of prices has not yet been explored, at least within the African context. This paper uses a unique micro dataset of 38 product level prices and tariffs across 40 districts over the period 2001 -2011 from an emerging African economy, Zambia to address this issue. We specifically address two questions: Firstly, to what extent does trade reform affect price integration at national level? Secondly, does a single trade policy shock, proxied by tariff changes affect within-country price integration uniformly? We expect the tariff reductions undertaken by the state over the study period to have fostered price integration within and cross the country. We use the tariff pass-through framework developed by Feenstra (1989) to infer the extent to which the country is integrated with the rest of the region. We extend the model to explicitly capture the within-county spatial influence of trade policy on price integration by interacting district level characteristics with tariffs. Our results show that: First Zambia is not perfectly integrated in the regional economy with an average foreign price pass-through of 0.19 percent at national level. Second, there is imperfect pass-through of tariffs in domestic prices. On overage 86 percent of the tariff shocks are passed into retail prices. Third, we find substantial heterogeneity in the tariff pass-through across districts with cities and larger towns experience 22 percent more benefit from trade policy shocks compared to remote districts. Finally, we find a positive effect of the interaction of tariffs and product tradability on retail prices

Session I5
Resources 1


Roula Inglesi-lotz and Jeetesh Manillal, Critical evaluation of the determinants used in the Environmental Kuznets Curve (EKC) literature Abstract: The underlying model behind the Environmental Kuznets Curve (EKC) with policy interactions was first presented by Panayotou, which was an innovation to the original concept offered by Kuznets (Kuznets, 1955), this form of modelling used the traditional approach of atmospheric gasses (ambient effects) as the response variable in modelling output, demography and policy interactions (Panayotou, 1997). The reduced-form approach (Panayotou, 1997) on the income-environment relationship has been a useful first step towards answering the question of how economic growth affects the environment. However, without an explicit consideration of the underlying determinants of environmental quality, the scope for policy intervention is unduly constrained. Policy in this regard is considered to be any measure of reducing atmospheric gasses. The main purpose of this paper is to contribute to the EKC literature by evaluating quantitatively the use of different variables (explainable as a function of inputs- production function) with particular interest to the path for policy implications regarding the energy efficiency of a country. The specific focus on the use of energy efficiency comes from the fact that its trend follows a similar pattern to atmospheric gasses, namely CO2 and SO2, which seems to suggest a better representation response variable in the EKC model (Gillingham, Newell, & Palmer, 2009). But does this hypothesis hold for all countries? Based on the current literature, we will establish if there are any significant differences for this hypothesis among the G7 countries. Gillingham, K., Newell, R. G., & Palmer, K. (2009). Energy Efficiency Economics and Policy. NBER Working Paper Series, 12-25. Kuznets, S. (1955). Economic Growth and Income Inequality. American Economic Review, 45(1), 1-28. Panayotou, T. (1997). Demystifying the Environmental Kuznets Curve: Turning a Black Box into a Policy Tool. Environment and Development Economics, 465-484.

Juniours Marire, Jen Snowball and Gavin Fraser, Making rules to live by: Was the proposed regulatory regime for invasive species reasonable? Perceptions of the South African trout industry Abstract: Despite considerable economic impact of trou-based aquaculture and recreational fishing, the Department of Environmental Affairs (DEA) has been focusing almost entirely on ecological criteria in deciding the regulatory regime for trout. We examined whether the proposed regulatory regime for invasive species that was published by the DEA in 2014 for public comment was reasonable. The analysis produced factors that might matter in the design of reasonable institutional arrangements that impose a reasonable regulatory burden on economic sectors utilising invasive species. We conducted factor analysis using an online survey we conducted between May and July 2014. We obtained four clusters of factors: participatory policymaking, people-centeredness, credible scientific evidence for listing species as invasive and contextualisation of international evidence. We then utilised the factors in a logistic regression framework to assess their influence on the probability of perceiving the regulations to be reasonable. The likelihood of a trout sector player perceiving the regulations to be reasonable was 1.2%. We found that a one standard deviation increase in the “credibility of scientific evidence” increased the odds of perceiving the regulations to be reasonable by 1645%. A one standard deviation increase in “participation” increased the odds of perceiving the regulations to be reasonable by 410%. A one standard deviation increase in “people-centeredness” increased the odds of perceiving the regulations to be reasonable by 600%. Lastly, a one standard deviation increase in the variable “contextualising international evidence” increased the odds of perceiving the regulations to be reasonable by 415%. This research demonstrates that properly addressing the socio-economic aspects of new policies in addition to ecological criteria makes it far more likely that stakeholders will regard them as reasonable, even if the new policies impose increased regulatory transaction cost burden on users or reduced access to a resource.

Franz Ruch, Second-Round Effects from Food and Energy Prices: a SBVAR approach Abstract: Relative food and energy price shocks are prominent in South Africa and have contributed an average of 2.4 percentage points (or 38 per cent) to 6.1 per cent headline consumer price inflation from 2000 to 2014. In general, monetary policy can look-through these shocks as long as there are no second-round effects raising inflation expectations and salaries (expectations channel), and core inflation (cost channel) in the economy. To measure the importance of second-round effects this paper estimates a Structural Bayesian VAR with short- and long-run as well as sign restrictions in South Africa since 1994. The results show that second-round effects are prominent in SA with a one per cent shock to relative food, petrol and energy prices leading to a 0.4 per cent increase in unit labour cost after four quarters and 0.2 per cent increase in core inflation after three quarters.

Nicholas Kilimani, Impact of drought on the Ugandan economy Abstract: The study investigates the social-economic impact of drought on the Ugandan economy. The research is motivated by the fact that Uganda is largely an agro-based economy. Most importantly, agricultural activity is rain-fed, with only 1% of the country’s arable land currently under irrigation. Therefore, any disruptions in water availability have the potential to lead to economic instability at a micro and macro-level. The study uses a specially developed Computable General Equilibrium model (UgAGE-water) for Uganda. In this paper a highly disaggregated agricultural sector is used in order to assess the primary effects of drought on the economy. The impact of drought is analyzed via the productivity shocks on the agricultural sector as well as other down-stream industries such as the agro-processing component of the manufacturing sector. This approach is informed by the fact that any impact of drought on the economy primarily enters through the agricultural sector before seeping through to the downstream industries such as the manufacturing sector. The modelling procedure has been carefully constructed to approximate the true would-be effects. We then undertake further analysis of the effect of these shocks on other sectors of the economy.

Annabel Horn, Establishing the correlation between water use and the change in economic market value of different fruit types in the Western Cape. Abstract: This paper addresses the question of whether the recent historical trends in market value, are the drivers for allocation of water in the Western Cape for different fruit types. Land size allocations for different fruit crops in the Western Cape are established using the Department of Agriculture’s Aerial Census 2013. The water use for these crops are then established by multiplying the land hectares of the individual fruit crops by the Nett Irrigation Requirement (NIR), where the NIR = evaporation *crop factor specific to each crop type – effective rain. This calculation is done at the local municipal level for each crop, as the NIR is based on readings at individual weather stations across the Western Cape, and this then totalled to the level of district municipality. As the NIR is measured in mm the NIR *ha will be multiplied by 10 as a conversion factor to have the water use readings per local municipality per crop type for total water use. An adjustment is made for inefficiency in the irrigation type, assuming that there is a 10% loss with either drip irrigation or micro sprayers. The averages of the changes in market prices over five year periods from 2004 to 2013 are then established for different fruit types, using Department of Agriculture and Forestry (DAFF) data. The 2013 water use for different fruits in the Western Cape (y axis) is graphed against the average change in market prices for different fruits (x axis) using a scatter graph. This is repeated for all the municipal districts in the municipal districts of the Western Cape. In this way the correlation between water use and the change in economic market value of the different fruits in the Western Cape can be established.

Session I6
Inflation 2

Vincent Dadam and Nicola Viegi, Estimating a New Keynesian Wage Phillips Curve for South Africa Abstract: This paper estimates a New Keynesian wage Phillips curve for South Africa to determine the responsiveness of nominal wages to employment conditions. The estimation is based on a New Keynesian model with staggered nominal wages setting and where all variations in hired labor input is taking place at the extensive margin. First we estimate the model using aggregate data from 1971 to 2013. The aggregate estimations shows that private sector nominal wages are not responsive to employment conditions, while they show a certain sensitivity to inflation and quite a good correlation with inflation expectations. The relationship between private sector nominal wage inflation and employment is clearly weak for the whole sample, but it becomes insignificant at the end of the sample, indicating an increase of wage rigidities in the post-apartheid South Africa. On the other hand the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample but it becomes quantitatively weak for the inflation targeting period. In this period Trade Union inflation expectations are instead strongly correlated with nominal wage inflation. In the second part of the paper we look at the relationship between wage inflation, productivity and the reservation wage, using a panel of nine industrial sectors over the period 1970- 2013 The findings confirms that nominal wages inflation have consistently outpaced the growth in productivity, even after correcting for inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage, but the hypothesis is rejected. The overall picture that comes out from the analysis is of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.

Goodness C. Aye, Causality between Oil Price and South Africa’s Food Price: Time Varying Approach Abstract: This paper examines the dynamic causal relationship between global oil price and South Africa’s food price using both full sample and time varying Granger causality tests. Monthly data from 2000:1 to 2014:6 is used. Result from the linear full sample Granger causality result shows no evidence of significant causality between oil price and food price. However, various stability tests show that the relevant VAR is unstable, thus invalidating conclusions from the full sample linear Granger causality tests. Based on this the causality analysis is performed using a time varying approach. Result from the latter shows that oil price Granger causes South Africa’s food price at different sub-periods: 2002-2003, 2006 and 2010. This challenges the assumption that the causal relationship between the two variables is constant over time. Therefore, these results highlight the importance of using methods that account for structural breaks and nonlinearities in the dynamic causal relationship between global oil price and South Africa’s food price.

Adel Bosch, Jannie Rossouw and Vishnu Padayachee, The first formal linking of the inflation perceptions and inflation expectations of South African consumers Abstract: Central banks can have any one of a number of monetary policy objectives or mandates, e.g. price stability, price level stability, financial stability exchange rate stability, economic growth and/or employment. This paper deals with South African data, a country where the central bank has a clear mandate for price stability and financial stability. This paper assesses the existence of linkages between inflation perceptions and the inflation expectations of consumers. The analysis reported in research, namely obtaining from the same respondents both their views on perceptions of past inflation and their views on expected future inflation, has not been undertaken with a representative sample in South Africa before. This research aligns for the first time South Africa with countries and jurisdictions such as the European Union (the Euro Area), New Zealand, Sweden, Ohio (between August 1998 and April 2002) and the United Kingdom. The linkage between past inflation and future inflation is important for monetary policy purposes under a system of inflation targeting as is followed in South Africa. Inflation targeting works best when past inflation anchors inflation expectations. The South African research results obtained from the survey shows clearly the linkage between perceptions of past inflation and expectations of future inflation. It also shows a large percentage of respondents not believing the accuracy of past inflation, with concomitant inflation expectations above the current rate of inflation and above the official inflation target. The policy implication of the research is clear: For the SA Reserve Bank to contain the inflation expectations of consumers, it must address concerns about the perceived accuracy of inflation figures. This implies a major communication challenge for the central bank.

Nelene Ehlers, South African inflation expectations: Non-rational heterogeneity Abstract: It is convention in most economic models to assume that agents form inflation expectations uniformly and rationally. The assumption of rational homogenous expectations formation is computationally convenient and allows for important simplifications in economic models. It is often justified by the idea that sufficient common experiences and observations will eliminate disagreements and aid convergence in the long-term. Results from this paper show that South African inflation expectations are not formed uniformly across respondents and also not across time. Surveyed respondents demonstrate various forms of heterogeneity and it is observed across demographic groups, methodologies applied, but more prominent is the difference in the processes that appears to govern their expectation formation at short-term horizons compared to longer-term horizons, i.e. intertemporal heterogeneity. South African respondents are empirically not rational when forming their inflation expectations, mainly due to their inefficient use of available information (see Ehlers (2015)). Contemporary monetary theories propose learning as an alternative to rational expectations formation and the results show that adaptive learning is observed but only over short-term horizons.

Session I7
Fiscal Policy 3

Tshepo Masipa, The Nexus Between Corruption and Governance since the dispensation of Democracy in South Africa Abstract: The recent upsurge in the reports of corruption in South Africa calls for more and urgent need to scrutinize the relationship between corruption and governance. It is against this background that this paper aims to analyze the relationship between corruption and governance in South Africa. In this quest, the paper seeks to answer the following questions; what are the hindrances of good governance in South Africa? What are the tools employed to ensure good governance in South Africa? What are the economic costs of corruption in South Africa? To answer these questions, the paper examines corruption as one of the worms that feeds on the fabrics of good governance in South Africa. The tools which are analyzed to ensure good governance include the South African constitution, 1996 (Act 108 of 1996), the Public service Anti-Corruption Strategy of 2002, the National anti-Corruption Programme and the Public Finance Management Act of 1999. Adding to these anti-corruption strategies, the paper will employ two econometric tests to establish the relationship between corruption and good governance in South Africa. These techniques are; the Granger-causality test employed to determine the direction of causality between corruption and good governance and the Cointegration test employed to determine the existence of a long run relationship between corruption and good governance in South Africa. The time series data covers a period of 20 year, thus from 1994 to 2014. In its analysis, the paper will include the following variables; Government Effectiveness Index, Regulatory Quality Index, Rule of Law Index, Voice and Accountability Index and Corruption Control Index . To the best knowledge of the author, this paper is amongst the few to establish the relationship between corruption and good governance using econometric techniques in South Africa. To this end, the paper adds to the existing body of knowledge as it seeks to sketch out an analytical framework within which the promotion of good governance can be pursued in South Africa.

Philippe Burger, Krige Siebrits and Estian Calitz, The public sector balance sheet and fiscal consolidation in South Africa Abstract: South Africa has a long record of relatively good fiscal outcomes. However, because of the Great Recession and the subsequent countercyclical fiscal policy, the fiscal situation worsened markedly since 2010. The aim of this paper is twofold: (1) Assess how the government re-established fiscal sustainability in the past, and (2) on the basis of literature and lessons learned from this past, and given current fiscal unsustainability, consider how best government could consolidate fiscal policy and re-establish fiscal sustainability. To assess past fiscal policy the paper uses a Markov Switching model to estimate fiscal reaction function for the primary balance. This will establish whether or not the primary balance reacted to ensure fiscal sustainability. The analysis identifies high and low debt/GDP regimes and shows that since 2010 fiscal policy is in a high debt regime. It also shows that for most of the period prior to 2010 the primary balance adjusted to ensure a sustainable debt burden. However, the analysis also shows that the reduction in the public debt/GDP ratio during 1994-2008 accompanied a similar decrease in government’s fixed capital/GDP ratio. Thus, the reduction in debt/GDP might have ensured fiscal sustainability, but it did not improve government’s balance sheet. On the basis of these lessons, the paper suggests that in deciding how best to return to a sustainable fiscal policy, the government has two options: (1) reduce the public debt/GDP ratio to its pre-crisis level, or merely stabilise the ratio at its post-crisis level. At the heart of this choice is the requirement to balance the need to recreate room for manoeuvre for the deficit in future recessionary times by returning to a low debt/GDP ratio, with the need to finance much-needed public infrastructure.

Prudence Stephen Moyo and Nicola Viegi, Optimal Fiscal Policy in a dollarised economy Abstract: Hyperinflation in Zimbabwe ended abruptly in February 2009 when the country officially adopted a US dollar dominated multicurrency regime. The uniqueness of dollarisation in Zimbabwe presents challenges for policy makers in attempting create macroeconomic stability in the absence of monetary policy. There exists extensive empirical studies on fiscal policy and monetary policy for countries under a monetary union and for partially dollarised countries, however, absent from literature are studies on fiscal policy in a fully dollarised economy. We simulate a New Keynesian DSGE modelling framework for Zimbabwe under dollarisation and investigate fiscal policy stabilisation dynamics. We find that a countercyclical fiscal policy that targets the output gap, inflation and government bond can create necessary conditions for economic stabilisation.

Session I8
Industrial and
Policy 2


Willem Boshoff, A price-smoothness test for collusion Abstract: The time-series properties of prices and margins can assist in detecting collusion. In particular, the literature focuses on time-domain features, including changes in first and second moments, as collusion screens. We suggest focusing on frequency-domain features. Building on earlier work on cartel dynamics over the business cycle, we suggest an explicit comparison of high- and low-frequency behaviour. In static models of competition, margins should exhibit smoothness similar to that of the underlying cost or demand variable: there is no filtering between price-cost margins and underlying demand or cost shocks. In contrast, if a cartel or non-cooperative super-game has costs of adjustment, one should see different filtering for shocks of different frequencies: equilibrium prices will respond to low-frequency ('permanent') shocks, but not to high-frequency or temporary shocks. Consequently, we suggest a test for collusion based on smoothness, which is defined as the ratio of high- to low-frequency variance. The methodology is borrowed from the money neutrality literature in macroeconomics, where monetary policy has an effect in the short run (because prices are sticky), but not in the long run (as people form rational expectations). We demonstrate the test by difference-in-difference analysis of smoothness in market-level price and margin data: that is, we study smoothness in a panel dataset consisting of a set of experimental and control groups (collusion and no collusion). Our dataset is based on a set of South African cartels identified and/or prosecuted in recent years.

Anthea Paelo, Thando Vilakazi and Genna Robb, Keeping the land wet: competition and incumbency in the liquid fuel value chain in South Africa Abstract: Barriers to entry, by reinforcing the market power of incumbent firms in liquid fuel distribution, have meant that the pace of transformation throughout the fuel value chain in South Africa has been slow. The ability of new firms to enter the sector, develop capabilities, and become effective competitors to the major oil companies is important for achieving transformation and introducing dynamic rivalry in the liquid fuels sector. This paper draws on interviews with market participants and publicly available sources to assess the nature and extent of barriers to entry and expansion of firms in the wholesale of liquid fuels. The analysis categorises barriers to entry along six main themes, namely: the costs of entry, skills and training, access to supply, access to customers, and the reactions of incumbents to entry, and policy and regulatory challenges. However, it is clear that these challenges at the wholesale level form part of a broader set of concerns in the value chain as a whole, relating to access to infrastructure and low levels of competition between the major oil companies themselves. The paper concludes by suggesting a set of short and long-term remedies for increasing access and competition in transportation and storage, wholesaling infrastructure, and in retail.

Nina Taylor, Asrat Tsegaye and Syden Mishi, The Contribution of Automobile Industry Exports to Economic Growth: Cazse Study of South Africa. Abstract: The success of the South Africa automobile industry is based mainly on the recent growth of both assembled vehicle and component exports, as well as, the substantial foreign investment recently undertaken. Furthermore, the South African automobile industry has attracted a great deal of attention due to the substantial assistance given to the automobile industry in South Africa via the Motor Industry Development Programme (MIDP) and the Automotive Production Development Programme (APDP). The aforementioned programmes pertaining to the automobile industry differed in terms of their objectives and aims. The Motor Industry Development Programme focused on improving automobile exports; while the Automotive Production Development Programme emphasised enhancing South Africa’s automobile productive capacity. This necessitates analysis as to whether South Africa’s automobile industry should focus on increasing productive capacity and/or automobile exports. In addition, given the amount of investment and government assistance encompassed in both assisting and developing the South African automobile industry, it is necessary to examine whether the rise in automobile exports has influenced and added value to growth. Focus will be placed on whether or not South Africa could obtain sustained economic growth if it reduced its dependence on automobile exports through increased export diversification into other commodities. By estimating a VECM and focusing on the results of the Dynamic Granger Causality test, the study will examine the relationship between automobile exports and economic growth. Furthermore, the study will also analyse the possible contribution of the automobile exports to growth in South Africa.

Keabetswe Mojapelo, Evaluating the role of rule-of-thumb consumers in fiscal multipliers: Abstract: The paper estimates the share of rule-of-thumb consumers in South Africa using theoretical foundations from the Permanent income hypothesis theory. This exercise is particularly important due to its relevance in fiscal multiplier debates, more specifically the direction and magnitude of consumption. The South African study on fiscal multipliers, estimated using a plethora of methodologies that includes a rule-of-thumb dynamic stochastic general equilibrium model relies heavily on the share of rule-of-thumb consumers. Our results show that there is a significantly large number of rule-of-thumb consumers in South Africa, compared with consumers who adhere to the permanent income hypothesis theory. We then use a simple rule-of-thumb theoretical based model to evaluate our results in the context of fiscal multipliers; with results showing that tax policy shocks and shocks to income is largely dictated by the rule-of-thumb consumers. This alerts policy makers on the diligent procedure in formulating tax policy in the South African case

Session I9
Markets 5


Gideon Boako and Paul Alagidede, Co-Movement between Africa and International Stock Markets: Time-Varying Conditional Correlations with Wavelet Analysis Abstract: We analyse the level of integration (co-movement) between Africa and international stock markets regionally and globally from 2002 to 2014, using the three-dimensional analysis of wavelet coherency, with consideration to the recent global financial crisis (GFC). Specifically, we address the following questions: (i) How well integrated are Africa’s financial markets, regionally and globally? (ii) What is the nature and extent of integration (co-movement), if any? (iii) Was the level of integration influenced by the GFC? (iv). Which major markets dominated in the integration processes? And, (v) How stable have the linkages been over time? Answering this question offers the chance to assess whether significant persistent changes in market linkages have happened across the markets analysed. Since market co-movements can also lead to contagion, we further analyse to ascertain how cross-market linkages increased pre, during, and post-GFC. Contagion, according to Forbes and Rigobob (2002) is defined as significant increases in cross-market correlations after a shock compared to tranquil periods. Our determination of contagion therefore follows the above definition.

Matthew Ocran, Household Demand for Risky Financial Assets in South Africa Abstract: How households allocate their financial portfolio is an important issue for a number of stakeholders such as financial service providers and public policy makers, monetary authorities and economists particularly in cases where saving levels are very low. Again, limited participation in the financial market has implications for household welfare. The level of stock market participation in South Africa is incredibly low given the presence of a well-developed stock market and a myriad of avenues to invest on the market. The National Income Dynamics Study (NIDS) survey conducted by SALDRU suggest that just about 1 percent of households directly own stocks, this compares poorly with the 34 percent stock market participation in America and about 15 percent in most western European countries. Drawing on the portfolio choice theory and with the aid of a probit regression model the paper estimates direct stock market participation in South Africa using the NIDS survey data. The study seeks to contribute to a deepening of the understanding of household portfolio choice in South Africa, a theme that has hitherto received little or no attention at all in the literature.

Ronald Rateiwa, The role of non-bank financial institutions and the bond market in the finance-growth nexus: A case study of Africa’s three biggest economies Abstract: The importance of financial development to the economic growth process (the “finance-growth nexus”) is well researched. The subject has been theoretically postulated and empirically supported. Mishkin (2013) and World Bank (2013) highlighted that financial markets are ‘crucial in promoting economic efficiency’, by facilitating the transfer of funds from people with excess funds (savings) to those with a shortage (borrowers). However, they also warned that poorly functioning financial markets are one of the reasons ‘many countries in the world remain desperately poor’. However, a cross-reading of literature on the finance-growth nexus starkly revealed that most of the studies that investigated the finance-growth nexus used bank and stock market measures. Little scholarship has been committed to understanding the role of non-bank financial institutions and the bond market to the economic growth process. Given the recent growth in the size and significance of these two markets to the financial systems of Africa’s three biggest economies (South Africa, Nigeria and Egypt) it is apparent that the finance growth-nexus be re-investigated focusing on the role of the non-bank financial institutions and bond markets to economic growth. To this end, this paper investigates the role of non-bank financial institutions and bond markets to the economic growth process in South Africa, Nigeria and Egypt using time series annual data for both bank and stock market development for the period 1965-2012 and 1980-2012, respectively. The time period is informed by the availability of stock market data for these countries, which countries have the most developed capital markets in Africa. In addition to providing a new perspective to the finance-growth nexus, results from the study should also assist financial sector regulators in developing comprehensive regulation.

J. Hinaunye Eita, The Role of Governance Indicators in Stock Market Development of Selected Sub-Saharan Economies Abstract: The increase in foreign direct investment to developing countries has raised important questions on the role of governance indicators on stock market development in these economies. The recent developments in stock market of economies of Sub-Saharan countries also raise an important question on whether this can be attributed to governance indicators. The purpose of this study is to investigate the effect of governance indicators on stock market development in the economies of selected Sub-Saharan countries. This study investigates the effect of governance indicators such as corruption, political rights, public sector efficiency, regulatory burdens, protection of property rights and law enforcement on stock market development in the selected Sub-Saharan economies. Panel data econometric methodology is used to test the impact of governance indicators on stock market development. The results indicate that governance indicators play a role in the development of stock markets.

Session I10
Poverty 3

Maria Ngarachu, Axel Schimmelpfennig and Volker Schöer, The Costly Road to Work? Wages and Transport Costs in South Africa Abstract: High unemployment, low labor force participation, and high inequality are three of the key challenges facing South Africa. The root causes of these challenges are multifaceted and interlinked. One factor that is often mentioned as an important driver of unemployment, but has so far been possibly under researched; is that of spatial inequalities - an apartheid legacy. Transport costs can potentially drive a wedge between the employer’s wage costs and the worker’s take-home pay. This wedge either drives up the overall wage level - if job seekers have bargaining power - and thus unemployment; or, it reduces living standards and contributes to inequality - the case when job seekers have no bargaining power at all. In this paper, we investigate the relationship between transport costs and wages in South Africa, using the National Income Dynamics Study (NIDS) - a household panel. We do so with the help of descriptive statistics and regression analysis. Specifically, we estimate a wage equation and include transport costs as an additional regressor, using: ordinary least squares; instrumental variable (as our results may be subject to a possible endogeneity bias); Heckman (to account for selection into the labor force); panel (to account for unobserved heterogeneity); and, quantile regressions (to investigate whether the relationship between transport costs and wages differs across income deciles) estimations. We find that transport costs can devour a substantial part (17 to 24 percent) of a worker’s wage in the lower two deciles of the income distribution. Moreover, transport costs, on average, push up wages; while the exact relationship between transport costs and wages differs across the income distribution. Preliminary results indicate that endogeneity may be present, and we use petrol prices at the magisterial level as an instrument to address this endogeneity.

Jaco Mostert, Measuring poverty in Limpopo: An analysis of the different measures of poverty and the multiple deprivation index Abstract: The triple challenge of poverty, inequality and unemployment has been highlighted in various national government policy documents as the key strategic economic targets for South Africa (NDP, 2012). The Limpopo Growth and Development Strategy (2009) and the current revision links to the national development plan in settings targets to reduce the level of poverty in Limpopo. In the process to develop policy to address the challenges of poverty and inequality it is firstly important to be able to measure the current extent of poverty and inequality in Limpopo A literature review identified various measures of poverty that will be discussed in the first part of the paper.The most commonly used indicator is income poverty. In terms of this measure the level of poverty is measured linked to a specific poverty line that has been calculated. Some other economists use the access to basic services as another indication of poverty in a particular area. The last approach that will be discussed in the paper is the calculation of a multiple deprivation index. The approach was developed by Townsend (1987) and focusses on various measures of poverty that is integrated to calculate and index of multiple deprivation. Prof Noble of Oxford was appointed the Limpopo province to calculate and Multiple Deprivation Index for Limpopo. In the last part of the paper an overview of the poverty in Limpopo will be provided by measuring the level of poverty using the different approaches. An evaluation will then be performed on the correlations between the different measures of poverty and the reasons for the differences. A comparison will also be made in the relative chance in the poverty situation in the province between 2001 and 2011. These two year has been chosen based on the fact that the multiple deprivation index is calculated based on census data. Some interesting findings includes that fact that the poorer towns in Limpopo has lower Gini coefficients that the richer developing areas.

Kezia Lilenstein, Murray Leibbrandt and Ingrid Woolard, An Examination of In-Work Poverty in South Africa: The Impact of Income Sharing in the Presence of High Unemployment Abstract: The absence of unemployment benefits for those without work means that the majority of South Africans are expected to work their way out of poverty. However, the extent of income sharing in South Africa, coupled with a proliferation of low-paid work, may leave even those who are lucky enough to find employment unable to escape poverty at the household level. In-work poverty in South Africa is thus the ultimate contradiction. While employment is cited as the definitive means of escaping poverty and essential for reducing inequality, the reality is a set of circumstances where a significant portion of working families, despite their best efforts, are unable to lift themselves out of poverty. The lack of investigation into the experience of poverty by the employed, despite numerous poverty studies, provides motivation for this paper. The overall aim is to deliver an investigation of poverty from a standpoint which is novel in the South African literature, as well as to provide insight into the global in-work poverty discourse from the unique South African perspective. Specifically, this paper will evaluate the magnitude of in-work poverty in South Africa, as well investigate which workers are most vulnerable to poverty. This is achieved under the premise that there are two dimensions to the analysis of in-work poverty: the characteristics and employment conditions of the worker, and the composition of the worker’s household. The incidence of poverty may be greatest where these two measures intersect, i.e. where vulnerable workers are living in vulnerable households. However, even ‘high’ wage earners may find themselves in poverty due to the vulnerability of the household in which they reside. Conversely, vulnerable workers may be lifted out of poverty as a result of household level support. Analysis of these dimensions will allow us to determine the most relevant markers of in-work poverty in South Africa.

Bernice Owusu-brown, Factors affecting Ghana's ability to achieve the Millennium Development Goal Five Abstract: According to recent global estimates, some 529,000 women die annually form pregnancy-related complications. In Ghana, efforts to reduce the high maternal mortality rate brought about the institutionalization of policies and programmes most of which derive their explanatory model form the medical perspective. However, the determinants of maternal mortality are a complex web of biology and culture. Maternal mortality is a prevalent problem particularly in developing countries including Ghana and as a result, the United Nations set a goal on maternal health to be achieved by all member countries by 2015, the Millennium Development Goal 5 which aims to achieve a seventy-five per cent reduction in maternal mortality between 1990 and 2015 and also increase access to reproductive health. The study therefore sought to investigate the factors that affecting Ghana’s ability to achieve the Millennium Development Goal five using the logit econometric model. Results from the study reveal that, factors such as residence, abortion, place of delivery and women’s educations significantly contribute to the high mortality rate. It is recommended that, government improves on the distribution of health facilities, human resources and necessary infrastructure as well as allow safe abortion services to the full extent of the law. In the interim, policy should focus on absorbing the indirect cost incurred in seeking maternal health care services as well as promote education formal and informal in the country are among the recommendations made in this study.

Flora Kurasha, The Impact of Hyperinflation on multidimensional poverty: The Case of Zimbabwe Abstract: The purpose of this paper is to analyze the dynamics of multidimensional poverty in Zimbabwe from 1994 to 2010, with a keen interest on the change that occurred after the economic reforms of 2008. Evidence from various international studies shows that hyperinflation exacerbates poverty. It is therefore interesting to study this relationship in the Zimbabwean context where inflation reached 231 million percent in 2008. In the analysis, asset and access variables from the Demographic and Health Survey datasets from 1994, 1999, 2005 and 2010 will be used. Following Sahn, D. E. and Stifel, D. C. (2000) , a welfare index – a weighted combination of infrastructure, household assets and characteristics – is created using the Factor Analysis method. The ‘haves and have not’s’ are demarcated by a threshold on the welfare index distribution, akin to a poverty line. The poor are those below the threshold and these households suffer simultaneous deprivation from private assets and public goods which facilitate economic welfare. To assess the changes in the extent and severity of poverty over the years, standard tests of welfare dominance are applied using different poverty lines across the waves of data. Finally, to examine the effect of the 2008 economic crisis, the wealth indices from the initial waves of data are pooled and compared to the 2010 index. This multidimensional perspective gives more insight on the welfare of the average Zimbabwean household over time; the distribution of welfare and specific areas of deprivation. The two key contributions are: 1) the evidence of the effect that the economic crisis had on household welfare; 2) the decomposition of the analysis to the provincial and sectoral (urban or rural) level, as well as across gender.

Friday10:40 - 11:10 Tea
Friday11:10 - 12:50Parallel Sessions J
Session J1
Health 5

Steven Koch, Out-of-Pocket Payments: A View Over Time Abstract: There have been more than a few papers examining health care financing in South Africa, broadly. Some recent examples of this research include Tlotlego and Koch (2014a, 2014b), Atabuga and Akazili (2010) and Atabuga and McIntyre (2012). The first two focus on setting out the benchmark. They use data from 1995, a year in which it is possible to merge two different data sets – one includes health utilization information (although less than one might like) while the other includes expenditure information – thus, it is possible to at least associate health needs with health expenditures. The second two are based on a dataset collected specifically for the analysis, and collected around 2008. There are other expenditure datasets available in South Africa, and, therefore, it is possible to begin to paint a more dynamic picture of changes in expenditure behaviour, especially expenditures related to health and health care, at the level of the household. For that reason, the objective of this research fill in the rest of the picture, i.e., provide a dynamic view of out-of-pocket healthcare payments. Specifically, our goal is to examine (i) what sort of payments are made by the household to finance health care, (ii) whether or not there is catastrophic expenditure, (iii) how those payments (and levels of catastrophic spending) differ across socioeconomic categories, and, most importantly, (iv) how the answers to the preceding questions have changed, since 1995. The first three of these have been completed, and the results are inline with similar findings by others from South Africa. Out-of-Pocket payments are regressive, despite the existence of very minimal payments associated with care in the public sector. We have yet to compile the data across time to examine the dynamics, but expect to by September.

Carmen Christian and Ronelle Burger, Availability, affordability and acceptability of healthcare in post-apartheid South Africa Abstract: Motivated by disappointing health outcomes, stubborn health inequalities, and the global and national prioritisation of universal coverage, we investigate access to healthcare in post-apartheid South Africa. Following Thiede, Akweongo & McIntyre (2007), the study concentrates on three underlying dimensions of access: availability, affordability and acceptability. The initiatives have paid off: our analysis of the General Household Surveys of 2009 and 2010 show that while a number of individuals still struggle with physical access to clinics, this is associated with remote and rural communities and innovative solutions may be required to improve the availability of healthcare for such communities in a cost effective way. Affordability does not appear to be a significant impediment to access. Turning to user acceptability, the analysis shows that a considerable proportion of public sector facility users complain about long waiting times, rude nurses and drug stock outs, but then proceed to report that they are satisfied with the service they had received. This tension may be attributed to expectations adapting to circumstances and are flagged as a potential concern to be researched in more depth to better understand whether low expectations may present an obstacles to initiatives seeking to strengthen local accountability and monitoring systems. Over the last few years there has been an increasing recognition of the importance of demand-side constraints and specifically, health system responsiveness and clinical quality, amongst South African policy makers. Demand-side aspects of healthcare have often not received the attention it deserves and is arguably one the most significant remaining obstacles to enhancing health-seeking behaviour and improving health outcomes in post-apartheid South Africa.

Abieyuwa (abi) Ohonba, Maternal Socio-economic status and child health outcomes in South Africa Abstract: While the relationship between parental Socio-economic status (SES) and child health is well documented in developed countries, less evidence is available in developing countries like South Africa. The possibility that maternal SES like education, employment and income may affect not only human capital of the present generation, but also of the future makes this study imperative, given the high level of unemployment in South Africa. The aim of this study was to empirically assess the key determinants through which mothers’ SES impacts on children’s health defined by ‘height-for-age’ using panel data estimation. The data is from the National Income Dynamic Study (NIDS) and administered by the South African Labour and Development Research Unit (SALDRU). The preliminary findings suggest that maternal education could be a high level channel of transmission which has policy implications and opens up further research on this relationship.

Ronelle Burger, Rulof Burger and Anja Smith, Does insurance affect health care utilisation if the health system is polarised? Evidence from a South African natural experiment Abstract: The current empirical literature suggests that health insurance only affects health care utilisation in countries where the health care system is polarised. We investigate this hypothesis in the context of South Africa, where apartheid era policies left the country with a highly polarised health care system. In order to estimate the causal effect of health insurance, we exploit the exogenous variation in medical aid coverage induced by the implementation of the Government Employees Medical Scheme. Two sets of data are used to test firstly the effect of the initial implementation of this policy in 2007 and secondly the effect of the continued roll-out between 2008 and 2012. Our identification strategy uses aspects of difference-in-difference and instrumental variable estimators to identify the causal effect of health insurance on health seeking behaviour. The results indicate that health insurance has a large effect on utilisation amongst South Africans, and that this effect is mainly due to the increased usage of high quality medical services. This result is found to be highly robust to the choice of dataset, sample period, specification and estimator.

Session J2
Economics of
Education 5


Nic Spaull and Elizabeth Pretorius, Exploring relationships between oral reading fluency and reading comprehension amongst English second language readers in South Africa Abstract: The aim of the present study is to model the relationship between English reading fluency and comprehension among rural English-Second-Language Learners (ESL) in South Africa. We use data collected in 2013 by the National Education and Evaluation Development Unit (NEEDU) of the Department of Basic Education in South Africa. This survey tested 4697 grade 5 students from 214 schools across rural areas in South Africa. A sub-sample of these students – 1786 students – were selected for an Oral Reading Fluency (ORF) test. For these students there exist data on both reading comprehension and reading fluency. Although a number of studies have analyzed the relationship between fluency and comprehension (Fuchs et al. 2001 and Spear-Swerling 2006), none of these studies have been conducted on a large-scale for ESL learners in a developing country context such as South Africa. The present research contributes to the literature by using parametric and semi-parametric econometric methods to determine the size and significance of this relationship for ESL learners in South Africa. Preliminary findings indicate a threshold at 70 words-read-correct-per-minute which is lower than the typically used threshold of 90 words-read-correct-per-minute of first-language English students.

Musa Abdu, Sunday Olabisi Adewara and Elizabeth Olioni, Determinants of Access to Safe Toilet Facilities and its Rural-Urban Disparity in Nigeria Abstract: This study examines the socio-economic determinants of access to safe toilet facilities in Nigerian households. It also investigates the factors responsible for rural-urban disparity in accessing safe toilets among Nigerians. It adopts the 2013 National Population Commission dataset on Demographic and Health Survey (DHS). It also used Ordered Logistic, Probit Regressions method as well as Oaxaca-Blinder decomposition in realizing its objectives. The study came up with the following broad stylized facts. First, age, household size, education, region, wealth index, locality, and Hausa and Igbo traditions were the significant determinants of households’ access to safe toilets in Nigeria. While, age, household size, rural locality and poor wealth index have negative impacts; education years, northern region, and Hausa and Igbo traditions impact positively on the households’ access to safe toilets in the country. Secondly, the differences in age of households, household size, wealth index, region, and Hausa, Yoruba and Igbo traditions were the factors responsible for the rural-urban inequality in access to safe toilets in Nigeria. The study finally recommends poverty reduction programmes, public-private partnership, provision of public toilets, rural development, educational improvement, cultural and value re-orientation and social security programme among others as remedies to inadequate safe toilet facilities in the country.

Ramaele Moshoeshoe, Educational Achievement and Educational Inequality in Lesotho: Changes and Determinants Abstract: This paper uses Lesotho's grade six standardized maths and reading test scores to analyse changes in educational achievement and educational inequality, and their determinants, between 2000 and 2007. Using the relative distribution method developed by Handcock and Morris (1998, 1999), I fi nd that the increase in educational quality between 2000 and 2007 was driven by improved performance of both low- and high-ability students, but mostly the performance of low-ability students. I further employ the Recentered Influence Function (RIF) regression decomposition method of Firpo et al. (2007a,b) to study the determinants of these changes, and find that much of the increase in educational attainment and inequality is unexplained by the covariates. But, two policy variables, pupil teacher ratio and teacher eff ort, have a strong positive correlation with changes in reading performance, and not maths performance.

Nicola Branson, Clare Hofmeyr and David Lam, The impact of the no-fee school policy on enrolment and school performance: Evidence from NIDS waves 1-3 Abstract: Post-apartheid education funding is designed to redress past inequalities in funding and, in doing so, work towards providing all learners with high quality education (Schools Act, 1996). In August 2006, new National Norms and Standards for Funding were established and the rollout of a no-fee program initiated. The program abolishes compulsory school fees in specified schools in order to protect households in the least socioeconomically advantaged sections of society. From 2007, the Minister of Education began declaring certain public ordinary schools to be no-fee schools, with additional schools added each year, such that by 2011 over 80% of all public schools were declared no-fee schools. The rollout coincides with the first three waves of the National Income Dynamics Study. We geo-link each respondent's location in 2007 to administrative school data and combine differences in distance to a no-fee high school by location in 2007 with differences across cohorts that result from the timing of the program rollout. We find no discernable impact of the program on enrolment at 16, 17, 18 or 19 or on educational attainment and completion of secondary school by age 20.

Session J3
Resources 2


Mumamba Mwansa and Gavin Keeton, Is the natural resource "curse" a myth? Abstract: Until quite recently, most economists believed countries benefit from possessing abundant natural resources. Thus it came as a shock when in 1997 and 2001 Sachs and Warner published 2 papers claiming that countries with abundant natural resources grow more slowly than countries with few resources. Far from being a blessing, natural resources, they concluded, are a “curse”. Sachs and Warner provided several reasons for their finding. Countries with abundant natural resources tend to suffer from “Dutch disease”. Overvalued exchange rates hinder the emergence of alternative tradable goods and services. Highly concentrated sources of rent mean countries with abundant natural resources tend to be corrupt. Highly paid jobs in extractive industries attract the most talented workers, crowding out alternative entrepreneurship. Sach’s and Warner’s findings became widely accepted. A few dissenting voices argued their methodology was flawed. By measuring natural resource exports as a share of total exports, Sachs and Warner had measured natural resource intensity rather than abundance. These measures are not the same thing. Sachs and Warner also examined a period when commodity prices fell rapidly, so it was perhaps unsurprising that countries dependent upon natural resources grew slowly at such a time. This paper uses Sachs and Warner’s methodology for the period 1995-2010 and finds no evidence of the resource “curse” over the more recent period. Possible reasons for this finding are examined. It is found there is no longer evidence that natural resource abundant countries are more prone to experiencing Dutch Disease. Secondly, the paper corrects for Sachs and Warner’s use of resource intensity by providing an alternative measure of resource abundance. Using the World Bank’s measure of the value of subsoil assets it finds no evidence of the resource “curse” for either the Sachs and Warner time period (1970-1990) or for 1995-2010.

Genius Murwirapachena, Johane Dikgang and Ronney Ncwadi, Costs and performance of South African water utilities Abstract: Access to water is enshrined as a basic human right in the South African Constitution. Water Services Authorities (WSAs) have a mandate to provide water at affordable rates. However, the water utilities can barely cover their operational costs through revenues due to lower tariffs and inefficiencies. This study uses the stochastic cost function approach to estimate the technical efficiency of South African WSAs. A panel data set of the 152 South African municipalities that are WSAs is used to assess their economic and technical efficiency. The study also assesses the impact of other variables outside the control of the WSAs on cost and efficiency. Results from the study indicate that there are significant cost inefficiencies in South African water utilities. Variables outside the control of the water utilities (number of customers, size of service area and the load factor) were also found to have an impact on efficiency. To resolve the problem of cost inefficiency, an incentive-based price regulation scheme can be introduced.

David Fadiran, Resource Curse or Institutions Curse? Abstract: “Institutions matter” has become a generally accepted premise in development economics. The growth and development problems in Nigeria are also common knowledge. In a similar manner the evidence for the resource curse hypothesis is plenty as well. In the resource curse literature, Nigeria has become the emblematic example of everything the resource curse entails. It is however surprising that no study has been carried out that fuses these two conjectures (institutions and resource curse) together. If indeed institutions do matter, and more so in a developing country like Nigeria, where institutions have used in attempts to explain out the development and investment gap experienced by less developed countries. It is on this premise that this study find relevance, in that we seek to explore the role of institutions in explaining the resource curse, if at all such a role does exist. This study focuses on the role of civil and political liberties as well as land property rights (freehold and non-freehold)Freehold land property rights being the English freehold, while non-freehold land property rights is customary land law, The two are measured to capture the dualistic nature of land and property rights than is prominent in many sub-Saharan African countries, including Nigeria in determining relationship between resource abundance and economic performance.

Patricia Madigele and Jen Snowball, Water, water everywhere: Is Integrated Water Resource Management the right institutional prescription for South Africa's water management challenges? Abstract: Ostrom (2007) and Ostrom and Cox (2010) argue that natural resource management has been plagued by the “panacea problem”: that one-size-fits-all solutions to allocation and management problems have been applied without due consideration of the specific context. The outcome has been the disappointing results of many development and management programs. Integrated Water Resource Management (IWRM) has been recognised as a potentially effective way of allocating water where there are multiple, sometimes competing, users (Saravanan et al. 2009). It has been used successfully in a number of other developing country contexts, including Mexico, Brazil, India and Thailand (Orene-Giliemann 2008; Meinzen-Dick 2007). The principles of IWRM were also adopted in South Africa under the National Water Act (1998). Water User Associations (WUA) are seen as one of the key institutions driving IWRM, since they are designed to allow stake-holders at local level a say in the allocation and management of this important public good (Aoki 2001). However, WUAs in South Africa have mostly not been a success and are currently being reviewed at national level. For the most part, emerging black farmers and rural communities still do not have equal access to water, or a meaningful role in decision-making, and there are significant security of supply and allocation issues with regard to municipal users as well. Using the AID (Institutional Analysis and Development) framework (Ostrom 2010), with particular reference to economic theory relating to incentives and transactions costs, this paper asks if IWRM is a panacea treatment that does not fit the diagnosis of South Africa’s water management problems. A case study approach is used, focusing on one of the few established WUAs in the Sundays River Valley Municipality in a rural area of South Africa.

Nicholas Kilimani, Water taxation and the Double dividend Hypothesis Abstract: The double dividend hypothesis contends that environmental taxes have the potential to yield multiple benefits for the economy. However, empirical evidence of the potential impacts of environmental taxation in developing countries is still limited. This paper seeks to contribute to the literature by exploring the impact of a water tax in a developing country context, with Uganda as a case study. Policy makers in Uganda are exploring ways of raising revenue by taxing environmental goods such as water. Whereas their primary focus is to raise revenue, we demonstrate how taxes on environmental goods can yield other benefits beyond addressing a country’s fiscal needs. This study employs a Computable General Equilibrium model to shed light on the impact of a water tax policy when a tax is accompanied by a recycling scheme of the same magnitude. We seek to establish whether taxation and recycling can induce more growth, employment and industry output. The results show that a mechanism which leaves a neutral fiscal balance yields dividends for the economy. In other words, whatever the degree of regressivity resulting from the environmental tax, it is possible to design a recycling scheme that renders the tax policy to be beneficial to the economy.

Session J4
Fiscal Policy 4

Christine Makanza and J. Paul Dunne, Fiscal Consolidation, Fiscal Policy Transmission, and Current Account Dynamics in South Africa Abstract: The debate on the interaction between global current account imbalances and fiscal policy continues to develop, with growing interest in the macroeconomic instability and widening current account deficits faced by emerging markets. Literature establishes that the current account responds differently to fiscal shocks depending on macroeconomic circumstances in countries, so approaches to managing external imbalances should be country tailored. Despite this realisation, there is a lack of investigation into drivers of the current account and the impact of macroeconomic policy on current account dynamics in emerging markets. To address this, the study estimates a structural VAR (SVAR) model to analyse the effect of fiscal shocks on the current account. This helps to understand how fiscal shocks shape current account developments, and establishes the usefulness of fiscal consolidation in managing current account deficits by determining whether the twin deficits approach to managing the external balance holds in emerging markets. The study goes further to analyse the channels through which fiscal shocks are transmitted to the current account to understand how current account management policies should be formulated. The study contributes to the literature by providing a case study of South Africa, an emerging economy characterised by large current account deficits, macroeconomic volatility, a well developed financial sector, and a dataset which has not been exploited to understand the external balance. A particularly interesting finding is that expansionary fiscal shocks improve the current account through household savings and public investment, which is a departure from the twin deficits hypothesis.

Ian Stuart and Khetha Dlamini, A fiscal risk framework for South Africa Abstract: Fiscal risk frameworks aim to anticipate spending and revenue shocks, thereby raising the probability of achieving fiscal targets. Reporting on these risks has become increasingly important in the context of slow global growth and rising government debt. Because many risks stem from unreported deficits outside of national government, the process has also been a catalyst for improving the transparency of financial reporting across the public sector. This paper describes the process of developing a fiscal risk framework for South Africa. This is the first time that a comprehensive fiscal risk framework has been designed and applied to South Africa’s public finances. We discuss the contextual definition of risk, methods for accounting for uncertainty, and reporting coverage. We conclude with an overview of the fiscal risks emanating from the three spheres of government, public entities, state-owned companies and the private sector.

Olalekan Bashir Aworinde and Adegbemi Babatunde Onakoya, Testing the validity of Wagner's Law in Nigeria: Evidence from Non-Linear Causality Abstract: The study investigates the linear and nonlinear causal linkages between government expenditure and output nexus in Nigeria for the period 1961-2013. Employing a nonparametric causality test of Diks and Panchenko(2006) as well as the Hacker and Hatemi-J bootstrap parametric causality test using the VAR model, results show that there is evidence of unidirectional linear and nonlinear causality from national income to government expenditure. This result points to the validity of the Wagner's hypothesis in Nigeria. The policy implication of this result is that government should be careful of the danger involved in increased public sector participation arising from the uncertainty in oil prices which generates about 80 percent of government revenue.Thus, government should intensify efforts to improve her revenue by diversifying into other sectors of the economy. JEL Classi…cation: E62, H6, C22

Session J5
Trade 6


Duncan Pieterse, Enhancing South Africa’s export competitiveness: reform of the port and rail network Abstract: While transport and logistics infrastructure has the potential to be a source of competitive advantage for South Africa’s exporters, access and pricing policies, along with inefficiencies and delays in the ports and rail network, are eroding the competitiveness of South African exporters. In this paper we examine South Africa’s port and rail network to understand the scope for lowering the cost of doing business and improving export competitiveness by exploring the options for improving access to and pricing of the port and rail infrastructure. We will draw on interviews with a wide range of exporters, secondary research as well as an analysis of customs data at a postal code level, to describe the various factors that affect rail and port access and cost. This analysis will likely focus on key factors inhibiting the ability of South African exporters to access cost-effective rail and port infrastructure, including: a capacity mismatch for heavy haul exports; a lack of access for smaller exporters; high rail tariffs and a highly competitive road freight sector; rail reliability concerns; a lack of effective intermodal operations; barriers to regional rail networks; excessively high port costs; and a congested port system. The paper will also explore the underlying reasons that contribute to these constraints, including: cross-subsidisation within Transnet; underinvestment in the rail and ports network; a decline in the branch line network; limited private sector participation; regulatory structures for rail and ports; competition and regulation in the road freight sector; and weak regional integration. The paper will end with a review of the reforms needed to deliver a more broadly accessible and competitive rail and ports sector based on international best practice from other countries who have undertaken these approaches successfully.

Sibanisezwe Khumalo and Asrat Tsegaye, Is there a link between Trade liberalisation and productivity of domestic industries? Case of South Africa Abstract: Opening up the economy according to economic theory is expected boost international trade, influencing trade patterns, increasing domestic output, thus improving productivity,( Shafaeddin 2005, Fiestas 2005, Teweldemedhin & Schalkwyk 2010). How has South Africa fared? The study will look at the link between trade liberalisation and manufacturing productivity and ascertain its prominence within the South African context. Using panel data at an industry level the study will determine the extent of the relationship. Using a model adapted from Ferrantion and Butcher (1997), which utilises total factor productivity as the dependent variable under each industry. The study should be able to determine which type of industries have benefitted from Trade liberalisation, thus provide an insight on the channels through which trade liberalisation influences productivity within the domestic economic. Also of importance is to track the changes in the patterns of this relationship, which involves the use of cross-sectional analysis at industry level.

Tasha Naughtin, Neil Rankin and Marianne Matthee, The South African Exporter’s Missing Productivity Premium: A characteristic of the data or something more? Abstract: Despite it being a stylised fact that exporting firms exhibit a significant productivity premium relative to non-exporting firms, a handful of studies find otherwise. Such is the case for South African exporters who are found to be no more productive in terms of TFPR than non-exporters, despite being larger, more labour productive and paying higher wages. South African evidence, however, is based on small and limited survey datasets. This paper contributes to the expanding micro-trade literature by making use of two substantial, official datasets provided by Statistics South Africa (Stats SA) and the South African Revenue Service (SARS) to determine whether this finding of a missing productivity premium still holds for South African exporters. It will do so by following the now standard Bernard and Jensen (1999) methodology of estimating the Cobb Douglas productivity equation using OLS and F.E. estimation. A number of possible explanations for the missing productivity premium have been suggested in the literature, however given the previous lack of sufficient firm-level data over time, few of these explanations have been adequately tested in the South African context. This paper will therefore further add to the literature by exploiting these two rich datasets to determine why South African exporting firms appear to be no more productive than non-exporting firms. This paper will form part of the session on SARS firm level administration data.

Peter Chacha, A portrait of Kenya's Product and Destination Mix and Performance in Export Markets Abstract: In the context of international trade, firms in low income countries rank lower in efficiency relative to their peers in the Developed and Developing economies. Models in the new new trade literature usually assume a frictionless environment permitting efficient allocation of resources across and within firms, but market conditions in developing countries are characterized by large constraints and an unfavourable business environment. This study seeks to provide evidence and test the consistency of the recent theoretical predictions of multi-product and multi-destination exporters using micro level transactional data for a low income country. It examines the patterns and behaviour of Kenya’s exporters in their choice of products and destinations and how this relates to firm characteristics and survival in export markets. It also considers firm's trade with destinations considered fragile and post conflict states. Kenya trades with several countries plagued by internal conflict such as South Sudan, Somalia, and the Democratic Republic of Congo, and the study will assess the trend and sustenance of Kenya’s firm level export relationships to such locations. This is important, because expansion into foreign markets is a critical decision for any firm. It calls on resources to establish contact and sell in markets where there is uncertainty regarding market structure, preferences and the institutional background. Fragile and conflict affected markets are especially harder to access and survive, yet sometimes these are the only markets that are closest to most firms in sub-Saharan Countries. Understanding the behaviour of firms in their decisions regarding foreign market entry, product shipments and survival is important for strategies to enhance export growth.

Moses Herbert Lubinga, The impact of the EU-GSP scheme on horticultural exports from Kenya, Tanzania and Uganda Abstract: The United Nations Conference on Trade and Development argues that the export-driven growth of horticulture has been impressive in many African countries south of the Sahara. It is noted that the horticulture sector has greatly contributed towards poverty alleviation and rural development given that it involves a large number of small-scale growers who produce Fruits and Vegetables for export. Minot and Ngigi (2004) opine that the sector is seen as the "African Success Story". Among other factors, Cardamone (2011) attributes such success to the non-reciprocal preferential trade policies granted by the European Union (EU) to developing countries so as to enhance economic growth and development through trade. We use the gravity model framework to evaluate the impact of the Generalised System of Preferences (GSP) on horticultural exports from Kenya, Tanzania and Uganda to the EU. The analysis was based on highly disaggregated data at HS-6 digit level spanning from 2005 to 2011. Rather than a dummy variable, we employ the preference margin, computed as the difference between trade-weighted Most Favoured Nation's (MFN) rate and the Ad Valorem Equivalents (AVEs) as a proxy for the GSP scheme. Zero Inflated Poisson estimator is used to control for over-dispersion and excess zero trade flows while time invariant effects control for heterogeneity. Findings suggest that the EU GSP scheme selectively boosts exportation of horticultural commodities to the EU, depending on the country of origin. Policy wise, evaluation of the influence of non-reciprocal preferential trade agreement(s) granted to developing countries, based on preferential margin should always take into account of all the various instruments (MFN rate, tariff rates and specific duties) embedded within the agreement, and competition from other suppliers that fall within the same category. Omission of any of the instruments may in most cases lead to over-estimation of the accruing benefits.

Session J6
Industrial &
Policy 3


Ryan Hawthorne, The impact of quality on choice of a fixed line telecommunications service Abstract: Households are disconnecting from fixed lines in large numbers in South Africa, where the number of mobile subscriptions dwarfs the number of fixed line subscriptions. One possible explanation for the disconnection of fixed lines (and uptake of mobile) is the poor quality of fixed line infrastructure. The quality of fixed line infrastructure matters particularly for broadband services: long loop lengths result in slow internet speeds as a result of the attenuation (weakening) of signal as the length of the copper line between a Telkom exchange and a residence grows. In order to test whether the quality of landline affects a household's choice of broadband service, a unique variable for the quality of fixed line broadband in South Africa will be developed by calculating the distances between Telkom exchanges and residences. This will allow us to assess whether consumers that have replaced fixed lines with mobile services tend to be further away from local exchanges. This quality variable will be developed by combining geographic location information on households in the the National Income Dynamics Study (NIDS), a panel household survey of over 7,000 households conducted in 2008, 2010/2011, 2012 and 2014, and Telkom switches in the database. The data will be analysed using a difference in differences approach, exploiting the panel dimension of NIDS and the database. NIDS allows for a range of household characteristics to be held constant, including household size, average age and income. The outcomes of this research have important policy implications: to the extent that landline disconnections are the result of poor quality (rather than fixed to mobile substitution), then the regulator ought to intervene by introducing competition for the supply of fixed line services through open network access policies, including local loop unbundling, duct and pole access.

Pamela Mondliwa, REDI3X3: Capability development, industrial policy and growth in the plastics sector. Abstract: Light manufacturing industries, like plastics have been identified as having potential for growth (Tregenna, 2007), however, despite multiple interventions by government to stimulate growth in the sector, employment has continued to decline. The plastics sector has been identified as a priority sector and qualifies for the various investment incentives provided by the DTI, a tooling initiative was also established and the Department of Science and Technology has established technical services and testing facilities. The question that arises is to what extent have the policy interventions impacted on the productive capabilities of the sector. There has been no follow up research that has measured the change in the competitiveness of the plastics industry following the policy responses. Considering the importance of labour absorbing sectors such as plastics in the in the governments re-industrialisation objectives, this paper seeks to evaluate the determinants of competitiveness to corroborate those identified in Mohamed (2005) and test whether the policy interventions have influenced the productive capabilities of the sector and changed the performance. This is done by assessing the determinants of competitiveness of the plastics sector and identifying the factors that contribute to the success and failure of firms. The paper further assesses the role that public institutions play in building capabilities and determines which capabilities are required to improve the competitiveness of the plastics sector and whether policy interventions have succeeded or failed to promote the accumulation of identified capabilities. The policy framework governing the industry is critically assessed, and the contribution of industrial policy interventions and incentives to the growth path of the plastics sector evaluated, including the extent to which these favour existing large firms at the expense of new entry and small businesses. (submission for Redi 3X3 panel on inclusive growth)

Ernst Idsardi, Ermie Steenkamp, Wilma Viviers and Herman van Schalkwyk, South Africa's Agro-complex: Creating Employment and Export Opportunities Through Diversification Abstract: South Africa’s sluggish growth and limited structural transformation are at the core of the country’s high levels of unemployment and poverty. Why some countries are able to grow and others not has been the subject of much academic debate, with recent literature exploring the relationship between growth and a country’s productive structure. These fundamental economic challenges have also gripped the country’s agro-complex. The growing dependency on imports of higher-value, processed food has led to deteriorating terms of trade. Furthermore, limited innovation in agricultural exports and high levels of re-exports are seriously constraining the positive impact that the agro-complex could have on the country’s economic development. Hence, the aim of this study is to determine South Africa’s productive structure in the agro-complex and to identify diversification opportunities with high employment and export potential. The productive structure of South Africa’s agro-complex is analysed through the application of the ‘product space’ framework. This methodology, which is based on the concept of a network, investigates the relatedness between products. This approach allows the identification of diversification pathways based on a country’s current position in the network. These are identified according to two important strategic values, namely international market potential and employment. The potential international market demand is determined by examining the prospects of producing new export products and diversifying into new markets. These opportunities are informed by the results of a Decision Support Model which identifies realistic export opportunities using a sequential filtering process. The potential for employment is analysed in the light of labour and human capital intensities at dis-aggregated level. The labour intensity is determined for 25 sub-sectors within the agro-complex, while the quality of employment is measured by the Revealed Human Capital Intensity Index.

Sunel Grimbeek and Katerina Barzeva, The Effectiveness of Merger Control in South Africa Abstract: It is well established in literature that mergers and acquisitions have real potential benefits for firms due to economies of scale, efficiencies, growth and expansion, etc. Mergers consolidate the ownership and control of business assets, including physical assets (e.g. plant) and intangibles (e.g. brand reputation). Mergers can therefore enhance corporate as well as wider economic performance by improving the efficiency with which business assets are used. South African competition law also makes provision for merger policy to be used in achieving wider public interest goals. The public interest provisions in South African merger control include employment policy, restrictions on foreign ownership and control, promotion of ‘national champions’, and black economic empowerment. In short, merger policy aims to avert structural changes that would damage incentives to compete while competition law prohibitions seek to combat particular kinds of anti-competitive agreement and conduct. In this paper we examine the effectiveness of merger control decisions in South Africa in achieving the economic goals of merger control by using event study techniques and econometric methodology to assess the impact of mergers and acquisitions on listed firms’ stock market value in South Africa. We look at selected case studies where listed firms on the JSE were involved in merger transactions that were reviewed and either prohibited, conditionally approved or approved by the Competition Commission or at the Competition Tribunal. We also analyse the likely competitive effects of these mergers by analysing movements in JSE listed competitor share prices in response to these mergers and acquisitions. The results of this empirical analysis could shed some light on the effectiveness of merger control in South Africa in achieving the stated economic goals and objectives of merger policy. Finally, we also test the effectiveness of structural and behavioural remedies in restoring effective competition when anticompetitive mergers are conditionally approved.

Siyaduma Biniza and Mpho Tsebe, Analysing Total Factor Productivity growth in South Africa’s Manufacturing Sector using a DEA-based Malmquist Productivity Index Abstract: This study uses a DEA-based Malmquist Productivity Index to measure total factor productivity (TFP) in South Africa’s manufacturing sector from 1994 to 2013. Using the index, the study provides a nuanced decomposition of the estimated productivity into technological change, pure efficiency and scale efficiency. The study findings are that TFP for the entire manufacturing sector improved by 0.5 per cent per annum. Technological change accounts for most of the improvement in TFP in seven of the ten subsectors. And only four of the ten subsectors showed improvements in pure efficiency, whilst three subsectors show deterioration in scale efficiency. Overall, six subsectors show improvements in TFP. Capital-intensive subsectors like the transport equipment subsector had the largest improvements in TFP. Given the fact that the transport equipment subsector has been the biggest beneficiary of industrial policy incentives; this raises the question whether industrial policy is failing to create jobs because it promotes capital-intensity and mechanisation. On the other hand, there has been a decline in TFP for labour-intensive subsectors such as: the non-metallic mineral products; textiles, clothing and leather; and furniture and other products. These findings have severe implications given South Africa’s high unemployment. The decline in TFP for most of the labour-intensive subsectors limits the job-creation ability of those subsectors; and undermines the traditional role of manufacturing in creating jobs for the largely unskilled and semi-skilled labour force. This has broader implications for state interventions aimed at reducing poverty and inequality, and ultimately negatively affects socioeconomic development.

Session J7
Business Cycles

Willem Boshoff and Stan du Plessis, Recoveries in the South African business cycle Abstract: The empirical literature prior to 2008 is fairly unanimous in finding that deep recessions tend to be followed by strong expansions – at least in the developed world. When the post-crisis expansion turned out to be weak, economists started questioning the stylized facts. In particular, interest has shifted to the link between financial market developments and subsequent business cycle expansions. The literature on the business cycle effects of financial crises generally focuses on business cycle expansions as a whole, as opposed to only the initial recovery. Claessens, Kose and Terrones (2012), for example, find that expansions following recessions related to financial crises are generally weaker than other expansions. However, these findings depend critically on which part of the expansion is being considered. This paper focuses attention on the first stage in business cycle expansions, called recoveries. The paper first develops a taxonomy for existing identification methods for business cycle recoveries, distinguishing between duration- and trend-based approaches and highlighting the limitations of these approaches. Subsequently, the paper introduces an alternative methodology, defining the recovery period as the period until the initial growth acceleration reaches its peak. This definition reaches back to the ‘revival’ concept of Burns and Mitchell and emphasises the increased momentum of an economy ‘gaining speed’ after the trough. The paper applies the method to identify and study recovery phases in the South African business cycle. In particular, the paper focuses on the behaviour of components of real expenditure as well as the role of monetary and fiscal policy in affecting the properties of business cycle recoveries. For comparison purposes, the South African findings are contrasted with those obtained for the US business cycle, using the same methodology.

Wian Boonzaaier, The Asymmetric Behaviour Of Tax Revenue Over The Business Cycle Abstract: Tax revenue forecast errors on average constituted more than 80 per cent of the forecast error of the budget balance-to-GDP ratio between 2000/01 and 2010/11. A large proportion of the tax revenue forecast error can be attributed to the use of inappropriate or inaccurate tax elasticities, which are frequently assumed to remain constant over the full business cycle in a linear regression framework. Even when distinguishing between short- and long-run tax elasticities via an error-correction framework, the implicit assumption is made that tax revenue responds to changes in economic activity in a symmetric fashion. This paper therefore aims to explicitly test for possible tax revenue asymmetries relative to the business cycle via a smooth transition autoregressive framework which allows for the estimation of two separate regimes, i.e. a low growth (or downswing) regime and a high growth (or upswing) regime. Under this framework, the movement in tax revenue at all times will be governed by a weighted average of two different linear models, where the weighting of the two models depend on the recent history of the tax revenue series as well as a measure for the output gap. Preliminary results show that tax revenue collections do react differently depending on whether it is in a high growth phase or a low growth phase. This has implications for policymakers in terms of the revenue forecasting process and the way the cyclically adjusted budget balance is calculated.

Hilary Patroba, New-Keynesian DSGE model, durable goods and collateral constraint in a small open economy Abstract: This paper studies the role of collateral constraint in determining the direction of movement of durable and nondurable goods characterised by varying degree of price stickiness in a small open economy New-Keynesian DSGE model simulated to South African data over quarterly time frequency. I show that the flexibility of prices of durable goods does not govern the response of aggregate consumption to shocks. That is, sticky durable goods’ prices is a necessary and sufficient condition for positive co-movement in durable and nondurable goods sectors. This is due to the fact that firms face constant returns to scale and there are no barriers to moving factors of production across sectors. As a result, responses of durable and nondurable consumption to shocks in the small open economy does not reveal the co-movement problem reported in closed economy literature.

Carike Claassen, Alain Kabundi and Elsabe Loots, Co-movement between China and advanced economies: recoupling or decoupling? Abstract: Since liberalization began in 1978, the Chinese economy has become a global force to be reckoned with. This has led to the need for understanding the various ways in which changes in the Chinese business cycle might influence other economies, and vice versa. The question is important in the years following the credit crunch, given the prominence of the decoupling question during this time. Further prominence is added to this question by the likelihood of a hard landing for the Chinese economy, which has been struggling to maintain the exceptional growth momentum experienced during much of the 1990s and 2000s. This paper explores the co-movement between China and 17 advanced economies, focusing on variables such as real GDP, business cycles and trade obtained from the GVAR database and the IMF. In the empirical analysis, dynamic factor analysis and rolling regressions are used. The period covered is 1979Q3 to 2011Q2, further divided into 1979Q3-1990Q4, 1991Q1-2000Q4 and 2001Q1-2011Q2. Results show that the Chinese economy has become more interconnected with advanced economies since reforms were launched in 1978. Variance shares obtained from factor analysis shows decoupling between China and advanced economies during the overall period under investigation, but inspecting variance shares in sub-periods shows gradual recoupling between China and advanced economies decade by decade. The factors identified show that trade plays an important role in fostering co-movement, as do business cycles of advanced economies and inflation. Rolling regressions provide further insights into the dynamics at play. Advanced economy business cycles are regressed on the Chinese business cycle and rolled over ten years. These results confirm that the sensitivity of the Chinese business cycle to business cycles in advanced economies has increased over time, especially so in the years leading up to and during the 2008 credit crunch.

Session J8
Water & Energy
Prices and
Policy 4


Reyno Seymore and Martin Combrinck, Alternative growth industries in Gabon: An Input-Output analysis Abstract: The oil industry in Gabon accounted for approximately 81% of exports from Gabon between 2008 and 2013. Diversifying the economy has become necessary, since the oil industry’s production has been declining over the past 15 years by average 2.80% per annum. The objective of the study is to determine the necessary growth magnitudes in exogenous final demand for the alternative growth industries identified by the Gabonese government, which would directly offset the GDP decline resulting from the decrease in the production of oil. Input-output analysis has been identified as the appropriate methodology, especially due to data restrictions, since it can be used to evaluate the direct and indirect effects on the economy of various simulations. In the process of answering the study objective, a symmetric input-output table is developed which, at the time of writing, did not exist for Gabon. The alternative growth industries in Gabon as identified by the Gabonese government are: the “Agriculture, Livestock, Hunting and Fishing” industry (B01), the “Forestry and Forest Exploitation” industry (B02), the “Other extractions” industry (B04) and the “Hotels, bars and restaurants” industry (B18). All the alternative growth industries were simulated separately to directly offset the decline in the oil production, and the required growth magnitudes in these industries were calculated. In addition, a fifth scenario identified that an 8.16% increase in the exogenous final demand of all the alternative growth industries is sufficient to directly offset the effect that the 2.80% decline in production of the “Production of “raw” petrol and natural gas and petroleum services” industry (B03), has on GDP. In addition, the indirect impact on total production will be positive.

Heinrich Bohlmann and Jan van Heerden, Analysing Energy Sector Policy Proposals: Considerations for Economic Modellers and Policymakers Abstract: A number of major energy sector policy questions and proposals are being discussed at the national level. These include the price of electricity set by the regulator, the choice of electricity-generation mix and the implementation of a carbon tax. Economic modellers tasked with analysing the economy-wide effects of such proposals typically measure the impact of changes relative to a business-as-usual baseline scenario in which the exogenous change or scenario under investigation is excluded. However, what if the business-as-usual case is not sustainable without the policy change in question or may trigger other events in the economy? This paper investigates some of the considerations modellers, policymakers and observers must take into account when evaluating some of the most prominent energy policy questions today.

Olufemi Saibu and Oluwasola Omoju, Macroeconomic Drivers And Barriers To Renewable Electricity Technology Adoption In Nigeria Abstract: Renewable electricity technology adoption is an essential part of the measures to mitigate climate change and promote sustainable development. This paper investigates the drivers of and barriers to renewable electricity technology adoption in Nigeria. Specifically, the factors that influence the share of renewable electricity in total electricity consumption in Nigeria is investigated using data from 1981 to 2011 and employing the Johansen cointegration technique and vector error correction method. The results show that there is a long run relationship between renewable electricity consumption and GDP, trade openness, financial development and share of fossil fuel in energy consumption. Trade openness promotes renewable electricity consumption while obsession with economc growth and the lobby of conventional energy sources undermine it in Nigeria. Financial development does not have significant impact on renewable electricity technology adoption in Nigeria. It is recommended that the Nigerian government should pursue policies that not only increase the amount of renewable electricity, but also increase the share of renewables in total electricity consumption

Jessika Andreina Bohlmann, Heinrich Bohlmann, Roula Inglesi-lotz and Jan van Heerden, An Economy-Wide Evaluation of New Power Generation in South Africa: The Case of Kusile and Medupi Abstract: The South African economy has suffered over the past decade due to a lack of adequate electricity supply. With two new coal-fired power stations, Kusile and Medupi, scheduled to come online over a six year period (2014-2019), their additional generation capacity is expected to restore electricity reserve margins and facilitate increased growth and investment in the local economy. In this paper, we use a dynamic CGE model for South Africa to evaluate the economy-wide impact that the additional power generation from these two stations will have across a broad range of macroeconomic and industry variables. In terms of the new power generation capacity, our findings suggest that the macroeconomic impact of Kusile and Medupi will be a definite positive. Results show that, in the medium term, investment expenditure is particularly sensitive to the building of these new power plants. Additional costly blackouts are also likely to be avoided, further promoting economic growth and investment. Once Kusile and Medupi are fully operational and able to provide its projected 9600MW of base load electricity supply, old coal-fired power plants may be decommissioned and replaced by cleaner and more efficient generation sources as outlined in the Department of Energy’s Integrated Resource Plan. Our analysis also suggests that this outcome provides a good balance between utilising modern clean coal technologies that are cost-effective while laying the foundation to improving our generation-mix and carbon emissions profile.

Session J9
Markets 6


John John Muteba Mwamba, Another Reason why the Efficient Market Hypothesis is Fuzzy Abstract: This paper makes use of the performance evaluation to test the validity of the efficient market hypothesis (EMH) in hedge fund universe. The paper develops a fuzzy set based performance analysis and portfolio optimisation and compares the results with those obtained with the traditional probability methods (frequentist and Bayesian models). We consider a data set of monthly investment strategy indices published by Hedge Fund Research group. The data set spans from January 1995 to June 2012. We divide this sample period into four overlapping sub-sample periods that contain different economic market trends. To investigate the presence of managerial skills among hedge fund managers we first distinguish between outperformance, selectivity and market timing skills. We thereafter employ three different econometric models: frequentist, Bayesian and fuzzy regression, in order to estimate outperformance, selectivity and market timing skills using both linear and quadratic CAPM models. Persistence in performance is carried out in three different fashions: contingence table, chi-square test and cross-sectional auto-regression technique. The findings obtained with probabilistic methods contradict the EMH and suggest that the “market is not always efficient,” it is possible to make abnormal rate of returns if one exploits mispricing in the market, and makes use of specific investment strategies. However, the results obtained with the fuzzy set based performance analysis support the appeal of the EMH according to which no economic agent can make risk-adjusted abnormal rate of return. The set of optimal invest strategies under fuzzy set theory results in a well-diversified portfolio of investment with an expected mean return equal to that of the efficient frontier portfolio under the Markowitz’ mean-variance.

Ziv Chinzara and Jamela Hoveni, Capital Flows Volatility and Macroeconomic Fluctuations Abstract: There is widespread consensus that business cycles of emerging markets tend to fluctuate significantly more than that in advanced economies. Existing studies suggest that the long run fluctuations in emerging markets are largely due to excess volatility in total factor productivity (TFP. However, evidence on the cause of short-run fluctuations remains mixed. The current study examines the role of short run capital flows in driving output, consumption, and investment variability in South Africa for the period 1994 to 2013. Using the vector autoregressive and impulse response functions, the results reveal that capital flows have a significant impact on short term fluctuations in output, investment and consumption. Disentangling the types of capital flows suggests that volatility in portfolio flows tends to have a stronger influence on macroeconomic volatility than other flows. We show that good quality institutions and flexible exchange rates can minimize the impact of capital flows on macroeconomic volatility.

Adonia Chiminya and Efi Nikolaidou, An empirical investigation into the determinants of external debt Abstract: This study investigates the main determinants of external debt based on a group of 36 countries from Sub Saharan Africa (SSA), using time series data over a long period spanning from 1975 to 2012 using pooled ols and fixed effects. The prime objective of the study is to focus on the effect of both economic variables and political variables (institutions) on debt accumulation. The results of the study show that democratically administered governments in the region accumulate more debt than autocratic governments, also, governments with parliamentary systems in place accumulate more debt than those with presidential democracy. However, governments with constrained executives tend to accumulate less debt than those that are unconstrained in the region, while, countries with more open and competitive electoral systems likely to accumulate less debt. Countries that received debt relief also accumulated less debt in comparison with those that did not receive debt relief. The study also highlights the importance of economic activity in reducing debt in the region while economies that are more open reduce their debt burden. Countries with more reserves also reduce their debt burden. The study, therefore, highlights the importance of political institutions and economic factors in explaining the indebtedness of countries in Sub Saharan Africa.

Gideon Petrus du Rand and Co-pierre Georg, Interbank Contagion under Optimal Contracts Abstract: We extend the results of Allen and Gale (2000) on financial contagion between competitive banks connected in an interbank market as an equilibrium phenomenon. The basic setup is standard in a large literature that follow Diamond and Dybvig (1983) where bank runs occur due to coordination failure between privately informed depositors: if a run does not occur, bank deposit contracts are welfare improving as they offer insurance for agents that face uncertain liquidity demand, but the nature of the optimal deposit contract allows for multiple equilibria, one of which is a run on the bank that is welfare inferior to autarky. Allen and Gale study a situation where multiple banks of this type are subject to idiosyncratic liquidity demand risk and linked by interbank deposit holding. They assume that banks offer a deposit contract and invest in an asset portfolio that is first best in the absence of an aggregate liquidity demand shock and impose interbank positions that are not derived from an optimization problem. They show that an unanticipated aggregate liquidity shock can lead to contagion where a run on one bank induces a chain of failures of connected banks. Our contribution lies in considering asset portfolios, deposit contracts and interbank holdings that are fully optimal (in the Nash equilibrium sense) given an ex ante positive probability of an aggregate liquidity shock. We characterize the conditions under which contagion occurs and compare the differences in welfare induced by autarky, the strategic interbank market, perfect co-operation and the first best risk-sharing contract. As the pay-offs are discontinuous across situations where contagion does and does not occur, we use computational methods to solve for the symmetric Nash equilibrium decisions of banks for a large parameter set. The Allen and Gale results obtain as a limiting case of ours.

Session J10
Labour Markets


Cecil Mlatsheni and Murray Leibbrandt, An Analysis of the First Wage of Youth in Cape Town Abstract: Long duration of unemployment is a serious concern for youth in South Africa. Furthermore, there is significant racial inequality in securing the first job and in the duration of unemployment prior to obtaining the job. Such is the inequality that, according to the Cape Area Panel Survey (CAPS), Coloured youth with educational achievement that is less than matric find jobs quicker than African youth with matric. Using CAPS, this paper investigates the implications of these job acquisition dynamics on the first wage. The determinants of the wage level of the first job and differences in wages of the first job that youth hold are considered. We make use of OLS regressions and the Heckman selection model. Duration of unemployment is included as an explanatory variable. The aim of this is to determine whether or not the time taken to find the first job has an effect on the wages of that job. A positive relationship between time taken to secure the first job and wages of the first job would support a reservation wage hypothesis; those individuals who spend a longer period searching, do so by choice in order to find a higher paying job. After determining the individual characteristics that lead to differences in the first wage we proceed, using decomposition analysis, to determine how much of the observed differences in the first wages of youth are explained by these productive factors and how much remain unexplained. In essence this paper investigates whether the patterns of inequality in job access between African and Coloured youth carry over to remuneration once a job is secured.

Adeola Oyenubi, Who benefits from being self employed Abstract: We estimate the income gap between self-employed individuals and wage earners. Since there is reasonable overlap between self-employment activities and the informal economy in developing countries we hypothesize that heterogeneity in the informal sector will have implications for the income gap between self-employed individuals and wage earners. The mean income gap is misleading as it mask the heterogeneity in the income gap along the income distribution. We therefore estimate the conditional and the unconditional quantile effect of being self-employed over the income distribution and further decompose the income gap at each quantile into its explained (endowment) and unexplained (returns) components. Our hypothesis is that heterogeneity in the wage gap should lead to differential effect of returns and characteristics at different portions of the income distribution. Our result show self-employed individuals enjoying a positive premium at the upper end of the income distribution while the result is mixed at the lower end. Our quantile effect result suggests that the positive premium observed at the mean for self-employed individuals after controlling for human capital characteristics can be attributed to superstar entrepreneurs (Rosen, 1981). We also show by decomposing the earnings gap at each quantile that this heterogeneity implies that of the portion of the earning differential explained by human capital characteristics and returns to these characteristics differs at different parts of the earnings distribution. Furthermore, the result of our quantile decomposition shows that returns explain a higher percentage of the earnings gap at the lower quantiles while characteristics explain a higher percentage at the upper end. This result agrees with the finding of Tannuri-Pianto & Donald, (2002) that self-employment has more benefits only at the upper end of the earnings distribution.

Anthea Paelo, Does culture matter? Exploring youth unemployment in South Africa using Hofstede’s theory of cultural dimensions. Abstract: South Africa’s youth unemployment rate is one of the highest in the world and is a concern to both economists and policy-makers. What is particularly concerning is the disparity in unemployment rates among the different population groups. Previous studies on youth unemployment have attributed the high unemployment rate in South Africa to a lack of necessary skills in the economy and the fact that a large proportion of the population gains university qualifications for career paths that have few employment opportunities. This latter fact contributes to the high unemployment rate among graduates. Thus, this article endeavours to determine whether identity influences this choice. This is done by using a survey to determine the cultural traits of young black South African University students and then applying a multinomial logit model to determine whether these cultural traits influence the selection of the fields of study and, by implication, the career choice. The fields of study considered are financial sciences, humanities, law, management, and sciences. The more popular choices are then compared with the fields with the highest unemployment rates to establish whether there is a link. The results show that some cultural traits do indeed influence career choice; but, they also reveal that career choice alone does not influence youth unemployment rates. The results further show that such fields as sciences could have more graduates; but, factors such as experience have a bigger influence on whether or not these graduates will find employment.

Vimal Ranchhod and Arden Finn, Estimating the short run effects of South Africa's Employment Tax Incentive on youth employment probabilities using a difference-in-differences approach Abstract: South Africa’s Employment Tax Incentive (ETI) came into effect on the 1st of January 2014, with the objective of reducing the substantial national youth unemployment rate. Under the ETI, firms are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilize several waves of nationally representative data and implement a difference-in-differences methodology at the individual level, in order to identify the effects of the ETI on youth employment probabilities in the short run. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is -0.005 and the 95% confidence interval is from -0.017 to 0.006. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. Thus, any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed as many youth even in the absence of the ETI.

Tamlyn McKenzie, English language proficiency and labour market participation in South Africa. Abstract: In South Africa, the dominant language of business, education and government is English yet less than half of all working age Africans are considered proficient in English. The majority of working age (15-65 years) Africans are either economically inactive or unemployed. Few studies have examined the effect language proficiency has on labour market outcomes. Using data from the 2008 National Income Dynamics Study (NIDS) this article investigates whether English language proficiency, as measured by an individual’s ability to read and write ‘very well’ in English, impacts on an individual’s decision to participate in the labour market. Historically, female labour market participation has always been much lower than male participation however, more recently there has been significant growth in female participation rates in South Africa. Labour market participation is defined here as active engagement in the labour market whereby a person is either employed or actively seeking work. A probit model is used to determine the effect of language proficiency on labour market participation. The model is estimated separately for males and females. The results reveal a negative, insignificant relationship between English language proficiency and labour market participation of African men. In contrast, there is a positive and significant association between English language proficiency and labour market participation of African women. The probability of female participation increases by almost eight percent if she is proficient in English. The South African literature indicates that females are over represented in unemployment and are largely discouraged workers thus the value of English language proficiency cannot not be ignored. It should be recognised that learning opportunities in English may be an effective tool to use in assimilating African females into the labour market.

Friday12:50 - 14:00 Lunch