Browsing by Author "Ellyne, Mark"

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    Beijing Consensus: alternative for Africa's development challenges? The case for Zimbabwe
    (2015) Nyere, Shepherd; Ellyne, Mark
    The research aimed to study whether the Beijing Consensus, a Chinese development model is an alternative development model for Africa. The study used Zimbabwe's plan to collateralise its natural resources mainly minerals under the Angola Model strategy as a test case. Zimbabwe's economic revival is currently ransomed by an unsustainable debt that has blocked external financial aid from its traditional donors and the western world. This is against the background that since the 1989, economist John Williamson's economic and policy recommendations known as the Washington Consensus became generally accepted as the most effective model by which developing countries could spur growth. This model based around ten policy recommendations embracing ideals of free-market capitalism that include open trade policies, privatisation and deregulation provided a prescription for development in the less developed countries. However, its implementation had mixed results such as multiple currency crisis, stagnation and recession during the financial turmoil of the 1990s and the most recent and more severe 2007 financial crises that led to the collapse of several nations' economic systems. This further eroded the confidence in the Western neoliberal economic model leaving the world calling for an alternative development model. By the turn of the century, a new strategy driven by China that has been defined by Joshua Cooper Ramo as the Beijing Consensus surfaced as a challenge to the Washington Consensus. This model is described as pragmatic, recognises the need for flexibility in solving multifarious problems. The model sounding warning bells for a post-Washington Consensus is inherently focused on innovation and emphasise equitable development driven by the central government has quickly gained appeal within the developing world challenging the Washington Consensus' antiquated policies. This exploratory research case study using primarily available literature on the subject sought to determine whether the Beijing Consensus is an alternative development model for Africa. To help synthesise the subject, Zimbabwe was used as a case study through primarily the "Angola model"- a Chinese strategy for resource-rich countries that are unable to guarantee loan repayments. Apart from the "Angola model", the study looked at the overall impact of the Chinese investments in Zimbabwe and Africa in general. The findings of the study has revealed while the Angola Model may have worked for Angola and other oil producing nations, it however will not benefit Zimbabwe as it is not geared in solving the current debt crisis. The results also show that while the Beijing Consensus may not actually be a consensus, it is currently an alternative for African nations as it presents an array of choices. It however does not seem to replace the Washington Consensus as a widely accepted consensus model for development but it has the right ingredients from a starting point to develop into an alternative model.
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    Capital flight and the role of exchange rates in Nigeria, South Africa and Zambia
    (2015) Mbewe, Samson; Ellyne, Mark
    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.
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    China's success in FDI: Why South Africa can learn from it
    (2017) Yu, Junyan; Ellyne, Mark
    Following economic reforms in 1978, the growth of Foreign Direct Investment (FDI) into China has been dramatic. The massive FDI inflows greatly benefited China's economy and contributed to its steady and rapid economic growth. Most FDI empirical studies use panel data as it solves the problem of data limitation, but it also produces 'average' effects for the results of the group of countries under study. Thus, individual countries in the group may generate different results when tested separately with the same model. This study uses an alternative approach that focuses on finding a Vector Error Correction Model with similar macroeconomic determinants of FDI for South Africa and for China. For both countries, larger market size and more advanced technology have a positive effect on FDI inflows, whereas higher labour cost affects FDI negatively. For the China model, infrastructure has a positive influence on its FDI inflows, whereas for the South African model worker strikes have a significant negative impact on FDI. Furthermore, we find remarkable similarities regarding the sectoral composition of FDI inflows in both countries, which further highlights the potential lessons that South Africa could learn from China regarding their highly successful FDI experience.
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    Does Africa need the IMF
    (2013) Ellyne, Mark
    This is a presentation on the role of the IMF in Africa and review the period of structural adjustment programs. Introduction to the IMF and World Bank and their role in Africa. Provides some introduction on sources of growth.
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    Does monetary policy affect real output in a supply-constrained economy: case of Malawi
    (2018) Chingoli, Chionetsero Bartwell; Ellyne, Mark
    In a low income economy with a relatively undeveloped financial sector, the normal monetary policy instruments may not have the anticipated desired impact. In particular, economies that may be relatively supply constrained may not respond to money policies as anticipated, owing to a lack of flexibility in the system from economic and institutional constraints. In this case, monetary policies that might otherwise affect the creation of capital for investment and a robust environment for businesses to thrive may not occur. We consider the case of Malawi, which is acknowledged to have a number of supply-side constraints including those related to electricity production and water for agricultural production. We begin with a Cobb-Douglas type production function for the country, which includes droughts, owing to its effect on both electricity production and agriculture. This underlying production function provides an estimate of the long-run supply capacity based on capital, labour and water constraints. In a second stage of the model, we use the Engle-Granger approach to estimate a modified Error Correction Model (ECM) for a short-run growth equation, where we include the movements in monetary variables to test the impact of monetary policy on growth. We estimate our models in EViews for the period 1980 to 2014. Our estimated long-run production function shows that drought depresses real output, and capital and labour have roughly equal importance as factors of production. We then estimate a short-run growth equation using the ECM methodology and find that real exchange rate and real interest rate do not have a significant impact on growth although they have the anticipated sign. We also find that net credit to government and net credit to private sector negatively affect the growth in real output. Although the econometric results are not strong, we note that Malawi has had a history of volatile inflation, which appears to have negative impacts on real output. We believe that our results highlight the importance of more stable management of the money supply, as the monetarism school of thought would propose. We also note that government has been responsible for prolonged fiscal deficits and high borrowing, which may be a cause of the volatile monetary growth. Thus greater coordination of fiscal and monetary policies are needed to create smoother growth and inflation paths.
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    Effect of foreign aid dependency on taxation revenue in Sub-Saharan Africa
    (2018) Mbatia, Carolyne Nkatha; Ellyne, Mark
    There is an ongoing debate in the literature on the effect of foreign aid - concessional loans and grants - on fiscal tax revenues. Most scholars argue that loans have a positive effect on taxation revenue because of the obligation to repay them, whereas grants have a negative effect because the recipient treats them as 'free' money and as a substitute for taxation. This study focuses on the impact of foreign loans and grants on tax revenues for 42 Sub-Saharan African countries for the period 1990-2014. We test the above hypothesis for these African countries, but divide them into different income groups to account for underlying structural differences. Our results show that both concessional loans and grants have a negative effect on taxation revenue when all countries are pooled, and similarly for low-income and lower-middle income countries. As most of these countries received debt relief under the Highly Indebted Poor Country (HIPC) Initiative, we argue that recipient governments formulate an expectation of always receiving debt forgiveness and therefore treat both loans and grants as a "free" source of funds. This creates a disincentive to tax citizens who demand accountability for their taxes. However, upper-middle income countries (HICs) respond differently. Loans and grants have a positive effect on tax revenue in these countries. The effect of loans is a result of upper-income countries being ineligible for debt relief and therefore obligated to repay their loans, which creates an incentive to collect more taxes. The positive relationship between grants and tax revenue is explained by the fact that HICs have achieved a significant level of development, which translates to increased levels of efficiency and accountability in revenue systems from additional resources added to the fiscal. As a policy recommendation to address the disincentive created by grants, we argue that grants should be channeled through Non-Governmental Organisations (NGOs) or the private sector, rather than given directly to the governments.
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    Essays on current account dynamics and fiscal rules in sub-Saharan Africa
    (2020) Ayot, Kenrick Otieno; Ellyne, Mark; Mateane, Lebogang
    Large and persistent current account and fiscal deficits coexisting alongside high public debt levels pose significant risks to macroeconomic stability and limit policymaking options. This thesis focuses on the current account dynamics and fiscal policy in the sub-Saharan Africa region. Over the past two decades, countries in this region have experienced large and persistent current account and fiscal deficits as well as a recent upsurge in public debt. In response to this situation, these countries are beginning to adopt fiscal rules whose primary objective is to rein in discretionary fiscal policy. This thesis examines the attendant issues within a broad context of three interrelated empirical studies, presented in separate chapters. The first study (chapter two) examines the overall sustainability of current account balances in sub-Saharan Africa and evaluates the pattern of current account adjustment in the region. The common approach for testing current account sustainability involves testing the violation of the intertemporal budget constraint. This was implemented by testing for a cointegrating relationship between exports and imports plus net interest payments on external debt using a panel error correction model. Based on a sample of 35 sub-Saharan Africa countries from 1980-2017, the study found evidence that current account balances are weakly sustainable in the region. In addition, countries in the region face a gradual current account adjustment pattern. On average, it takes six years for the current account to return to its long-run equilibrium after a disturbance, exposing these countries to prolonged spells of current account deficits and rising debt levels when corrective measures are not put in place. The second study (chapter three) examines the twin deficit hypothesis, or the effect of fiscal deficit on the current account deficit, and how the level of public debt impacts this relationship. Empirical studies that test this hypothesis often arrive at mixed results, possibly due to the omission of debt threshold effects on the current account. Thus, debt thresholds were included in the model used in this chapter. Using 2000-2016 data from 33 sub-Saharan Africa countries, a linear dynamic panel data model was estimated to address the twin deficit question. Next, a dynamic panel data threshold model was estimated to investigate how different debt regimes affect the twin deficit relationship. The empirical results for the linear model show that the fiscal deficit worsens the current account―thus the twin deficit hypothesis holds. However, introducing a debt threshold into this model resulted in different outcome. Based on an endogenously determined threshold level of debt, xiii which splits the sample into low and high debt regimes, the results reveal that the fiscal deficit continues to worsen the current account in the lower debt regime, whereas in the higher debt regime the pattern changes and the fiscal deficit loses its effect on the current account. These findings point to the uncertain effects of fiscal policy on the external imbalance when public debt reaches high levels. The third study (chapter four) examines the overall impact of fiscal rules on fiscal performance in the sub-Saharan Africa region. In addition, it evaluates whether there are any differences in fiscal performance between countries with and without the fiscal rules. The study used the fiscal balance as a measure of fiscal performance, while a time varying composite fiscal rule index was used to capture the effects of fiscal rules. The fiscal rule index was based on the updated IMF's fiscal rules dataset. Baseline regression examined the effect of fiscal rules on fiscal performance and a fiscal policy reaction function was estimated on 1997-2015 data from 24 sub-Saharan Africa countries that implemented these rules. The regression results suggest that fiscal rules improve fiscal performance. In particular, the fiscal rules for the budget balance, debt and revenue, are found to have positive and significant effects on fiscal performance. The same regression was repeated based on supranational rules. The results reveal that supranational rules are more effective compared to national rules. The second part of the empirical analysis compared the fiscal performance between these 24 countries that have fiscal rules and 16 countries that do not implement the rules. The time period was also expanded to include 1980-1996, prior to adoption of fiscal rules. A difference in differences model was then estimated using the treatment effect method. The results reveal that there is a significant improvement in fiscal performance for countries which have fiscal rules compared to those without fiscal rules. The main conclusion from this exercise is that fiscal rules have been effective in instilling fiscal discipline in the region; therefore, there is significant benefit for countries to adopt fiscal rules. This research supports the view that there is a causal relation between the fiscal deficit and the current account balance in most sub-Saharan Africa countries. The nature of this dynamic relationship appears to depend largely on the level of public debt. Thus, fiscal rules present an effective instrument to influence the fiscal deficit and therefore the current account balance.
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    An evaluation of the monetary transmission mechanisms in South Africa
    (2011) Thlaku, Thabang; Ellyne, Mark
    The aim of this paper is to see whether the adoption of the Inflation Targeting regime has had an impact on the Monetary Transmission Mechanisms in South Africa. I employ a reduced-form VAR model to test the strength of the Monetary Transmission Mechanisms during two distinctly different monetary policy regimes. I investigate the strength of the various transmission channels during the Monetary Targeting regime using data from 1986-1999 and the Inflation Targeting regime using data from 2000-2010.
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    The impact of remittances on poverty in Africa: A cross-country empirical analysis
    (2016) Mahlalela, Noxolo; Ellyne, Mark
    Very limited empirical studies exist on the impact of remittances on poverty in Africa. To fill this gap in the literature, this study analyses the impact of remittances on poverty in a panel of 32 African countries. The study expands upon earlier work by including two additional foreign currency inflows, exports and Official Development Assistance (ODA). Accounting for possible heteroscedasticity and endogeneity, the results consistently show that remittances significantly reduce poverty. Exports and ODA are found to have a statistically insignificant effect on poverty. The absence of a significant relationship between exports, ODA and poverty suggest that the growth gains from exports and ODA fail to trickle down to the poor. These results highlight the significance of remittances as a source of finance for development.
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    Killing two ostriches with one stone : will barriers to SADC trade be reduced as a by-product of exchange control liberalisation within the region?.
    (2013) Welihockyj, Nastassja; Ellyne, Mark
    This thesis investigates the effect of exchange controls on trade of the Southern African Development Community (SADC). Restrictions on foreign exchange should be adjusted (liberalised to an extent) in order to harmonise policies between members, as an important part of the regional integration plan, which aims at the creation of a Monetary Union by 2018. The first step taken to examine the collateral effect of this on trade involves the construction of a new index, measuring exchange control restrictiveness (ECRI) across SADC countries over the last 10 years, based on the IMF’s Annual Report on Exchange Arrangements (AREAR).
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    Optimum currency areas in Africa : a genetic optimisation approach
    (2011) Maboreke, Joel Tichakunda; Ellyne, Mark
    We seek to establish whether a single currency for the entire African continent is the best way to achieve the desired level of economic integration. We put forward multiple regional currency groups as an alternative scenario to one single currency group for the whole continent.
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    Politics and trade in Africa : Does Sino-African trade and investment significantly influence Africa's United Nations General Assembly voting behaviour?
    (2013) Ellis, Charlotte; Ellyne, Mark
    This paper is concerned with the political consequences of China's rapidly growing economic engagement in Africa. Whilst there has been much debate regarding the economic impact of China, few studies have been concerned with the foreign policy consequences of Sino-Africa trade relations. Using a panel of ten Sub-Saharan countries, this paper builds on the theoretical understanding of dependency theory, to explore the relationship between economic dependence and political alignment in the United Nations General Assembly (UN General Assembly). This research seeks to provide an understanding of whether states that rely heavily on China's export market are more likely to converge with China on foreign policy decisions. Acknowledging that convergence of votes with China will have implications for the United States, particularly in light of consistent foreign policy divergence between China and the US, this paper evaluates whether changes in trade relations with the US or US aid disbursements have a negative effect on voting alignment with China. The research includes two specific time periods, 1971-2011 and 2000- 2011, which isolates the effect of China's rapid emergence in the global economy and Africa in particular. Statistical analysis of the data prior to 2000 yields less convincing evidence of the relationship between export dependence and foreign policy convergence in the UN General Assembly. However, in the period thereafter, both export dependence on China and FDI from China have come to hold explanatory power in convergence of trade relations with voting convergence. Is China knowingly or unknowingly creating a level of export dependence as a way of bolstering support in the multilateral arena? Using ordinary least squares and fixed effects this paper finds evidence that greater trade in terms of exports to China promotes foreign policy convergence amongst SSA countries.
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    Regime changes in monetary policy
    (2018) Addo, Samuel; Ellyne, Mark; Mateane, Lebogang
    This thesis consists of six chapters of which chapters one and two provide the introduction and a brief review of policy regimes in South Africa. Each of the three chapters that follow has its own structure and method. Chapter six concludes the thesis. The chapters share a common theme of understanding the effects of policy regime changes in stabilising inflation and output dynamics in emerging economies with reference to the South African economy. This thesis’s theme is premised on the debate that policy rate setting better describes the conduct of monetary policy and helps stabilise inflation and output. There is, however, no consensus on the appropriate policy regime and the specification of a policy rule that is universal for all economies. Chapter three establishes whether central bank preferences are related to governors’ tenures when there is a change in policy regime. A time-varying parameter approach that allows the policy preferences to vary over the sample period is used. The results show that the policy parameters exhibit significant changes and that the South African Reserve Bank placed more weight on output relative to inflation over the period 2000 and 2007. The dynamic responses of output and inflation under different central bank governors show different outcomes because of changes in central bank policy preferences and not necessarily different governors at the central bank. The effects of policy switches on macroeconomic performance using a regime-switching small open economy dynamic stochastic general equilibrium model is investigated in chapter four. The novelty of this chapter is in the structural model, where the primary commodity export sector follows a regime shock process that affect the policy parameters is allowed. The results suggest that an unexpected monetary policy shock and its variances account for a smaller proportion of macroeconomic fluctuations in the South African economy compared to external shocks and its variances in the form of exports, import cost inflation, risk premia, preference and technology changes. Chapter five consists of an investigation into central bank credibility by simulating a Markov-switching Bayesian vector autoregression model with time-varying transition probabilities. This is based on changes in monetary policy leading to clear policy goals. The findings suggest that the policy authority was credible over the period 2003 to 2007 and over the period 2010 until 2016. However, policy switched to a low credibility regime over the period 1990 to 1999 and in 2008. It is found that a positive yet unexpected change to credibility leads to a reduction in policy rate which leads to a decrease in inflation. The conclusion indicates that credibility is an important instrument that helps policy authority to conduct efficient monetary policy in stabilising inflation and output.
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    The role of exchange rate in small open economies : the case of Tanzania
    (2015) Mtenga, Threza Louis; Abraham, Haim; Ellyne, Mark; Kotze, Kevin
    This thesis addresses exchange rate behaviour in a de-facto partially dollarized economy. Over the past two decades the Tanzanian Shilling has been increasingly displaced by the United States dollar. This change has been prompted by instability of the local currency, and by the practices of foreign firms, which have used a dual pricing system at rates disadvantageous to the local currency. The implications of Tanzania's dollarization are traced through three related investigations: whether theTanzania Shilling to United States Dollar exchange rate overshoots, whether it has impacted the monetary transmission mechanism, and whether dollarization has substantively affected the pattern of Tanzania's foreign trade. The first study uses the Structural Vector Autoregression to test if the overshooting hypothesis holds for the TZS-USD exchange rate.The results suggest that foreign currency deposits are encouraged by the volatility of the exchange rate.In addition it is noted that the exchange rate demonstrates delayed overshooting, while a contractionary monetary policy leads to appreciation in the exchange rate for at least a year before returning to equilibrium. The determinants of the exchange rate in Tanzania are trade openness, real interest differentials, labour productivity and government expenditure. The second study uses a Bayesian Vector Autoregression to investigate the monetary transmission mechanism in the presence of dollarization. The results indicate that positive shocks on the interest rate contract money supply, which leads to lower output growth and inflation, while the exchange rate appreciates. The degree of dollarization also has a negative impact on the monetary supply of the local currency, as the central bank seeks to maintain a relatively constant rate of total money supply. This has the effect of lowering the inflation and interest rates, and is also associated with further depreciation of the exchange rate. The positive shock on the exchange rate (depreciation) is associated with an increase in dollarization.The aggregate demand shock fuels inflation and, in Tanzania's case, it has increased money supply, due to the persistent demand for real monetary balances. The third study uses a Dynamic Stochastic General Equilibrium to describe the conduct of monetary policy in a small, open, and partially dollarized Tanzanian economy. The structure of the model incorporates the expectations of agents and the dynamic relationships are explained in terms of structural representations that characterize the behaviour of the firm, household and central bank. The parameters in the model are estimated with Bayesian techniques, after it has been applied to Tanzanian data. The effects of individual shocks, including those that may be used to describe the conduct of monetary policy, are then considered. These simulations suggest that despite the existence of partial dollarization in the Tanzanian economy, monetary policy has important, short-term, real effects. The fourth study uses an Autoregressive Distributed Lag approach to investigate the short and long run exchange rate sensitivity of foreign trade. Principal components analysis is also used to reduce the dimension of the dataset. It finds evidence that the depreciation of the Shilling typically has an immediate positive impact on the trade balance, and exchange rate depreciation increases the trade balance in both the short and long run. However, exports show signs that support the J-curve hypothesis, though the associated parameters are not significant. Imports are not reduced by a rise in the Shilling, as traditional theory would suggest. This is ascribed to the country's de-facto partial dollarization. Since over 40 per cent of money supply arecurrently held in dollar denominated accounts, trade is largely immune to domestic currency fluctuations. This study also notesthat the use of foreign currency has tended to rise during periods of substantial economic growth. Although no causality is argued, this does suggest that the parallel use of foreign and domestic currencies is not detrimental to Tanzania's economic growth.
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    The Nature of Hyperinflations between 1980 and 2008: A Case of Three Regions
    (2018) Ndlovu, Sabelosenkosi; Ellyne, Mark
    This dissertation uses 13 year panel data to explore the nature of hyperinflations which occurred in 14 countries between the years 1980 and 2008. The countries are grouped into three geopolitical regions of Latin America, former states of the Union of Soviet Socialist Republics (USSR) and Africa. The analysis principally uses the quantity theory of money (QTM) and the purchasing power parity (PPP) as theoretical frameworks. The Dumitrescu-Hurlin panel causality is used to examine the nature of the relationship between exchange rates, money supply and price levels during the hyperinflationary periods. Notable similarities regarding the causal relationships, particularly between money supply, and price levels were found. Exchange rate depreciation-inflation spirals are examined using the PPP hypothesis. Over the 13 year periods under investigation, the findings suggest that prices and exchange rates did not tend to move together in all the cases. The impact of hyperinflations on the velocity of money is investigated for the three regional cases, following which the long-run relationship between QTM variables is tested using Pedroni residual co-integration. Despite the substantial dissimilarities in inflation rates and velocity in the countries, there seems not to be significant differences in the impact of hyperinflations on velocity. In examining whether a long-run or equilibrium relationship existed between inflation, money growth and real output during the hyperinflationary periods, the findings suggest it was not the case in all instances. Although the econometric results accord with findings in the relevant literature, it is apparent that despite the generic systematic features which typify the phenomenon, the hyperinflationary experiences have not been uniform and have taken different paths.
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    The South Africa-Zimbabwe remittance corridor: an analysis of key drivers and constraints
    (2010) Von Burgsdorff, David Kühn; Ellyne, Mark
    A considerable amount of research has been conducted on the topic of migration and remittances over the last few years, but the literature on the South Africa-Zimbabwe remittance corridor remains scarce. Using a survey conducted in April 2010 of 347 Zimbabwean migrants living in the Western Cape Province, this paper is focused on three primary aims. The first is to gain an insight into the remittance-sending behaviour and patterns of Zimbabwean migrants in South Africa. The second is to apply the survey data to assess underlying dynamics of the drivers that influence migrants’ remittance-sending decisions. The third is to analyze and discuss the constraints to remitting that Zimbabwean migrants in South Africa are faced with and that shape the remittance-sending landscape. The survey results show that remittance flows in the South Africa-Zimbabwe remittance corridor are considerable, with more than 90 per cent of Zimbabwean migrants in the sample remitting on average almost a third of their income. The most significant driver of remittances was found to be the number of dependants that migrants have in Zimbabwe. Moreover, the great majority of remittances are sent through informal channels, despite the inefficiency and high costs of these. The paper concludes that there are significant market inefficiencies and impediments in South Africa that negatively impact the flow of remittances to Zimbabwe, both by driving up costs and by excluding the majority of migrants from formal remittance channels.