Browsing by Author "Peters, Amos C"

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    Current account dynamics and macroeconomic policy
    (2016) Makanza, Christine Selina; Dunne, J Paul; Peters, Amos C
    This thesis focuses on the growing current account imbalances in South Africa and how these imbalances are influenced by macroeconomic policy. These issues are dealt with in three related studies. Even though literature argues that fiscal policy may be more capable of attaining current account stability if supported by monetary policy measures, only a few studies actually address the potential of both monetary and fiscal policy to stabilise the current account (Herz and Hohberger, 2013). As a result, our first study establishes stylised facts about the interaction of fiscal policy and the external balance by analysing the fiscal determinants of the current account. The second study establishes stylised facts about the interaction of monetary policy and the external balance by analysing global and domestic monetary determinants of the current account. The third study considers the structure of the economy in South Africa in terms of the share of traded goods vis-à-vis non-traded goods in production and consumption. The study calibrates a Dynamic Stochastic General Equilibrium(DSGE) model that analyses the role of non-traded goods in the determination of the current account and exchange rate. These three studies help to develop an understanding of the current account in South Africa.
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    Exchange rate volatility, employment and macroeconomic dynamics in South Africa
    (2015) Mpofu, Trust Reason; Bhorat, Haroon; Peters, Amos C
    This thesis focuses on the effects and causes of exchange rate volatility in South Africa. These issues are analysed in three stand-alone but related papers. The first paper (Chapter 2) investigates the impact of real exchange rate volatility on employment growth in the manufacturing sector. The study contributes to the literature on the employment effects of exchange rate volatility in emerging markets given limited studies. This is done by using the Autoregressive Distributed Lag (ARDL) counteraction approach which is able to estimate an error correction form of the model for the variables under investigation. This enables one to analyse the relationship between exchange rate volatility and employment growth. The advantage of this approach is that it performs better in small samples and works well even when the underlying variables are integrated of different orders. Employing quarterly time series data for the period 1995 . 2010, the analysis shows that real exchange rate volatility has a significant contractionary effect on manufacturing employment growth. The study also provides evidence that exchange rate level, output, wages and interest rates have significant effects on manufacturing employment growth. The results suggest that the government can reduce the adverse effects of exchange rate volatility on manufacturing by adopting macroeconomic policies that minimise exchange rate volatility and policies that promote employment creation, for instance, less restrictive policies given that the results show that an increase in interest rates leads to a decline in employment. Coming up with macroeconomic policies that minimise exchange rate volatility requires the knowledge of the causes of exchange rate volatility. As a result, the second paper (Chapter 3) investigates the determinants of exchange rate volatility in South Africa. Few studies investigate the determinants of rand volatility (Arezki, Dumitrescu, Freytag & Quintyn 2014, Farrell 2001). This study contributes to the literature by finding the sources of rand volatility using output volatility, money supply volatility, foreign reverses volatility, commodity price volatility, openness and a dummy for capital account liberalisation as explanatory variables. This is done using GARCH models for the period 1986- 2013 employing monthly time series data. The advantage of GARCH models is that they are able to model and forecast time-varying variance given that the exchange rate behaves similarly to other asset prices, for example, stock prices. The study tests the hypothesis that economic openness leads to a reduction in exchange rate volatility following Hau's (2002) modifications of the New Open Macroeconomics model of Obstfeld & Rogoff (1995, 1996). South Africa is a good case study following the liberalisation of the capital account in March 1995. The results show that switching to a coating exchange rate regime has a significant positive effect on exchange rate volatility. That is, it increases exchange rate volatility. The results also show that trade openness reduces exchange rate volatility using the bilateral exchange rate. The results also show that output, commodity prices, money supply and foreign reserves volatilities significantly influences exchange rate volatility. The study also shows that real factors (commodity prices, output and openness) have relatively larger effects on exchange rate volatility compared to monetary factors. The third paper (Chapter 4) analyses the short run behaviour of the South African rand using daily data. The study contributes to the literature on the causes of exchange rate movements in several ways. First, it uses an event studies approach a la Campbell, Lo & MacKinlay (1997) to answer two research questions. First, what is the impact of South Africa's monetary policy announcements on the rand? Second, what is the impact of South African political events on the rand? The advantage of event studies is that they are able to quantify systematically the abnormal or unexpected impact of an economic or political event on asset prices like the exchange rate. Second, the study focuses on an emerging market given that most studies have mainly focused on developed economies. Third, few studies that use event studies in South Africa focus on stock market reaction to announcements. The results find 8 out of 12 significant cumulative abnormal returns for monetary policy announcements. This suggests that the rand is not only influenced by demand and supply flows but also by news. The study also finds significant cumulative abnormal returns for all the three exchange rates following the Marikana massacre on 16 August 2012 and the release of Nelson Mandela banknotes on 6 November 2012. The ANC elective conference only has significant cumulative abnormal returns using the Rand/US dollar in 2007 and 2012.
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    Foreign direct investment and economic growth in Africa
    (2017) Kargbo, Santigie Mohamed; Dunne, J Paul; Peters, Amos C
    Abstract Foreign direct investment (FDI) is a valuable source of external finance to complement domestic savings, enhance domestic investment and increase employment in developing countries. It can potentially promote long-term growth and development through knowledge and technology transfers from foreign firms to domestic agents in host countries. With these benefits in mind, especially in relation to low-income African countries characterized by underdeveloped domestic financial markets, this thesis investigates the determinants of FDI, evaluates how well local firms can be integrated in FDI projects to enhance productivity growth and determines whether these investments have contributed to increasing productivity growth of host African countries. These issues are analysed in three constituent chapters of the thesis. The first study explores whether FDI from the different group of economies, stratified into the Organization of Economic Cooperation and Development (OECD), non-OECD emerging markets and intra-African economies, are driven by market-seeking, natural resource-seeking and efficiency-seeking motivations into host African countries. Evidence suggests that market-seeking and efficiency-seeking FDI are more growth enhancing than natural-resource seeking FDI. This study exploits recent bilateral FDI data to examine the underlying motivations and determinants of FDI into African economies. In doing so, the study contributes to the empirical literature by providing evidence on the specific factors that influence FDI into resource-rich and non-resource rich African economies. The study finds that the size of host markets and presence of natural resources have important influence on FDI into resource-rich countries, with market size determining FDI into non-resource rich countries, while investments from non-OECD emerging markets economies are also explained by the presence of lower labour costs. It is also evident that there are significant differences in determinants of FDI into African countries, between investors from African economies and counterparts from the OECD and non-OECD emerging markets. The results show significant differences between the drivers of FDI to South Africa and other African countries. The second study complements the first in analysing the determinants of FDI activity, by determining the sectors through which foreign affiliates and local firms are more likely to undertake joint activities in FDI projects. This is important in light of the growing need to promote knowledge and technology transfers from FDI in order to boost productivity in host sub-Saharan African countries. Over the years, FDI in sub-Saharan Africa were mostly undertaken in high technology sectors, which are presumably capital-intensive, by jointventure firms formed between transnational corporations and domestic firms. This pattern of investment has called into question whether foreign affiliates and local firms have greater propensity to jointly engage in FDI projects in capital-intensive activities. Considering this question, the study contributes to the empirical literature by determining the sectors through which such integration is more likely to occur. In trying to understand this relationship, the analysis used a large survey dataset on manufacturing and services firms for 19 sub-Saharan African countries. The survey was conducted by the United Nations Industrial Development Organization (UNIDO) in 2010. This data allows us to evaluate the integration decisions of firms, considering how physical capital intensity of foreign affiliates and skill intensity of the local workforce affect such decisions. The results reveal remarkably consistent finding that there is a higher likelihood that these firms will integrate production through capital-intensive than labour-intensive activities in sub-Saharan Africa. The third study investigates the growth enhancing effects of FDI into African countries, considering whether such impact depends on human capital capacity across countries. This study contributes to the empirical literature by exploiting host country heterogeneity in human capital capacity in explaining whether there are differences in the effect of FDI on productivity growth across countries. To consider such differences, recent country level data on total factor productivity growth and human capital stock, which is used as proxy for host country absorptive capacity, were used in a panel of 25 countries over the period 1996-2011. The analysis employed the Panel Smooth Transition Regression (PSTR) which allows for host country heterogeneity in human capital capacity to determine whether the relationship between FDI and productivity growth is nonlinear. The results strongly support the nonlinearity between FDI and productivity growth. This suggests that the impact of FDI on productivity growth differs across African countries. The heterogeneity is explained by the variation in human capital capacity across these economies. The study reveals a minimum threshold of 6.94 average years of schooling for FDI to accelerate productivity growth in host African countries. The analysis suggests that FDI will raise productivity growth in countries which have attained or exhibited human capital capacity closer to this threshold, when further efforts are applied to enhance such capacity. Countries with human capital capacity far below the threshold, however, will not experience productivity gains from these investments.
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    Macroeconomic dynamics in low income economies
    (2016) Bangara, Bertha Chipo; Dunne, J Paul; Peters, Amos C
    This thesis investigates the dynamic effects of two interrelated characteristics of low income economies: Commodity concentration of exports, and foreign exchange constraints on the behaviour of key macroeconomic variables. The literature defines the problem of export fluctuations with reference to commodity concentration of exports, the ability to forecast the fluctuations, and the availability of foreign reserves to meet the effects of fluctuations. When a country's exports are concentrated in a single commodity or a few commodities, price fluctuations may lead to low export earnings and low reserves. This has implications for the macroeconomic environment, since low levels of reserves may not adequately mitigate the effects of price fluctuations. Therefore, we first explore the macroeconomic effects of price fluctuations in low income economies with a high commodity concentration of exports. Specifically, we examine the dynamic response of selected macroeconomic variables to tobacco price shocks in Malawi, using quarterly time series data from 1980 to 2012. Using innovation accounting in a structural vector auto regressive (SVAR) model with short-run restrictions, we find that a positive tobacco price shock increases gross domestic product (GDP), reduces consumer prices, and induces an appreciation of the real exchange rate. These results are also robust to SVAR in differenced data and co-integrating vector autoregressive (CVAR) models. The CVAR confirms the existence of a long run-relationship among the variables, with causality running from tobacco prices to the three variables. Second, we provide an empirical analysis of the effect of shortage of foreign exchange in an import dependent, low income economy. It has become clear from the existing literature that low income economies tend to suffer from foreign exchange shortages exacerbated by their exports. Because of the concentration of their exports, these countries are susceptible to international price fluctuations which affect the level of foreign exchange. In addition, these countries tend to overvalue and fix their exchange rate, which worsens their terms of trade and leads to low levels of reserves. This causes foreign exchange shortages and leads to excess demand for foreign exchange by importers. We therefore investigate the implications of foreign exchange constraints on the dynamic behaviour of key macroeconomic variables in low income, import dependent economies.
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    Skills mismatch and informal sector participation among educated immigrants: Evidence from South Africa
    (2015-05-28) Doyle, Alexandra; Peters, Amos C; Sundaram, Asha