Browsing by Author "Sundaram, Asha"

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    Investigating product market Integration in the southern African development community : a price-based approach
    (2015) Balchin, Neil Gregory; Edwards, Lawrence; Sundaram, Asha
    This thesis extends the price-based empirical literature on border effects and product market integration to the South ern African Development Community (SADC). The analysis draws on a unique integrated dataset of district-level monthly average retail product prices spanning a number of districts in Botswana, Malawi, South Africa and Zambia. The thesis is comprised of four main chapters. The first main chapter provides an empirical analysis of the extent to which product prices are integrated within and between the four SADC countries . The results reveal large and persistent absolute deviations from the law of one price both within and between each of the countries over the period from 200 6 to 2009 . Price deviations are found to be higher between SADC countries than within the individual countries, although there is considerable heterogeneity in the magnitude of these deviations across products. On average, absolute price deviations between-country pairs are smaller for countries adjacent to each other and for countries that share common membership in the Southern African Customs Union (SACU) . Simple econometric estimates based on the standard regression approach in the literature show that absolute price deviations between district pairs in the region increase the further apart the districts are from each other ; and are 11.8% higher, on average, between districts separated by a national border. Overall, there is no clear evidence that product prices in the SADC region became more integrated between 2006 and 2009 (although product prices between the Common Market for Eastern and Southern Africa countries did become more integrated over this period), despite the liberalization of tariffs under the SADC Protocol on Trade. The second main chapter critically evaluates the standard empirical methodology used to estimate border effects. The evaluation identifies several different sample selection effects that bias estimates of distance and border effects in the existing literature, and demonstrates the sensitivity of estimates of transaction costs and border effect s for the SADC region to these sample selection biases using quantile regressions. The results show that the standard pooled OLS estimate s reported in much of the existing literature (and in the first main chapter) suffer from a sample selection problem which biases the estimated distance and border coefficients downwards relative to the true cost of trade. The chapter also demonstrates the impact of two additional product and distance sample selection biases that are not dealt with in the Borraz et al. (2012) application of the quantile regression approach. Finally, it shows that not accounting for variation in within product quality across districts results in omitted variable bias which raises the estimated distance and border coefficients . The chapter proposes novel extensions to the quantile regression methodology to allow for the analysis of cross-country border effects; and to account for sample selection bias arising due to product and distance sample selection effects . The third main chapter applies the modified quantile regression methodology to precisely estimate average and individual border effects in the SADC region for the 2006 to 2009 period . The quantile regression results show the effects of borders in raising price dispersion in the region are generally comparatively lower between the SACU (23.1%) and Common Market for Eastern and Southern Africa ( 26.6%) countries compared to the remaining SADC country pairs (36.2%). There are also clear differences in the magnitude of border effects for contiguous (24.1%) and non-contiguous (41.1%) SADC countries, providing evidence of incremental border effects as products are traded across multiple borders. While the magnitude of the border effect estimates are sensitive to the estimation technique employed, the ranking of the border effects across different regional trade agreements and for contiguous versus non-contiguous countries is robust across different specifications. Finally, the results in the third main chapter reveal that, on average, there was little change in the magnitude of border effects in the SADC region between 2006 and 2009, despite the accelerated liberalization of tariffs on intra-SADC trade over this period. The final main chapter of the thesis unpacks the contribution of preferential tariffs to the South Africa-Zambia border effect over the period from 2002 to 2009. This addresses the lack of studies in the literature of the direct contribution of tariffs to border effects on international relative prices. The estimation results reveal an almost perfect pass-through of preferential tariffs onto domestic prices in Zambia. They also show that preferential tariffs account for a significant portion of the border effect . After accounting for the role of preferential tariffs, the additional increase in prices in the Zambian market caused by the border effect falls from 29.4% to 16.1%. This general result is qualitatively the same even after accounting for variation in the intensity with which products are traded between the two countries. Even so, a simple analysis of the trend in the South Africa-Zambia border effect indicates that the impact of crossing the border in raising Zambian retail prices actually increased between 2002 and 2009. The results do suggest, however, that the increase in the border effect over this period would have been more substantial in the absence of the phasing down of preferential tariffs. On balance, the evidence presented in this thesis indicates that markets in the SADC region remain fragmented, with little sign of greater product market integration either within or between countries. This is despite the explicit policy focus on trade reform that has accompanied the introduction of the SADC Protocol on Trade. Trade liberalization alone appears not to be sufficient in generating greater product market integration within the region.
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    Multiproduct firms and outward foreign direct investment
    (2014) Kagee, Salma; Edwards, Lawrence; Sundaram, Asha
    This paper investigates the relationship between internationalisation of firms and the firm's domestic product scope. The investigation is applied to Indian firms. Thus, the insights of a new dataset is added to the growing (but still infant) literature in this field. Indian firms that invest abroad are the most productive firms in the home country. The most productive firms in the home country have the greatest scope of products. This paper shows that outward investor firms have the greatest range of products in the home country. As a result of engaging in OFDI, these outward investor firms consolidate their product range and their product scope shrinks.
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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
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    The spatial dimensions of economic activity in South Africa: the role of regional policy, crime and the business environment
    (2018) Mahofa, Godfrey; Sundaram, Asha; Edwards, Lawrence
    The spatial distribution of economic activity is unevenly distributed across regions within countries. Regional development policies and the incidence of crime rates, an important aspect of the quality of the local business environment, may both impact spatial disparities in economic activity. This thesis examines the relationship between regional development policy, the quality of local business environment, that is, security or lack thereof, captured by crime incidence, and regional economic outcomes. The study argues that regional development policy incentives such as labour and tax regulations influence the local cost of doing business and hence are an important part of local business environment. In addition, the incidence of violent crime rates such as robbery and murder are an important dimension of the local business environment. Regional development policies and variations in the quality of the local business environment may drive regional inequality within a country through its effects on factors related to economic activity such as firm entry and labour migration. South Africa provides a good opportunity to study the impact of regional policies and local business environment, given the high levels of spatial inequality due to historical factors and the country had the first experience of regional development polices in Sub-Saharan Africa. In addition, the country is characterised by high rates of crime incidence. The first analytical chapter of the thesis examines the relationship between regional development policy incentives and regional disparity in economic activity. Chapters two and three, then examines the impact of crime incidence on various measures of economic activity, captured by firm entry and migration of labour, particularly skilled labour. These three chapters are linked by the focus on the determinants of the spatial distribution of economic activity across local municipalities in South Africa. The first main chapter uses a new dataset on business registrations that spans from 1800 to 2011, to examine the relationship between the creation of Regional Industrial Development Programme zones in 1982 and their removal in 1991, and the spatial distribution of firm entry in South Africa. The creation of these zones marks the introduction of Sub-Saharan Africa's first Special Economic Zones. However, little is known about the effects of such programs. Since incentives in these policies are expected to reduce the costs of registering and doing business to attract industries in targeted regions and create long lasting effects that make the regions economically sustainable, it is expected that the creation of these zones will increase firm entry and the impacts will persist after the removal of policy incentives. Using merged data on the location of Regional Industrial Development Programme zones and the business registration database, empirical results show that the creation of RIDP zones was positively associated with firm entry when the policy incentives were still present, and after the removal of policy incentives, firm entry decreased. However, these results show that in the manufacturing and services sector, the reduction of entry after the removal of RIDP zones did not completely offset the positive effect of the policy on entry. This finding is consistent with the presence of agglomeration economies in the manufacturing sector. Overall, results from this chapter suggests that regional policy incentives were important in encouraging private sector development in marginalised regions of the country, although the policy did not create long-run economic benefits. The second main chapter empirically examines the impact of an important aspect of the local business environment that affect regional economic incentives, that is, crime rates, on entry of firms across local municipalities in South Africa. South Africa's crime rates are high by international standards and surprisingly, little is known about how crime rates affect business activity in the country. Since crime rates increase the fixed costs of entry and the costs of doing business, it is expected that high crime rates in a region will lead to fewer firms entering the market, because only more productive firms will have expected profits high enough to justify paying the entry costs. This chapter merged crime data with the business registration database and found out that crime rates, particularly, property crimes have a deterring effect on firm entry and the effect is large for firms in the wholesale and retail sector. These results are robust to using rainfall shocks as an instrumental variable for crime rates, to control for the fact that crime might be a consequence not a cause of firm activity. The third main chapter empirically examines whether crime rates affect another aspect closely related to firm performance, that is, the availability of labour through migration across local municipalities in South Africa. Since high crime rates increases the costs of living in a region and this will reduce net income and utility associated with living in that region, it is expected that high crime rates will reduce in-migration. The chapter merged crime data used in the previous chapter with migration data created from 2011 population census and showed that contact crime rates reduce migration of labour into municipalities. These results are also robust to using rainfall shocks as an instrumental variable for crime rates, to control for reverse causality. Empirical results also show that the effects of contact crime differ by population group and skill level, with the effects stronger for male, unskilled and black African migrants. Since unskilled and African migrants will have lower expected wages to cover the costs of crime because of lack of high paying work opportunities and labour market discrimination. In addition, it is expected that the effect of crime is high for these population groups compared to skilled and white migrants, who have the income and the mechanisms to mitigate the risks of crime, like picking better neighbourhoods to live in. Estimated results by gender also reveal that the effect of contact crimes is high for male migrants as compared to female migrants suggesting that increases in contact crimes reduces in-migration of male individuals by a higher magnitude as compared to females. This result is consistent with the view that male African workers may be more mobile than females, and most of these migrants are unskilled. Important policy messages from these findings are that any industrial development strategy and economic policy in the country that seeks to create jobs in marginalised municipalities or improve integration of local labour markets should also consider other measures, besides targeting disadvantaged regions with policy incentives. This thesis provides empirical evidence that crime prevention measures are likely to be one of the important tools for industrial policy. This implies that the government should put measures that improve policing and security. In addition, the private sector and international development organisations should continue to engage the government to put in programs and projects that reduce crime rates in the country. These may include, providing support for research that examines the main causes of crime rates in South Africa.