South African Journal of Economics

vLex
Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
0038-2280

Issue Number

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  • Determinants of fiscal rules policy credibility in West African Economic and Monetary Union countries

    More than a quarter century after implementing fiscal rules, and despite extensions of the convergence phase, West African Economic and Monetary Union (WAEMU) countries are still unable to comply with the fiscal rules established. In addition, these countries are facing multiple shocks, exerting pressure on public finances. Based on this context, this paper empirically investigates the drivers of fiscal rules policy credibility of seven WAEMU countries over the period 1994–2019. Using two measures of fiscal rules policy credibility and pooled mean group (PMG) econometric estimator of dynamic panel, we find that internal and external macroeconomic variables are the main determinants of fiscal rules policy credibility in WAEMU countries in the long run. The institutional and political variables have mitigated effects. Specifically, we find that debt accumulation, economic activity fluctuation (gross domestic product), fiscal space reduction, and international commodity price fluctuation harm fiscal rules policy credibility, meaning that these variables deviate the fiscal policy from its target value. Our results suggest that WAEMU governments should pay attention to global shocks to reduce their macroeconomic vulnerabilities and better manage their economic resilience. In addition, they should better manage debt by allocating it to productive sectors, or improve the quality of institutions by establishing a genuine democracy that improves decision‐making and reduces deviant behaviour.

  • Inclusive education and labour productivity: The case of Sub‐Saharan African countries

    Education is instrumental in developing skills that determine the level of labour productivity in an economy. This study cross‐examines the effect of inclusive education on labour productivity growth in Sub‐Saharan Africa (SSA). The methodology involves the instrumental variable two‐stage least square (IV‐2SLS) with data collected for 48 SSA countries spanning between the years 2000–2021. The following results are arrived at: (i) Inclusive education significantly boosts labour productivity across all income groups. (ii) Pre‐primary, secondary and tertiary education significantly affect labour productivity more than primary education with the impact less evident in middle‐income countries. (iii) The impact of secondary and primary educational enrolments on labour productivity is greater in African countries that follow the French civil system compared to those under British common‐law jurisdiction. Based on the study findings, the following policy recommendations can be forwarded: SSA countries should design policies that improve the productive capacity of their workforce through the enhancement of inclusive education. In addition, more investments should be made in the educational sector to increase access to education and equitable opportunities for schooling for all, especially in Africa where the attainment rate has been relatively low.

  • Tuberculosis and labour market participation: Evidence from South Africa

    Tuberculosis (TB) is one of the leading causes of death from an infectious disease, but its micro‐economic impacts on labour market participation remain poorly understood. We analyse the relationship between TB and employment outcomes in South Africa, one of the countries with the highest TB disease burden worldwide, using individual‐level panel data from 2008 to 2017. Applying a coarsened exact matching methodology, we find that contracting TB entails a 5% lower probability of entering the formal labour market. Moreover, TB and its associated employment changes go hand in hand with corresponding reductions in individual income but not in household income and expenditure.

  • A computable general equilibrium model of the monetary policy implications for financial stability in South Africa

    The South African Reserve Bank (SARB) uses interest rates to control inflation. The Computable General Equilibrium (CGE) model can contribute to inflation targeting objective and also determine the effects on banks and the economy. We improved the accuracy of the results from previous work on the banking sector CGE model by estimating the elasticities of the reduced form equations of the model instead of arbitrarily choosing them. Our results conform with the established view that lower policy rates lead to an increase in inflation and a reduction in banks' profits. However, because of the adverse supply shocks arising from the effects of the COVID‐19 pandemic, the increase in the GDP is crowded out. The CGE model is a useful tool for the SARB for monetary policy implications on financial stability, informing and providing analysis on its repo rate decision, and determining the consequent effects on the economy.

  • US suspension policy from the African Growth and Opportunity Act (AGOA): An estimation of the missing exports from sub‐Saharan Africa

    The African Growth and Opportunity Act (AGOA) is a unilateral duty‐free access program granted by the United States (US) to exports from sub‐Saharan African (SSA) countries. However, provisions of the AGOA text specify that countries can be suspended from the program in case of political turmoil and human rights violations that threaten democracy and the rule of law. This paper constructs a two‐step framework combining matching techniques and gravity regression to quantify the loss of exports due to AGOA suspensions using high‐disaggregated data of exports (10‐digit HTS level) from Africa to the US during 2001–2020. The AGOA suspension resulted in a 54% decline in SSA countries' exports to the US. Estimations suggest that, since 2004, the US suspension policy led to a reduction in exports from suspended countries of approximately 691 million USD on average per year. Over the 17 years (2004–2020), the suspended countries lost a total of 11.7 billion USD in the value of their exports to the US.

  • Search, transport costs and labour markets in South Africa

    South Africa's labour market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labour market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labour market, creating exclusion and perpetuating spatial segregation. In most developing countries, the result would be higher informal employment. However, spatial dispersion also reduces productivity in the informal sector so that workers prefer to look for a low probability job in the formal sector rather than move to informality. This produces high and persistent unemployment rates. As a result, transportation costs and housing deregulation may become the key factors in improving the working of the labour market in South Africa.

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  • Monetary policy, inflation and distributional impact: South Africa's case

    This paper presents further empirical support for the finding that the impact of inflation and that of policy instruments to manage inflation are not distributed equally across households of different income groups. In particular, the evidence using South African data suggests that monetary policy tightening, which seeks to maintain low and stable inflation, has a relatively modest effect on real consumption of poorer households, who tend to rely on government grants and spend larger shares of income on food stuff, while the reduction in real consumption of wealthier households is much larger. This may be due to the fact that low and stable inflation help maintain the value of government grants and cap food prices both in real terms, and higher interest rates reduce labour income, weaken asset price performance and increase debt service cost.

  • Issue Information

    No abstract is available for this article.

  • The impact of energy prices on inflation and economic growth in Mozambique: A wavelet approach and OLS estimator

    The paper is using the Continuous Wavelet Transform (CWT) and the OLS estimator to examine the relationship between energy prices (coal and gas), inflation and economic growth in Mozambique. Coal and gas are the primary commodity and source of revenue for the country. The research uses quarterly data from 2001 to 2022. Among other results, we found evidence of high coherence between macroeconomic variables (inflation and real GDP growth rate) and energy prices (thermal coal and natural gas prices) only for the frequency intervals between 1.5 and 4 years (short term). The results hold even after controlling for the real GDP growth and exchange rate; we concluded that only in the short term (1.5–4 years), there is high coherence between energy prices and inflation in the time interval between 2004 and 2012. This finding indicates no relation between energy prices, inflation and economic growth in Mozambique. Furthermore, the OLS estimates substantiate the wavelet result, showing no impact. In this context, we can conclude that there is probably a ‘Dutch disease’ or ‘resource curse’ that negates the positive effects of exploiting these resources on short‐ and long‐term economic growth.

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