Latest News, Publications and Workshops

Latest Publications

The impact of micro hydroelectricity on household welfare indicators

The use of small scale off-grid renewable energy for rural electrification is now seen as part of the sustainable energy solutions. The expectations from such small scale investment is that it can meet basic energy needs of a household and subsequently improve some aspects of the household welfare. However, these stated benefits remain largely hypothetical because there is data and methodological challenges in existing literature attempting to isolate such impact.

The impact of home and host country institutions in the internationalization of an African multinational enterprise

We demonstrate that firms can exploit their knowledge of ‘weak’ institutional settings and turn it into a source of advantage as they internationalize into locations with similar institutional ‘weaknesses.’ Using the case of one Africa’s most successful multinational enterprises we illustrate the value gained from initially capitalizing upon institutional complementarity (utilizing the comparative advantage linked to institutional know-how) by exploiting the experience of the home country’s environment into similar settings.

Financial Reforms and the Finance –Growth Relationship in the Southern African Development Community (SADC) Region

Alex Bara, Gift Mugano & Pierre Le Roux
The role of finance in economic growth in SADC has been downplayed in most literature and policy initiatives given that financial sectors of SADC countries are regarded as less developed with the exception of South Africa. This notwithstanding, the role of finance in development of the region is gradually regaining importance amid a gradual shift from wholesale to retail finance in support of development of SMEs. Furthermore, there has been substantial progress over the past two decades in terms of financial inclusion, financial innovation, and cross-border banking in Africa's banking systems. In SADC, innovation in financial services has driven efficient financial transfers and increases the volume of trade. Most SADC countries introduced financial reforms in the 80s and 90s to facilitate development of the financial sectors, and studies acknowledge the role of financial reforms in enhancing financial development and growth in SADC countries. Southern Africa region has been registering significant growth rates in the last decade with growth being more widespread across countries, including non-resource-rich countries. The increasing role of finance in economic activity in the region justifies the need to look on the finance –growth nexus in SADC.

This study determines the causality relationship between financial development and economic growth in the SADC countries, extending the analysis to cover the effects of financial reforms. This study contributes to policy research on regional economic development from a financial perspective, especially in respect of the current drive towards regional financial integration among SADC countries.

Literature reviewed show that development of a financial system is crucially important in stimulating economic growth. Financial markets play a vital role in the economic growth process by channelling funds to the most efficient investors and by fostering entrepreneurial innovation on the relationship between finance and economic growth. Empirical evidence shows that a more developed financial system is associated with higher rates of economic growth. Although literature acknowledges the relationship between finance and growth, the debate on direction of remains inconclusive. There are three possible relationships between financial development and economic growth 1) the supply-leading or finance-led growth; 2) the demand-following or growth-driven finance and 3) the two-way causal relationship. The positive role of financial development in economic growth has, however, been questioned and not all researchers are convinced about the importance of financial systems. The role played by financial reforms, in particular financial liberalisation  in enhancing financial development in SADC region, is acknowledge in this study. The study included a dummy on financial reforms in the finance-growth nexus.

Using GMM and Dynamic Panel Estimations, the study establishes that in SADC financial development does not support or is adverse to economic growth. The two have an inverse relationship suggesting that financial development has a detrimental effect on economic growth in SADC. The results are consistent with findings by some studies whilst contrasting others. Possible explanations to this study’s findings are threefold.

a.      The under developed financial sectors of most SADC countries results in low credit levels, poor institutional structure and lack of depth and broader access to finance which retards growth.

b.      The structure and distribution of credit in some SADC countries where in government borrowing crowds-out private sector credit. As such, credit in these countries goes towards non-productive sectors.

c.       Though not empirically tested, the results could have been affected by strong country heterogeneity factors despite use of models that controls for country heterogeneity.

The financial reforms dummy, though negative, when interacted with financial development variables, however, causes coefficients for two of these to be positive. The implication is that the post liberalisation period financial development had a positive impact on growth in SADC. The deduction from the result could be that financial reforms managed to enhance development of financial systems of SADC countries and cause them to have a positive impact on their growth. The interacted dummy variables, however, remain insignificant implying possibly that the impact of financial reforms, though positive, remains minimal.

Panel Granger causality shows bidirectional causality between financial development and economic growth. Causality is, however, strong when running from economic growth to financial development and weak when running in the opposite direction suggesting that in SADC demand-following financial development is more pronounced to supply leading.

SADC countries should address the underlying structural issues in their financial systems by strengthening weak financial systems and enhancing performance of the financial sectors.  There is need for strengthening financial regulation and improve on financial and regulatory infrastructure. The region should also promote financial integration in order to enhance development of underdeveloped financial systems through enhanced interconnectedness and spill-overs. Countries needs to constantly improve their financial sectors through continuous reforms. Pro-growth policies should be intensified so that growth subsequently pulls with it financial development given a strong demand-following causality.

Lessons for the South African Economy:

a.      South Africa remains a dominant economic in the region and has opportunity of expanding its own credit market by developing credit market for other SADC countries.

b.      Financial integration is important for the SADC region, but more importantly for the South African Economy as it anchors financial development in the region

c.       South Africa needs to drive region financial integration agenda as it may strength its own economy and has opportunity of using its own currency in the region.

d.      Increased Government borrowing form the financial sector may crowd out private sector borrowings.

e.      South Africa can strengthen its dominance in the region by driving structural realignment of financial sector of other SADC countries through supporting regulatory and infrastructure development as well as further reforms.

f.        Growth drives financial development in the region. However, for growth to occur there is need for financial resources. As such, South Africa could utilise its developed financial systems and integration with global markets to source credit and investment from the global market and redistribute it in the region through financial structures around primary commodities abundant in may SADC countries.

Exploring the nexus of electricity supply and economic growth in South Africa

This paper investigates the causal relationship between electricity supply and economic growth in South Africa using annual data covering the period between 1985 and 2014. This paper used a multivariate framework which included trade openness, electricity price, capital and employment as intermittent variables. The ARDL bound testing was employed to establish the long run relationship between these variables. The Vector Error Correction Model (VECM) was estimated to carry out the test of causality. The results support the existence of co-integration among the variables.

Latest Workshops

Lecture Series in Economic Theory: "Asymmetric Information in Markets and Organizations"

Monday, March 14, 2016 to Tuesday, March 15, 2016
In part 1 of this lecture, we are going to introduce the basic set-up of credence goods markets and discuss how markets should be designed to provide the right incentives for experts and their customers. The theoretical analysis will be complemented by the discussion of evidence of expert behaviour and market outcomes from empirical as well experimental studies. 
 
In part 2 of the lecture, the emphasis will be on information disclosure by interested parties and evidence provision by intermediaries.

The Third ERSA Political Economy Workshop

Tuesday, February 16, 2016 to Wednesday, February 17, 2016

Economic Research Southern Africa (ERSA) and the Institutions and Political Economy Group (IPEG) at the University of the Witwatersrand invite SA-based researchers with a focus on political economy, including public choice, to participate in the upcoming February 2016 workshop. Contributions, even in progress, on all political economy topics will be considered though preference will be given to: corruption, dictatorship, fiscal federalism, intergovernmental grants, political entrepreneurship, and regulation.

What church records can tell us about economic development

Friday, January 22, 2016 to Saturday, January 23, 2016

Because colonial sources often lack adequate information about the lived experience of Africans, quantitative economic historians that are interested in the African experience are forced to find creative ways to identify the effects of colonial policies. Church records at the individual level provide one such recourse.

Politics, Finance and Growth

Wednesday, March 30, 2016 to Thursday, March 31, 2016
The University of Pretoria, in conjunction with the South African Reserve Bank, DFiD (UK Aid), the Economic & Social Research Council and Economic Research Southern Africa, are hosting an Economics and Research Policy Workshop on “Politics, Finance and Growth”.