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Policy Briefs

Regional disparities in income-independent quality of life in South African municipalities: convergence or divergence?

Talita Greyling and Stephaniè Rossouw
Background: Since 1994, the South African government has introduced various policy measures to address inequalities brought about segregated development under the Apartheid regime. If these policies have been effective, then one would expect convergence between poorer municipalities and their richer counterparts, not only as regards to income levels but most important human welfare in general. The purpose of this study is to investigate the effectiveness of policy measures through analysing both income and objectively measured income-independent quality of life (IIQoL) convergence dynamics across South Africa’s 234 municipalities for the period 1996-2014. In order for the study to achieve the aforementioned, the following research questions are answered. First, the study will construct a composite IIQoL measure and test for unconditional β- convergence. This convergence rate will subsequently be compared to the one obtained from the traditional real GDP per capita in order to analyse the level of misrepresentation reported by past studies that only focused on income measures. Second, the study will focus on determining the specific conditions needed for conditional β-convergence in IIQoL.
Oct 2018
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To what extent does socio-economic status still affect household access to water and sanitation services in South Africa?

Bruce Rhodes and Tamlyn McKenzie
Despite the significant progress of water and sanitation services since the fall of Apartheid, many parts of South Africa still do not enjoy much of these facilities that many take for granted. Since 1997 South Africa declared basic water and sanitation a human right under the auspices of the Water Services Act (1997), yet still by 2005 it was estimated that about 6 million South Africans still lacked access to basic level of service.
Oct 2018
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Real Exchange Rate Volatility and Employment Growth in South Africa: The Case of Manufacturing

Trust R. Mpofu and Eftychia Nikolaidou
South Africa has one of the highest unemployment rates in the world. This remains one of the key concerns to the policymakers in South Africa. Although there is a vast literature that examines the cause of high unemployment rates from a microeconomic perspective, there is limited work on this issue from a macroeconomic perspective. Exchange rate movements are expected to impact employment (and, indirectly, unemployment) through the profitability of the sector in export-oriented activities. This is so because exchange rate volatility changes the production costs of firms, and thus, causes uncertainty of future earnings. This affects investment decisions as well as employment because hiring workers represents an investment in the sense that there are costs incurred to reversing this decision.
Oct 2018
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Measuring the Financial Cycle in South Africa

Greg Farrell and Esti Kemp
This paper sets out to measure the financial cycle in South Africa. Financial cycles provide a broad perspective on the evolution of risks to financial stability, and therefore provide a useful monitoring tool for policymakers who are required to set macroprudential policies. A robust measure of the financial cycle is currently particularly important for South African policymakers, given the renewed emphasis on the financial stability regulatory and supervisory framework provided by the Financial Sector Regulation Act, which was signed into law in September 2017. Understanding financial cycles is viewed as critical for informing the use of countercyclical macroprudential policy, but there is no consensus regarding the definition of financial cycles nor on the methodology that should be employed to measure them. Despite a large and growing international literature, we are also not aware of published research that assesses the options available for measuring the South African financial cycle.
Oct 2018
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Family-type Public Goods and Intra-Household Decision-Making by Co-Resident South African Couples

Sevias Guvuriro & Frederik Booysen
The household is a critical decision-making and consumption unit and various crucial decisions are indeed made within households. These include decisions on day-to-day expenditures, decisions about where to live, who to live with, who should work and how to raise income, as well as where children should attend school, and how to spend the available income. However, perceiving the household as a single ‘glued-together’ unit, whose interests are as that of an individual, suggests that investigations into intra-familial issues are unnecessary, thus neglecting what actually happens within households. Employing resource theory and the theory of assortative mating in the application of the cooperative intra-household bargaining model, the current study examines the sources of bargaining power that informs financial decision-making processes by females within co-resident couples. The study also determines how bargaining power and financial decision-making of female partners in co-resident couples impact on family-type public goods expenditure.
Oct 2018
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Disentangling the exchange rate risk, sectoral export flows and financial development nexus

Heinrich Nel and Anmar Pretorius
Since the breakdown of the Bretton Woods international monetary international currencies have been particularly volatile. This volatility in the relative value of international currencies holds especially true for the currencies of emerging market economies. These economies are arguably more susceptible to the probable negative macroeconomic effects resulting from speculative attacks on their respective currencies than developed market economies. Emerging markets are not characterised as having adequate financial markets and macroeconomic institutions conducive of stability. Nevertheless, exactly what the negative macroeconomic effects could be – if any – has been the subject of considerable empirical scrutiny since the 1980s. Of particular concern to international economists have been to examine what the potential effect of exchange rate volatility could be on global welfare and international trade flows. While the volume of research has been substantial, empirical research has thus far been unable to reach consensus surrounding the conjectured effect that exchange rate volatility may exert on international trade flows. After the subprime mortgage crisis of 2007 to 2009, the Great Recession of 2008 to 2012 and with several European countries still reeling from the sovereign debt crisis, emerging market currencies have seen great fluctuations in value over the last couple of years.
Sep 2018
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Financial Structure and Economic Growth: Evidence from Sub-Saharan Africa

Naomi M. Mathenge and Dr. Eftychia Nikolaidou
Financial structure, the extent to which a country’s financial system is either bank-based or market-based has been shown to have an effect on some countries economic growth, while in other countries, it has been shown to be of no economic significance. Many of the studies have focused on developed and emerging economies that have well developed financial systems relative to the financial systems of developing countries.
Sep 2018
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Electricity crisis and the effect of CO2 emissions on infrastructure-growth nexus in Sub Saharan Africa

Chengete Chakamera and Paul Alagidede
Sub Saharan Africa (SSA) is a region of over 950 million people but also with greatest proportion of population without access to electricity. The World Development Indicators reveal that electricity-related CO2 emissions (CO2EM), and the ratio of electricity transmission and distribution losses (RETDL) have been rising in SSA over the past decades, implying deterioration in efficiency of the power sector. Given the recent rising focus on the Sustainable Development Goals (SDGs), studies on the impact of electricity consumption and CO2 emissions on economic growth remain vital to inspire energy policy and academic research. Several studies have examined environmental Kuznets curve (EKC) that hypothesizes environmental quality and economic growth nexus. Closely related to this study, plenty of literature is done on the cointegration between electricity, CO2 emissions and growth. Despite the fact, firstly, accounting for electricity quality is still lacking and remains a serious gap. Secondly, measuring both the nature and size of the influence of electricity-related CO2 emissions on the growth contribution of electricity stock (quantity) and quality is another angle that has not been properly interrogated in the literature. Therefore, we investigate the economic growth effects of both electricity stock and quality before and after accounting for electricity-related CO2 emissions.
Sep 2018
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Credit frictions and co-movement of durable and non-durable goods in a small open economy

Hilary Patroba
Multi-sector sticky price models produce unusual outcomes when the prices of durable goods are flexible. This is because, on the one hand, as empirical evidence suggests, a monetary policy shock results in the positive movement of aggregate consumption in both durable and non-durable goods sectors. On the other, it is because the movement of durable goods is greater than that of non-durable goods, as suggested by Erceg and Levin (2002, 2006). On the other hand, Barsky et al. (2003) show that in a two-sector economy with flexibly priced durable goods and sticky priced non-durable goods, the flexibility of prices of durable goods governs the response of aggregate consumption to a monetary policy tightening. This is because the shadow value of durable goods is approximately constant owing to the typically high stock-to-flow ratio of durable goods. Thus, the responsiveness of the user cost of durable goods does not result in an improvement in total utility for the households.
Sep 2018
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Regulatory ambiguity and policy uncertainty in South Africa’s telecommunications sector

Helanya Fourie, Lara Granville & Nicola Theron
Competition policy aims to encourage efficiency and promote choice by protecting consumers from anti-competitive behaviour by firms. The rationale is that by creating competitive markets, economic welfare will be maximised. Network industries, like telecommunications or electricity, however, are characterised by scale economies and sunk costs, which create barriers to entrants and prevent effective competition from being realised. In such industries, sector specific regulation plays an important role in preventing incumbents from abusing their market power, by imposing conditions to encourage entry and competition.
Aug 2018
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