On Pecuniary Resiliency, Early Warning, and Market Imitation Under Unrestricted Warfare

This study extends established financial market approaches to account for key econophysical attributes, low probability/high impact events, and a market\u27s potential use as early warning for threats. Any disparity between established financial practices and true market conditions may provide incentive for exploitation and may harm national security objectives and interests through cascading effects. These national security concerns may include, in particular, the health of a reserve currency for those countries whose currency serves as one. This is a preferred approach with Unrestricted Warfare-type operations as these techniques may not enable repudiation of the antagonist. Since this approach may remain a strong incentive for such tactics for the foreseeable future, it is imperative to develop techniques that hedge against financial miscalculations and subversive efforts. This research relaxes key assumptions of standard finance theory and applies these approaches to currency dynamics and portfolio selection which provides insight on areas of vulnerability. Early warning measures of threats are developed and compared to critical world events. Vulnerabilities to capital markets are studied, and their effects on reserve currencies are also analyzed. Lastly, a mathematical framework is developed that enables imitation of the aforementioned econophysical attributes in a simulated environment thereby bridging the divide between certain aspects of standard finance theory and econophysics for future study

Interest rate liberalisation and economic growth in SADC countries

The pioneers of financial liberalisation, McKinnon (1973) and Shaw (1973) argue that inter-est rates determined by market forces have a positive effect on economic growth rates. Inter-est rates that are kept at low levels through the intervention of a central bank discourage sav-ings and capital accumulation, and distort the allocation of resources. Interest rate liberalisa-tion results in higher real interest rates which could have a positive effect on savings, invest-ments and economic growth (Ang & McKibbin 2007). Interest rate liberalisation also reduces capital flight and encourages capital inflows by increasing return for investors which supple-ments domestic investments. Shaw (1973) argued that interest rate liberalisation promotes financial development by encouraging savings and increasing the availability of funds for lending purposes. The study provides an empirical analysis of the channels through which interest rate liberalisation impacts on economic growth in SADC countries for the period 1990 to 2015. The study is motivated by the concerns on the impact of interest rate liberalisation on eco-nomic growth in the period after the 2008-’09 global financial crisis as well as concerns that interest rate liberalisation increases the likelihood of financial crises. Higher interest rates resulting from interest rate liberalisation may increase the likelihood of financial crises by encouraging risk-taking on the part of banks in an attempt to take advantage of higher returns. Authorities in most countries have reduced interest rates in an attempt to boost aggregate demand, which is expected to speed up the recovery from the crisis. However, the lowering of interest rates may result in a decrease in savings and investments, which are the main drivers of long-term economic growth. Real interest rates below equilibrium may encourage banks to take more risks in their lending practices in order to earn higher returns which may result in an increase in non-performing loans. The influence of interest rates on financial crises has thus received considerable attention since the onset of the 2008-’09 global financial crisis and this thesis contributes to the literature by determining how interest rates impact on economic growth in SADC countries and whether interest rate liberalisation increases the likelihood of financial crises. The study examines the relationship between interest rate liberalisation and economic growth through different channels. These include savings and investments, capital flows and finan-cial development. The study uses the Pooled Mean Group (PMG) estimator proposed by Pesaran et al (1999) to estimate the effect of interest rate liberalisation on economic growth through the abovementioned channels. The study also examines whether interest rate liberalisation increases the likelihood of financial crises. This is estimated using the logit model, due to the binary nature of the dependent variable. The results provide limited support for the McKinnon and Shaw hypothesis. Interest rate liberalisation has a positive effect on economic growth through higher savings and investments. Interest rate liberalisation has a positive outcome on capital inflows, which indicates that the prospect of earning higher returns encourages foreign investors to invest in the domestic economy. However, capital inflows do not enhance economic growth. This could be due to the low levels of human capital in SADC countries. Interest rate liberalisation boosts financial development through higher savings and invest-ments. However, financial development has a negative effect on economic growth because of the link between financial development and financial crises. The results show that interest rate liberalisation decreases the likelihood of financial crises directly, however, it increases the probability of financial crises indirectly through financial development. This suggests that the major cause of financial crises in the region is the low levels of institutional quality and lack of adequate supervisory frameworks to monitor the functioning of the financial system. Therefore, the results imply that the negative impact of interest rate liberalisation may outweigh the positive effect of higher savings and investments in SADC countries. A number of policy recommendations can be drawn from the study. Liberalisation of interest rates has a positive effect on economic growth through savings and investments. However improving the levels of institutional quality is vital for preventing financial crises. Interest rate liberalisation may not have a direct influence on financial crises, but higher levels of fi-nancial development emanating from higher interest rates increase the likelihood of financial crises. Therefore, a sound monitoring framework is necessary for the benefits of financial liberalisation to be realised. Also, investment in education, training and research and development is a necessity so as to increase levels of human capital, which in turn may allow the region to reap the benefits of capital inflows

Financial system development and economic growth in selected African countries: evidence from a panel cointegration analysis

Financial systems (i.e. banking systems and stock markets) can influence economic growth by performing the five key financial functions, namely: mobilising savings, allocating capital, easing of exchange, monitoring and exerting corporate governance, as well as ameliorating risk. The level of development of the financial system is a key determinant of how effectively and efficiently these functions are performed. This study examines the short-run and long-run relationships between financial system development and economic growth for a panel of seven African countries (namely: Egypt, Ivory Coast, Kenya, Morocco, Nigeria, South Africa and Tunisia) covering the period 1988 to 2008. While numerous empirical studies have researched this topic, none of the previous African empirical literature have investigated thjs by using three groups of financial development measures (i.e. overall financial development, banking system development and stock market development measures) as well as employing panel cointegration analyses. The investigation of the long-run finance-growth relationship is conducted using two methods; the Pedroni panel cointegration approach and the Kao panel cointegration technique. The Pedroni panel cointegracion approach is more often applied in empirical research as it has less restrictive deterministic trend assumptions, while the Kao panel cointegration technique is employed in this study for comparison purposes. Furthermore, the short-run linkages bet\veen financial development and economic growth are analysed using the Holtz-Eakin d of (1989) panel Granger causality test. The results of the Pedroni cointegration tests show that there are long-run relationships between overall financial development (measured by LOFD and OFD2) and economic growth, banking system development (measured by LPSC) and economic growth, as well as stock marker development (measured by LMCP and LVLT) and economic growth. In contrast, the Kao test fails to find any cointegration between finance and growth. However, on the balance, findings largely support a conclusion of cointegration between financial development and economic growth since the Pedroni approach is more appropriate for examining cointegration in heterogeneous panels. Estimates of these long-run cointegrating relationships show that all five financial development measures have the expected positive linkages with growth. However, only four of the five financial development measures were found to have significant long-run linkages with growth, as the relationship between LOFD and growth was not found to be significant in the long-run. The panel Granger causality results show that economic growth Granger causes banking system development in the short-run (i.e. there is demand-following finance), irrespective of the measure of banking development used. While there is bi-directional, reciprocal causality between economic growth and both of the measures of overall financial development and one measure of srock market development (i.e. LVLT). Thus, pulicy makers should focus on formulating policy which promotes faster paced economic growth so as to stimulate financial development, while at the same time encourage policy that promotes the balanced expansion of the banking systems and srock markets in ordet to augment economic growth

Financial development, financial inclusion and welfare dynamics in sub-Saharan Africa

Thesis (PhD)--Stellenbosch University, 2017.ENGLISH SUMMARY : Over two decades of post reforms, the financial system of many sub-Saharan African countries remained underdeveloped and highly exclusive with only 34% of adults 15 years and above having a basic bank account. Nevertheless, sub-Saharan Africa has experienced robust growth, on average 4.8% per annum over the past 15 years surprisingly with widening income inequality and sluggish decline in headcount poverty ratio. This unfolding evidence challenged conventional thinking about the role of finance on growth and welfare. However, there is a shortage of empirical evidence linking financial development and financial inclusion to welfare. Knowledge of this relationship is important to shape policy thinking on how financial reforms can help to redress poverty and income inequality in sub-Saharan Africa. The purpose of this study is to fill this knowledge gap by examining the relationship between financial development, financial inclusion and welfare dynamics in sub-Saharan Africa. The thesis is structured into four main chapters, a descriptive chapter and three empirical chapters. The evidence from the descriptive analysis showed that financial inclusion, financial stability, financial integrity and consumer financial education are interrelated and under a suitable balance re-enforces each other. It also emerges that the level of financial intermediation in sub-Saharan Africa is low. As a result, huge unmet demands for credit and saving facilities exist across all regions. By regions, the rate of formal saving and borrowing in Southern, Eastern and West African countries is two times higher than the rate in French West and Central African countries. Overall, the level of financial inclusion in French West and Central Africa is the lowest in sub-Saharan Africa. The results from Chapter 3 revealed that income inequality will increase at the early stages of financial development but the positive trend reverses to negative as the financial sector reaches a higher stage of development – inverted u-shape. Specifically, financial sector might lend more to the rich and well-connected elites at some levels of financial development especially when institutions are weak, but as the system develops, more people have access and resultant effects tickles down to the lower income earners, hence income inequality starts to reduce. Finally, income inequality has some links with GDP per capita – increases with lower GDP per capita and declines as GDP per capita grows, translating into an inverted u-shape. Empirical evidence from Chapter 4 suggests that financial inclusion has both positive and negative relationships with welfare, depending on the aspect of financial inclusion and the indicator of welfare used. First, account ownership, formal loan and saving have a positive relationship with human development index but the relationship with electronic payment is mixed. Secondly, health insurance and loan to pay school fees reduces headcount poverty whiles, account ownership, formal loan and health insurance reduces under-five mortality rate per 1000 live birth. Finally, formal account use for business purposes, electronic payment and formal loan increases income inequality at least in the short run. These results reflect the prevailing robust growth and rising levels income inequality in sub-Saharan Africa. Finally, evidence from Chapter 5 revealed that financial inclusion has a positive relationship with assets ownership. The results suggests that a one-unit change in financial inclusion (credit, monthly saving and insurance) can increase assets ownership by 21% at the 10th quantile of the conditional assets distribution for users of financial services compared to non-users holding other factors constant. For all the aspects of financial inclusion analysed, the magnitude of the response to a unit increase in financial inclusion at the 10th, 20th and 30th quantiles is higher than the response at the median quantile. This suggests that financial inclusion and assets building programmes can have a substantial effect at the bottom of the assets distribution. Hence, this evidence provides a good case for a progressive assets building social welfare for the poor and low-income families in South Africa. In summary, these results showed that French speaking west and Central African countries have lower levels of financial inclusion compared to other regions in sub-Saharan Africa. Furthermore, the emerging evidence suggest that financial development increases income inequality in the group of African countries studied and that low GDP per capita also increase income inequality. Finally, evidence also revealed that financial inclusion exerts some positive influence on welfare with exception of income inequality and that asset building social welfare programmes can be used to complement the income transfer approach to poverty reduction.AFRIKAANSE OPSOMMING : Geen opsomming beskikbaar

Proceedings of USM-AUT International Conference 2012 Sustainable Economic Development: Policies and Strategies

This proceedings includes papers presented at the USM-AUT International Conference (UAIC 2012) carrying the theme “Sustainable Economic Development: Policies and Strategies”, held on 17-18 November 2012 at Bayview Beach Resort Penang Malaysia. This conference is jointly organized by the School of Social Sciences, Universiti Sains Malaysia (USM), Malaysia, and Faculty of Business and Law, Auckland University of Technology (AUT), New Zealand. We received a total of 167 papers from various institutions and organizations around the world where 82 papers were accepted for inclusion in this proceedings. The proceedings is compiled according to the three sub themes of the conference. It covers both theoretical and empirical works from the scholars globally. It is hoped that the collection of these conference papers will become a valuable reference to the conference participants, researchers, scholars, students, businesses and policy makers. The proceedings will be submitted to Thomson ISI for indexing

Exchange rate misalignments in ASEAN-5 countries

The purpose of this paper is to estimate the exchange rate misalignments for Indonesia, Malaysia, Philippines, Singapore and Thailand before the currency crisis. By employing the sticky-price monetary exchange rate model in the environment of vector error-correction, the results indicate that the Indonesia rupiah, Malaysian ringgit, Philippines peso and Singapore dollar were overvalued before the currency crisis while Thai baht was undervalued on the eve of the crisis. However, they suffered modest misalignment. Therefore, little evidence of exchange misalignment is found to exist in 1997:2. In particular, Indonesia rupiah, Malaysia ringgit, Philippines peso and Singapore dollar were only overvalued about 1 to 4 percent against US dollar while the Thai baht was only 2 percent undervalued against US dollar

Malaysian bilateral trade relations and economic growth

This paper examines the structure and trends of Malaysian bilateral exports and imports and then investigates whether these bilateral exports and imports have caused Malaysian economic growth. Although the structure of Malaysia’s trade has changed quite significantly over the last three decades, the direction of Malaysia’s trade remains generally the same. Broadly, ASEAN, the EU, East Asia, the US and Japan continue to be the Malaysia’s major trading partners. The Granger causality tests have shown that it is the bilateral imports that have caused economic growth in Malaysia rather than the bilateral exports