Technology, Human Capital and Growth: evidence from a middle income country case study applying dynamic heterogeneous panel analysis

This paper examines whether endogenous growth processes can be found in middle income country contexts. Estimation proceeds by means of dynamic heterogeneous panel analysis. Empirical evidence finds in favour of both knowledge spill-over effects, and of positive impacts on total factor productivity growth by Schumpeterian innovative activity. A crucial finding is that spill-over effects emerge from investment in human rather than physical capital, and that the quality dimension in human capital investment is vital in generating innovation.

The Spatial Distribution of Manufacturing in South Africa 1970-1996, its Determinants and Policy Implications

This paper researches the change in regional specialisation and industry concentration in South African (SA) manufacturing 1970-96, and evaluates possible determinants of industry location. No evident trend towards greater regional specialisation or despecialisation emerges over most of the period if we take the economic weight of the regions into account. However, between 1993 and 1996, the period of international reintegration, all provinces but one became more specialised. Industry concentration also does not show a clear trend if we account for industry size, although industries of the same rank were more concentrated in the early 1990s than the beginning of the 1970s and 1980s. Drawing on predictions from trade and economic geography models, we find that high plant-internal scale economies, intensity in the use of human capital and high industry-specific productivity gradients between locations are associated with greater geographical concentration of an industry. Scale economies are the most important pro-concentration force. A greater deviation of labour intensity of production from the mean, and strong in term linkages, are associated with low geographical concentration. The latter results can be explained within the economic geography framework. Linkages are the most important determinant of industry geography.Risk measures, expectations hypothesis, South Africa

Price Elasticities and Pricing Power in Emerging Markets: The Case of Petrochemicals Derived Plastics in South Africa

This paper examines whether there necessarily exists a conflict between allocative and productive efficiency in small open economy markets. That productive efficiency favours market concentration is not in dispute, and the sole question we face is whether allocative efficiency suffers under high market concentration. We proceed theoretically and econometrically. We find that the conflict between productive and allocative efficiency is not necessarily as stringent as the international competition policy literature suggests should be the case. In particular, we note that the strategic interaction between the large domestic producer and its competitors makes feasible a range of alternative price elasticities of demand, and empirically that all price elasticities of demand are less than or equal to unity. Nevertheless the impact of market structure is such as to render feasible a wide range of possible levels of pricing power.Price elasticities, market power, emerging markets, South Africa

The Composition of Foreign Capital Stocks in South Africa: The Role of Institutions, Domestic Risk and Neighbourhood Effects

This paper investigates the determinants of the absolute volumes and composition of foreign capital stocks in South Africa, focusing on the role played by institutional quality (property rights), domestic risk and neighbourhood effects as potential determinants. The empirical findings show that secure property rights and low risk in the host country positively affect the absolute volumes of both long-term and short-term foreign capital, but tilt the composition of foreign capital in favour of long-term foreign capital. The empirical results also demonstrate the existence of neighbourhood effects where the institutional environment in Zimbabwe has a significant impact on South Africa's foreign capital in.ows. It is shown that weak property rights in Zimbabwe lead to an increase in South Africa's foreign direct investment (FDI), but a reduction in South Africa's portfolio investment. This suggests that Zimbabwe and South Africa compete for foreign direct investment in similar sectors, and present two alternative investment destinations to foreign investors. As such, when property rights in Zimbabwe worsen, FDI appears to switch to South Africa as an alternative. By contrast, poor property rights in Zimbabwe appear to raise the perceived risk for portfolio investment in South Africa.Foreign capital stocks, Composition, FDI, Portfolio Investment and South Africa

An Analysis of Industry Concentration in South African Manufacturing, 1972-2001

This paper explores the trends in industry concentration of the South African manufacturing industry over the period from 1972 - 2001, with a primary focus on developments post 1996. Across all sectors of the manufacturing industry, concentration is found to have decreased. The analysis of bivariate associations yields several results. Amongst others, sectors which are highly concentrated (as measured by the Rosenbluth index) are more likely to exhibit lower employment growth. This is consistent across all ten census years. This paper also provides support for earlier results that low investment rates can in part be attributed to high levels of concentration.Concentration, Manufacturing, South Africa, Investment

Growth Impact and Determinants of Foreign Direct Investment into South Africa, 1956-2003

The paper is concerned with the growth impact and the determinants of foreign direct investment in South Africa. Estimation is in terms of a standard spill-over model of investment, and in terms of a new model of locational choice in FDI between domestic and foreign alternatives. We find complementarity of foreign and domestic capital in the long run, implying a positive technological spill-over from foreign to domestic capital. While there is a crowd-out of domestic investment from foreign direct investment, this impact is restricted to the short run. Further we find that foreign direct investment in South Africa has tended to be capital intensive, suggesting that foreign direct investment has been horizontal rather than vertical. Determinants of foreign direct investment in South Africa lie in the net rate of return, as well as the risk profile of the foreign direct investment liabilities. Policy handles are both direct and powerful. Reducing political risk, ensuring property rights, most importantly bolstering growth in the market size, as well as wage moderation, lowering corporate tax rates, and ensuring full integration of the South African economy into the world economy all follow as policy prescriptions from our empirical findings.

Infrastructure and Growth in South Africa: Benchmarking, Productivity and Investment Needs, paper presented at Economic Society of South Africa (ESSA) Conference, Durban, 9/7-9/2005

The paper provides three principal results. First, we benchmark South African infrastructure performance in terms of access, pricing, and quality against key comparator groups of countries using the most recent World Bank benchmarking data base (2005). Second, we establish clear empirical links between infrastructure and productivity using South African time-series data. And third, we estimate long-run demand for electricity and telephony using a panel of 52 low-income and middle- income countries for the period 1980-2002 and then project investment needs in these sectors until 2010. Our projections indicate average annual electricity generating requirement of US$0.5 billion or about 0.2$1.98 billion or 0.75% of GDP for telephony.infrastructure, growth, productivity, investment, South Africa

Macroeconomic News 'Surprises' and the Rand/Dollar Exchange Rate

Economic theory in the context of floating exchange rates has focussed on underlying medium and long term direction of exchange rate movements. Daily volatility is less well understood. One theory that offers an explanation for short term exchange rate movements is that of the efficient market hypothesis or EMH. Its application to the forex market allows exchange rate movements to be understood as the reaction of traders to relevant news. In an efficient market traders react to news and specifically to surprise news events which necessitate a re-evaluation of the currency value. We test for the validity of this hypothesis in the context of the daily rand/dollar forex market over a three year period, adding an emerging market case to the literature. We test the significance of macroeconomic news surprises -measured by the difference between actual and forecast data - in driving daily exchange rates. We find that surprises in both real and nominal variables cause a statistically significant reaction in the exchange rate. The results support an asymmetry between news of different origin as only surprises that originate in the U.S. prove significant. Good news also seems to receive greater attention from traders than bad news in our sample. Finally, we find that the statistical significance of variables is time-varying.

Economic Growth in South Africa since the late nineteenth century

Rereading D Hobart Houghton’s The South African Economy (1967) and Economic Development1865-1965 (1971) brings to mind the stark theoretical and empirical differences between his account of thirty years ago and current views of economic growth. Hobart Houghton wrote within the optimistic and conceptually quite simple framework of W W Rostow’s five stages of economic growth - only get to “take off†and your economic future is assured - whereas analysis of economic growth now draws on a more extended and technical literature which comes to no such simple conclusion. Hobart Houghton was writing after three decades of sustained growth in real per capita income; since then an extended period of falling real per capita income has inscribed itself on the South African record (see Figure 1), during a period of political instability and change. Hobart Houghton wrote in the Bretton Woods world which had gathered to itself a sense of stability: we are more uncomfortably aware that international trade and finance regimes have changed several times since the middle of the nineteenth century, usually with sharp and widespread transition costs. And thirty years ago, comparative information on economic growth was limited to a small (and biased) sample of countries. As more and more countries are brought within the scope of the World Bank’s World Development Report, for instance, it has become apparent that middle income countries (of which South Africa is one) can regress economically just as easily as they can progress. Governments and peoples now understand themselves as engaged in the elusive quest for economic growth.

Fractionalization and Lon-Run Economic Growth: Webs and Direction of Association between the Economic and the Social - South Africa as a Time Series Case Study

Recent cross sectional growth studies have found that ethnolinguistic fractionalization is an important explanatory variable of long-run growth performance. In the present paper we follow the call of earlier studies to conduct a more detailed clinical analysis of the growth experience of a specific country. South Africa constitutes an interesting case in which to explore these questions. The results of this study provide important nuance to the existing body of evidence. We find that fractionalization is subject to strong change over time. In addition, we find strong evidence of webs of association between the various social, political and institutional dimensions. Thus various forms of social cleavage tend to go hand in hand which presents the danger of spurious inference of association. Further, the direction of association in the preponderance of cases runs from economic to social, political and institutional variables, rather than the other way around. However, there remain significant impacts from some, but only some fractionalization indexes on economic growth. Which social cleavage, when, how and for what period of time will depend on the historical path of specific societies.