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(Last updated 2013-09-23 14:45:31)

Wednesday08:00 - 09:00
EBW Building
Wednesday09:00 - 09:15
EBW Auditorium
Wednesday09:15 - 10:15
EBW Auditorium
Plenary session - S vd Berg: Education, poverty and affluence – a South African perspective
Wednesday10:15 - 10:45
EBW Building
Wednesday10:45 - 11:45Parallel Sessions A
Session A1
History of


Peet Strydom, Income distribution, employment and economic growth: A neo-Ricardian View Abstract: Income distribution in a neo-Ricardian exposition emphasises the major income components of rent, wages and profits. The economic growth exposition concentrates primarily on wages and profits (the so-called two souls). Accordingly we distinguish wage-led and profit-led models of economic growth with two different employment outcomes. These outcomes are particularly relevant under present social and economic conditions in South Africa where there appears to be explicit support in favour of a wage-led growth model. As opposed to a profit-led model, the wage-led model predicts employment destruction coupled with low growth rates. In general, economic growth does not secure unqualified employment growth since it is technology driven and employment growth is driven by a demand for skilled people. This has also been confirmed by endogenous economic growth theory.

John Hart, Hutchison and the possibility of a positive economics Abstract: Hutchison argues that economists (from Mill and Senior to Robbins and Friedman)have too easily assumed that positive-normative distinction was clear-cut so that, in Friedman's words,'a positive economics is in principle independent of any particular ethical position or normative judgements'. Contrary to Friedman, Hutchison accepts the critics' view that ideology, value judgements and bias enter into economics. However, he analyses the various types and sources of these value judgements to show that, while fraught with difficulties, a positive economics - although of a different methodological kind - nevertheless remains a possibility and a goal worth striving for.

Stan du Plessis, Reinterpreting a famous paper in monetary economics Abstract: In 1967 Milton Friedman presented "The role of Monetary Policy" as his presidential address to the American Economic Association (EAE). Subsequently - published as Friedman (1968) - it has become arguably the most influential paper in modern monetary economics and was recently included in the AEA's list of 20 most influential papers published in the first century of the American Economic Review. In this paper I offer a reinterpretation of Friedman's presidential address, based on his earlier work in monetary economics as well as the Chicago tradition where he identified his own work. His earlier distinction between credit policy (what is now called interest rate policy, or simply monetary policy) and monetary policy (what is now called balance sheet policies) casts new light on the goals and preferred tools of monetary policy in his presidential address. In this reading financial stability emerges as a much higher policy priority for central banks compared with modern consensus on monetary policy. The argument is supported by a careful textual analysis as well as his preceding scholarship on monetary policy and the relevance of this reinterpretation of an otherwise well-known paper derives from the current interest in central bank balance sheet policies and the rising priority of financial stability as an explicit goal of monetary policy.

Session A2
Monetary policy

Hylton Hollander, The influence of financial factors on credit spread variability in U.S. business cycles: a New-Keynesian perspective Abstract: Systemic disruptions to financial intermediation in the wake of the August 2007 financial crisis spurred research into the causes and consequences of financial factors in business cycle analysis. A recurring characteristic of financial stress in recessions is the phenomenon of large credit spread variability. Once again, the recent U.S. business cycle has shown how large credit spread variability dislocates the equilibrium interaction between short-term interest rates and real economic activity. As a result, credit spread variability influences the efficient allocation of resources and the effectiveness of conventional monetary policy. Over the Great Moderation period, we investigate how financial factors in the U.S. business cycle induce recurring patterns in credit spread variability. To what extent does the influence of financial intermediaries over credit spread variability affect U.S. business cycle fluctuations? Is there any contributing financial factor to credit spread variability in the recent recession that can be distinguished from the 1990-91 and 2001 recession periods? We use a New-Keynesian dynamic stochastic general equilibrium (DSGE) framework with rich financial market interactions to investigate the phenomenon of credit spread variability. We include an array of endogenous influences on credit spreads from both demand and supply-side credit market frictions. Our findings show that bank balance sheet adjustments, bank market power and the valuation of borrower creditworthiness contribute significantly to large credit spread variability.

Mark Ellyne and Michael Daly, Zimbabwe Monetary Policy 1998-2012: From Hyperinflation to Dollarization Abstract: Zimbabwe’s 2008 hyperinflation is said to be the second highest in recorded history, and the reasons for this policy failure need to be understood: (i) were government policy-makers ignorant of what they were doing; (ii) were government policy-makers trying to pursue an alternative strategy that went wrong; or (iii) was this a selfish act of policy-makers to allow the government to steal purchasing power from its private sector to reward certain favoured groups? In answering the above questions, this paper uses the “Impossible Trinity Hypothesis” to explore the possibility policy-makers may have been trying to follow a Chinese model and close the capital account in an attempt to manage both the exchange rate and monetary policy. However, inflation steadily grew from 1998 to 2007, so the authorities clearly allowed the underlying monetary policy to continue, with its associated winners and losers. The paper explores the determination of the exchange rate, and tests the purchasing power parity hypothesis. It finds that PPP held for the official exchange rate but not the parallel exchange rate, providing possible evidence of structural change in the economy. It examines the causality among money, prices and the exchange rate using a vector error correction model to understand what was happening. Finally, the paper examines the “dollarization” exit strategy and the post-2008 economic policies to understand the motivation behind government economic policy. It argues that the choice of using the US dollar as the main currency of the dollarized Zimbabwe was not optimal based on optimal currency area theory. Moreover, subsequent policies to influence the growth of the domestic US dollar money supply and affect investment shed additional light on the motivation of policy-makers. This case study of Zimbabwe’s hyperinflation and subsequent dollarization provides lessons for other developing economies about conducting monetary policy and the impact of full dollarization.

Alain Kabundi, Important Channels of Transmission Monetary Policy Shock in South Africa Abstract: This paper investigates different channels of transmission of monetary policy shock in South Africa in a data-rich environment. The analysis contains 148 quarterly variables observed from 1990Q1 to 2012Q2. We use a Large Bayesian Vector Autoregressive model which can easily accommodate a large cross-section of variables without running out of degrees of freedom. The benefit of this framework is its ability to handle different channels of transmission of monetary policy simultaneously, instead of using different models. The model includes six channels of transmission, namely, credit, interest rate, asset prices, exchange rate, risk-taking, and expectations. The result show that all channels seem potent, but their magnitudes and importance differ. The results indicate that the interest rate channel is the most important transmitter of the shock, followed by exchange rate, expectation, and credit channels. Asset price and risk-taking channels are somewhat weak.

Session A3
House prices

Theunis Vogel, The economic variables that influence the property market in South Africa: The residential developer’s perspective Abstract: In recent years, specifically 2007 until 2012, a number of historic events influenced the residential property market. These events include the worldwide recession, countrywide mass strike actions, and decisions on the repo rate by the South African Reserve Bank. These variables all contributed to changes in the supply and demand of new and existing houses in South Africa. The aim of the study is to review the economic variables that influence the supply and demand for new residential houses in South Africa. The study focuses on changes in each economic variable and discusses what the results of these changes were with regards to new residential prices and supply. The study establishes the relationship between economic variables and makes projections using the results. The study commences with a full literature overview of the economic variables that influence the residential market, followed by a discussion of the methodology of the literature. Subsequently the study estimates regression models. The results of the study are compared with earlier findings in other studies.

Mehmet Balcilar, Sonali Das, Rangan Gupta, Stephen Miller and Wendy Nyakabawo, The Causality between House Prices and Output in the U.S: A bootstrap rolling window approach Abstract: This paper examines the causal relationship between house prices and output in the U.S. using bootstrap Granger non-causality test and fixed size rolling window estimation. The data used in this study are quarterly time series of real house prices and real GDP per capita covering the period 1963:Q2 to 2012:Q2. The full sample bootstrap Granger causality test results suggest that there is unidirectional causality running from real house prices to real GDP per capita. However, a wide variety of tests of parameter constancy used to examine the stability of the estimated vector autoregressive (VAR) models, reveal short-run instability. This suggests that full-sample causality tests cannot be relied upon, and hence, warrants a time-varying (bootstrap) rolling window approach to examine the causal relationship between these variables. Using a rolling window of 40 quarters, we find that while causality from real house price to real GDP per capita runs for most of the period under consideration, there is also significant evidence of real GDP per capita causing real house prices over the following periods: 1979:Q4-1984:Q1; 1998:Q4-2000:Q2; 2000:Q4-2001:Q2 and 2008:Q1-2012:Q1. These results highlight that while real house prices lead real GDP per capita in general (both during expansions and recessions), there are significant feedbacks from the real GDP per capita onto real house prices, especially during recessions.

Session A4


Mduduzi Biyase, Do South African households use remittances to smooth consumption? Evidence from the first two waves of the NIDS datasets Abstract: Many poor households particularly in developing countries experience substantial fluctuations in their income due to idiosyncratic shocks such as death or major illness to members of the households. Health shocks may induce consumption fluctuations if not insured. This paper investigates, using the National Income Dynamic dataset from South Africa, the effect of health shocks on consumption and the degree to which households use remittances to insure against health shocks. After correcting for reverse causality and fixed effects we found that households are insured against shocks and that they use remittances to smooth their consumption.

Dori Posel and Daniela Casale, Differences in subjective well-being within households: An analysis of married and cohabiting couples in South Africa Abstract: Intra-household differences in well-being typically are very difficult to identify using objective measures such as income or expenditure because of income-sharing within households. In contrast, subjective measures of well-being, such as overall life satisfaction or happiness, are more easily collected at the level of the individual. In this paper, we investigate differences in subjective well-being (life satisfaction) within the household using matched data on co-resident couples drawn from the 2008 National Income Dynamics Study for South Africa. The majority of men and women in co-resident partnerships report different levels of subjective well-being. We use ordered probit regressions first to explore the correlates of subjective well-being among women, and among men, who are married or cohabiting. We then estimate the predictors of within-couple differences in subjective well-being. Our results suggest that a number of correlates, related particularly to the roles and responsibilities of women and men in the household, differ by gender and also predict differences in life satisfaction within couples. For example, access to piped water on site increases the subjective well-being of women in comparison both to other married or cohabiting women and to a woman’s partner, but it does not account for differences in subjective well-being among men. In contrast, the presence of young children in the household lowers the subjective well-being of women, while it increases that of men. Furthermore, within couples, women's relative satisfaction falls with the presence of young children in the household.

Jean-pierre Geldenhuys, The Disability Grant, private transfers and household welfare in a panel of Free State households Abstract: Do public transfers to individuals crowd out private transfers to the households in which they reside? In many developing countries, private transfers to households represent a substantial source of household income, while many transfer-recipient households also qualify for social assistance. If private transfers to households are purely altruistic, rising household incomes brought about by social assistance will lead to lower private transfers to households (“crowding out”). In South Africa, many people living with HIV/AIDS (PLHIV) simultaneously qualify for a Disability Grant (DG) and free public sector anti-retroviral treatment (ART): those PLHIV who become seriously ill qualify for the DG (while possibly losing private transfers); those PLHIV receiving ART may become healthy enough to lose their DG (while possibly gaining private transfers). This paper considers the impact of DG receipt (and transitions in DG receipt) of a sample of Free State public sector ART patients on the composition of household income and household expenditure, as well as the effect that DG receipt/recipient transitions have on household (monetary) poverty and inequality (using Foster-Greer-Thorbecke (FGT) poverty measures, generalised entropy indices, and Oaxaca decompositions). The paper uses patient, individual and household panel data from three waves of the Effective AIDS Treatment and Support (FEATS) study, conducted between 2007 and 2010 in the Free State province of South Africa. Furthermore, multivariate (household) transfer and income/expenditure functions are estimated to determine if DG receipt/recipient transitions crowd out private transfers; the estimation methods used to estimate these functions include fixed and random effects panel data estimators (as well as FE and RE instrumental variable estimators). Finally, to account for possible non-linearities, threshold and spline regression methods are used to estimate the transfer functions separately for the second and third waves (only for DG receipt transitions) of the study.

Session A5


Reyno Seymore, Roula Inglesi-lotz and James Blignaut, A greenhouse gas emissions inventory for South Africa: A comparative analysis Abstract: An energy-based greenhouse gas (GHG) emissions inventory for South Africa for various years is presented, but most notably an estimate for 2008, in terms of industrial sectors using the energy balances of South Africa is given. This figure is estimated to be between 470 000 and 550 000Gg of CO2-equiv. with the higher number probably being a more realistic reflection. This information is compared to six other inventories to i) assess the robustness of the results presented, and ii) to comment on the stability of the inventories available. From this comparative analysis it is evident that major discrepancies exist among the inventories both in terms of scope (i.e. sectors and gas composites included) as well as method of estimation used. These differences hamper the efficacy of, among others, any economic modelling exercise related to carbon emissions, such as estimating the impact of carbon taxes on the country. It is therefore argued that a consistent, robust and replicable framework for estimating GHG emissions that would also render timeous results, should be adopted.

Waldo Krugell and Melville Saayman, Willingness to pay for a green event – evidence from the Wacky Wine Festival Abstract: Environmentally and socially responsible leisure activity has become a key issue in tourism development. Service providers are keen to promote their sustainability credentials and people are starting to pay for carbon offsets and “green” certified facilities. Studies of the mitigation of climate change, specifically of tourists’ willingness to pay for mitigation, have focussed on air travellers’ willingness to pay for carbon offsets, or tourists’ willingness to contribute to funds for the management and conservation of a particular natural resource. This paper takes the questions of tourism and the environment to a festival. In a survey at the Wacky Wine Festival 2013 we will ask visitors whether they are willing to pay more for their wine passports to support a community project planting trees in Robertson. One of the challenges of the contingent valuation method is that the payments are hypothetical and cheap talk is easy. To identify their willingness to pay we will offer random respondents a voucher which they can then use to buy wine, or which they can contribute to the project. The data collected in this way will be used to estimate a model of the predictors of willingness to pay for a green event. The question is, who will put our money where their mouths are?

Session A6
DSGE and


Y. Modeste Somé, A Dynamic General Equilibrium Analysis of the Term Structure Abstract: In this paper, I investigate the determinants of bond risk-premia using a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. The model features adjustment cost in capital and habit formation preferences with three shocks. The contributions of the model shocks to risk premia are analysed. The model is solved by perturbation method and the shocks are estimated by Simulated Method of Moments (SMM) using U.S. quarterly data. The implied second-order approximate solution delivers positive risk premia. Results suggest that when the capital stock is fixed, a higher habit formation parameter…significantly increases the risk premium. However when the capital stock is allowed to vary, increases in habit strength decrease risk premium. Moreover, monetary policy has a significant impact on interest rates premia. Especially, an aggressive monetary policy leads to decreases in risk premia. This is because fighting against inflation reduces inflation volatility and then decreases the ‡inflation risk premium. In terms of contribution of the three shocks in the benchmark model, preferences shocks contribute far more to the risk premiums followed by productivity shocks with a less important role for monetary policy shocks.

Rudi Steinbach, Optimal monetary policy in reaction to rising credit spreads: The case of South Africa Abstract: In the aftermath of the global financial crisis in 2008, central banks across the globe reduced their policy rates by unprecedented margins. At the same time, commercial banks increased their lending rates in order to protect their crisis-induced fragile balance sheets. To a large extent, these opposing reactions reduced the efficacy of monetary policy in accommodating the substantial decline in aggregate demand seen at the time. In this paper, a standard small open economy New Keynesian DSGE model of the South African economy is extended to incorporate lending rates of commercial banks which deviate from the policy rate in times of financial stress. Within the context of this structural model, the optimal reaction of the SARB to these lending rate deviations -- or credit spreads -- is analysed.

Vincent Dadam and Nicola Viegi, Monetary Policy in an Economy with High Unemployment Abstract: South Africa's unemployment rate has been around the 30 per cent mark for more than 20 years. This represents the single most important characteristics of the South African economy and the most pressing problem in policy making. Although there is a significant literature looking at the unemployment issue from the point of view of the functioning of the labour market, there is no attempt in the literature and in the policy making to evaluate what is the effect of high structural unemployment in the transmission mechanism of macroeconomic policies in general and monetary policy in particular. This paper aims at filling this gap in the literature. We estimate a New Keynesian DSGE model with unemployment of the South African economy and we evaluate how labour market structure affects the transmission of monetary policy. Simulations of the model show that the labour market tightness index appears crucial in the transmission of shocks. The more fluid is the labour market, the more volatile is unemployment in response to a productivity shock; on the other hand monetary policy shocks when structural unemployment is high has a very strong real effect but a muted nominal one, indicating that in this case monetary policy targeting only inflation will have to be more active to achieve the desired target and the higher the response in unemployment if its steady state value is high when we simulate a monetary shock. An optimal Taylor rule will require some targeting of unemployment fluctuations.

Session A7


Gerhardus van Zyl, The relative labour productivity contribution of different age-skill categories in the workplace Abstract: Orientation: The paper deals with the estimation, computation and interpretation of the relative productivity contributions of different age-skill categories in the workplace. Research purpose: The aim of the paper is to estimate and compute relative productivity contribution–employee remuneration cost levels for different age-skill categories. Motivation for the study: The research is deemed necessary given the current debate on relative productivity levels and possible changes to the retirement age in the South African labour market. Research design, approach and method: A less restrictive production function was used, allowing for the simultaneous estimation and final computation of relative labour contribution levels of different age-skill categories. Main findings: The lower-skilled segment produced significantly smaller productivity contributions and the relative productivity contribution–employee remuneration cost ratios of the 55 years and older age group were superior in the higher-skilled segment but at the same time the lowest in the lower-skilled segment. The results of this particular study is again a confirmation of (i) relative low productivity levels and relative high employee remuneration costs in the more unionised lower-skilled segment of the South African labour market, (ii) the absolute need to improve the productive skill base of the labour market and (iii) the need to maintain skilled employees (for all age groups) in the workplace.

Meghan Millea and Jon Rezek, Examining Pay Differentials Abstract: South Africa has implemented pro-active policies to address labour market outcomes for previously disadvantaged groups. Many researchers have examined the effectiveness of these policies from various perspectives. In this paper we use annual Labour Force Survey from 2000 and 2007 to examine returns to various worker attributes by applying the Blinder-Oaxaca wage decomposition. The results are compared across sex and race categories. Mincerian wage equations are first estimated using human capital attributes (age, education, and experience), job characteristics (occupation, industry, union status, formal/informal sector), and location which proxy for different economic conditions. The decomposition is then used to separate observed pay differentials into (1) differences in observed characteristics or attributes, (2) differences in returns to those attributes, and (3) unexplained differences. We find that pay differentials for males by race were largely a function of educational attainment and differences in the returns to education. Thus policy designed to alleviate pay differences among men should focus on educational attainment and school quality. These results contrast with the Blinder-Oaxaca decomposition of pay for women. Women, systematically, had higher educational attainment than men. However, differences in wages among women were still evident. Much of these differences were attributable to differences in occupations with black and coloured women being heavily concentrated in relatively low paid domestic and service occupations. Policy designed to reduce disparities among women, therefore likely requires further study of the cultural, social, and economic pressures that result in occupational crowding. Policy initiatives are needed to encourage the diversification of the occupational distribution of women.

Volker Schoer, Wage effects of social contact involvement at different stages of the job matching process. Abstract: Labour markets are characterised by imperfect information which make job matching of job seekers and firms a non-trivial and costly activity (Pissarides 2000). Firms’ choices of recruitment channels and job seekers’ search channels have to overcome two main problems: information dissemination and asymmetric information. Firms and job seekers face these two problems during the extensive margin and the intensive margin of their search. Search at the extensive margin allows both sides to gather information about possible options; while search at the intensive margin provides more detailed information on already identified options (Calvo-Armengol 2006). The ability of the search/ recruitment channels to overcome the information problems determines the matching quality which itself is reflected in the wage. While it has been shown that social contacts matter in the job matching process, their impact on wages remains unclear. Considerable efforts have been made in the theoretical and empirical literature to account for the often contradictory empirical findings (see Ioannides & Loury 2004 for discussion). Using data on young African workers in South Africa, this paper investigates the association between social contact involvement at the extensive and intensive margin of job matching and workers’ wages. Our findings obtained through a standard Mincerian wage regression as well as through PSM and an individual fixed effects model indicate a robust association of social contact involvement during the matching process with lower wages. However, the findings do not support the hypothesis that social contacts have an effect on wages via the quality of the match, but rather that the employer decides to use low cost channels to recruit for low paying jobs such as word-of-mouth recruitment.

Wednesday11:50 - 12:50Parallel Sessions B
Session B1
decision making


Frikkie Booysen, Sevias Guvuriro, Calvin Mudzingiri and Celeste Campher, The Who’s Who of Intra-Household Decision-Making in South African Households Abstract: Households on a daily basis take decisions with important implications for socio-economic development. The theories of intra-household decision-making include the unitary, collective and bargaining models. The National Income Dynamics Study (NIDS), a nationally representative South African panel survey, offers a unique perspective on the dynamics of intra-household decision-making. In the study, adults are asked to identify the main and, where relevant, joint decision maker in the household in respect to five decision-making spheres, including decisions on day-to-day household expenditure, the purchase of durable items, where children go to school, where the household lives and who joins the household. This paper provides a descriptive account of the nature of the decision-making process for each decision-making sphere. At the individual level, the paper draws a distinction between whether an adult is a decision maker or not as well as whether an adult is a main or joint decision maker or not involved in decision-making. At the household level, these data allow one to determine the extent to which decision-making is a joint, collaborative process, whether household members are in agreement or not as to who holds the decision maker power, and if household-level decision-making processes are characterised by centralisation or specialisation. Based on these empirical characterisations of intra-household decision-making, the paper proceeds to outline the socio-demographic and economic characteristics of individual decision makers and of households exhibiting particular types of decision-making processes. Together, these descriptive accounts provide an opportunity to explore the extent to which and the conditions under which decision-making in South African households reflect the broad characteristics of the unitary, collective and cooperative or non-cooperative bargaining models of intra-household decision-making.

Frikkie Booysen and Sevias Guvuriro, The Long and Winding Road: The State of Field Experiments on Intra-Household Decision-Making Abstract: The household is the locus of a number of important economic decisions, including decisions on household expenditure, savings and investment, and migration and household formation. To be effective, development and family policies that target poor and vulnerable households need to be informed by a proper empirical understanding of the well-documented theoretical complexities of intra-household decision-making. According to Harrison and List (2004), field experiments in methodological terms represent an important bridge between laboratory and observational studies, which are high on internal and external validity, respectively. Yet, only a handful of scientific publications report findings from field experiments on intra-household decision-making. The aim of the paper is to provide a bird’s eye view of the state of Experimental and Behavioural Economics research on intra-household decision-making. To this end, the paper has the following broad objectives: (1) to identify field experiments on intra-household decision-making; (2) to describe the key characteristics of each field experiment; (3) to classify each field experiment according to Harrison and List’s (2004) taxonomy of experimental study designs, based on each of the six factors defining the field context of experimental studies; (4) to determine whether and to what extent these field experiments investigate the importance of risk, time and social preferences to intra-household decision-making; (5) to summarise the empirical evidence on the relevance of risk, time and social preferences for intra-household decision-making; and (6) to put forward recommendations regarding avenues for further Experimental and Behavioural Economics research in this field of study.

Friedrich Kreuser, Do Family Bonds Bind? Testing the Unitary and Collective Models of Household Behaviour on South African Data Abstract: Where the household is used as the primary unit of account in economic analysis, it is usually assumed that either the household consists of one member or that a multi-person household behaves as though it is a single utility maximising individual. Against this unitary model of household behaviour, the collective model treats the household as a collection of utility maximising individuals, by only assuming that all household decisions have Pareto optimal outcomes. The following paper employs models proposed by Bourguignon, Browning and Chiappori (2009) and Bourguignon, Browning, Chiappori and Lechene (1993) in order to test these models on South African data. Standard Seemingly Unrelated Regression analysis is used to reject the unitary model. This conclusion is due to the rejection of both the income pooling hypothesis and the distribution factor independence assumption of household consumption functions. The collective model of household behaviour is tested by way of Non-Linear Seemingly Unrelated Regression analysis. The restriction of proportionality of distribution factors in household demand functions cannot be rejected. The collective model of household behaviour thus cannot be rejected for South African households. The results seem to be consistent for two person households in the National Income Dynamic Study of 2008 as well as the 1995 and 2005 Income and Expenditure Survey. To the knowledge available this is the first attempt at explicitly testing the unitary and collective models of household behaviour on South African data. The paper thus forms a starting point into what may be developed into better specified structural models of labour supply, poverty and intra-household welfare allocation.

Session B2


Max Gillman and Ruthira Naraidoo, Banking and Aggregate Risk in General Equilibrium Abstract: The current banking crisis has highlighted the fragility of the international finance system and the extent to which current system safeguards such as IMF action fall short. More specific, it has been argued by Christine Lagarde, head of the International Monetary Fund, that creating a single deposit guarantee system should be Europe's top priority, more important than getting government budgets under control. Envisioning a fuller banking security system leads naturally to the proposal for an international deposit insurance system based on risk-based premiums. In this paper we investigate the impact of aggregate risk in a simple general equilibrium model. We develop a closed economy model with financial intermediation that transfers goods across time and add the idea of banking and aggregate risk. The results show that when the bank productivity falls by a significant percent during an economic downturn, as in the 2007-2011 bank crisis,savings and investment both fall significantly. Here we show evidence of the comovement of savings and investment and the fall in savings and investment in the bank crisis period, together with the impact on the macroeconomy.

Haakon Kavli, Nicola Viegi and Shakill Hassan, Modelling the role of financial intermediaries in monetary policy and cross-border capital flows Abstract: The purpose of this paper is to deepen our understanding of the role of financial intermediaries in the monetary policy transmission mechanism and in determining cross-border capital flows. The paper will provide a review of recent critical developments in the theoretical modelling of financial intermediaries in this regard. The current literature adds great insights into the potential transmission mechanism caused by financial intermediaries that are funded by money market borrowing. These market based banks, it is argued, can actively manage their leverage in a pro-cyclical manner, and consequently contribute to the transmission of monetary policy to credit supply. Similarly, the literature shows that market based institutions will play an important role in transmitting monetary policy to cross-border capital flows. The paper then discusses these findings in light of the empirical observations in South Africa and other emerging economies. It will be argued that the South African experience does not closely resemble the predictions of the current literature and there is thus a case for a more suitable model to be developed. For example, we find that South African banks have a relatively stable and modest share of short term money market and foreign currency liabilities on their balance sheet. This conflicts with the current literature’s prediction of actively managed pro-cyclical leverage and cross-border funding. The paper investigates the reasons for the poor fit with the current theory, and sets up a partial equilibrium model that better incorporates the characteristics of the South African economy and thereby can replicate the observed stylized facts. The partial equilibrium model sets the stage for potential future research on building a fully-fledged general equilibrium model.

Session B3
Economics, art


Peter Baur, Economics And The Fine Art Environment Abstract: Since 2008, the world of investors, plagued by economic uncertainty and burdened with a radically changing consumer, has begun to reconsider the nature of investment. At the very heart of this world of investment lies a cultural paradigm, responsible for investment decisions. Where more traditional investments rely on returns from bonds, equities, hedge funds or portfolios, there has always been an interest into investment within the Fine Arts. However, Fine Art could be completely shrouded in cultural values and norms, and defining a suitable measure comes with its own set of intricacies and problems, both in terms of what should constitute Fine Art, and the subsequent current value and the future value of this defined Art. This paper examines the interaction of the economy and the investment into Fine Art. The concepts used are built upon the works of Kraeussl and Lee (2010), who uses a series of hedonic regressions to prove that there is a positive correlation between investment in Fine Art and the global equity index. By applying additional information constructed from the Citadel Art Price Index (2012), and selected variables from the South African economy, this paper will argue that there is a trend towards investment in Fine Art. However, factors such as acculturation, changing incomes and risk are explored closely in this paper.

Alan Collins and Jen Snowball, Transformation, job creation and subsidies to creative industries: Abstract: Many governments have tried to stimulate economic growth via policy on the creative industries. South Africa is no different, but has the additional aim of achieving social and labour market transformation in order to move away from the legacy of the apartheid era. The effectiveness of incentives provided to the film and television sector in South Africa are considered in terms of their stated objectives of job creation, skills and knowledge transfer and the attraction of foreign direct investment. Data on each project that received the subsidy and the subsidy amount was obtained from the Department of Trade and Industry from February 2008 to June 2012. Interviews with key industry informants were conducted in October 2012. The distribution of the subsidy payments to firms in the industry was considered via calculation of a percentage ‘subsidy concentration index’ for the top three, five and ten production companies in each year and over the three year period. Average sectoral GDP multipliers for the South African economy were obtained from the Industrial Development Corporation, to give some indication of the economic and employment impact of subsidized films. Findings showed that the South African film incentive programmes have been successful in stimulating the South African film industry in a number of spheres, particularly helping to attract large-budget foreign films and co-productions. The economic impact of subsidized films on the South African economy between 2009 and 2011 was, on average, R2.2 billion, with the creation of 15,500 full time equivalent direct and indirect jobs per year. However, although skills development is occurring through knowledge spill-overs from foreign and co-productions, as well as various internship and training programmes, transformation in the industry has been slow.

Session B4
Economics and


Tsangyao Chang, Roula Inglesi-lotz and Rangan Gupta, Research output versus economic growth nexus in the BRICS countries: panel data analysis Abstract: This paper examines the causal relationship between the economic growth and research output of the BRICS countries (i.e., Brazil, Russia, India, China, and South Africa) for the period 1981-2011. Essentially this study looks at the human quality demonstrated by the production of knowledge (published papers) and how it gets affected and influences the economic growth of these countries. The human quality is usually proxied in the human capital literature by the years of secondary school or by the Research and Development (R&D) expenditures to education. Here, research output is measured by the same standard for all countries, i.e. the research publications in ISI accredited journals relative to the world. This alternative captures better the results of human capital improvement through the mechanism of knowledge acquisition, taking into consideration the international changes in the research production. BRICS are the five fastest growing emerging economies that are grouped together in this study. Using panel causality analysis techniques, we account for cross-section dependency and heterogeneity among them. Moreover, appreciating the different economic and social backgrounds of these countries, we do also perform the causality test on an individual basis. Our empirical results support unidirectional causality running from research papers (in terms of total number of papers published) to economic growth for Russia; the opposite causality from economic growth to research papers published for South Africa; bi-directional causality between research papers (in terms of both total number of papers published and % world share) and economic growth for India; and no causality in any direction between research papers published and economic growth for Brazil and China. Our findings provide important policy implications for research policies and strategies for BRICS countries.

Johan Coetzee and Jesse de Beer, Financial literacy amongst students in South Africa Abstract: Financial literacy is currently very prominent on the policy agenda of regulators in both developed and developing countries and has gained prominence in the South African context especially after the announcement of the so-called “twin peaks model of financial regulation” that emphasises consumer protection (National Treasury, 2011). In developing countries such as South Africa, interest in financial literacy is motivated by “concerns with the perceived low level of financial capability; concerns with the low level of financial access or use; and the recognition that finance is a critical element for innovation and growth” (Holzmann, 2010:9). As noted by the OECD (2009), financial literacy is first and foremost about the empowerment of consumers to have adequate knowledge about financial matters that are relevant to their lives. This then presumably leads to improved financial wellbeing. Literature further suggests that those with higher levels of financial literacy are better able to manage their money, participate in the stock market and perform better on their portfolio choice Little. however, is known about the financial decisions and behaviours of students, especially in the South African context. Existing studies in South Africa focusing on financial literacy are limited to the adult population reflected by the OECD study of 2009 and the annual Finscope survey. These studies do however suffer from several limitations, including the sole reliance on self-reported knowledge and behaviour and challenges related to participants’ misunderstanding of financial terminology. Given these limitations, this study focuses specifically on the levels of financial literacy amongst South Africa students, similar to those conducted on US students. In particular, the study will be exploratory in nature and identify how South African students acquire the knowledge, skills, and attitudes necessary to make sound financial decisions.

Pierre de Villiers and Chris van Wyk, A longitudinal cohort analysis of Higher Education in South Africa Abstract: The primary focus of this study is the tracking of students through the Higher Education system of South Africa, using student unit-records of the Higher Education Management Information System (HEMIS). It is very difficult, if not impossible, to track students' progress as they flow through the system with the data that is readily available. Although data of students are collected, such student-level data, generally are not freely available or available in the right format. Longitudinal data coverage is a key requirement in order to facilitate the process to track the movement of students through the Higher Education System - longitudinal data coverage is a dataset that includes data gathered of the same student for different years. There is no consistent and integrated national data source that accurately shows data for each individual student of each Higher Education Institution for different years in the same dataset. Individual institutions also cannot count on their own data system alone to produce meaningful estimates of student progress and attainment, because students change institutions and drop out of the system, but may drop back into the system at a later stage (but not necessarily at the same institution). This study deals with two specific objectives: (a) To indicate the processes involved in creating a longitudinal student unit-record dataset. (b) Do a cohort analysis of Higher Education first year students for a particular cohort and following them over a period of 10 years determining how successful they were. With this longitudinal data coverage and cohort analysis method one can thus determine exactly how many students of a specific cohort dropped out without any qualification, how many graduated and how many are still in the system, but have not received any qualifications at all. The main findings of the cohort analysis will also be discussed.

Session B5


Dambala Gelo Kutela and Steve Koch, Welfare and Common Property Right Forestry:Evidence from Ethiopian Villages Abstract: In this study, the welfare effects associated with a unique common-property forestry programme in Ethiopia were examined. This programme is different from other programmes, because it is two-pronged: a Joint Forestry Management (JFM)is developed and combined with the provision of additional support for improved market linkages for non-timber forest products. The treatment effects analysis is based on matching, selection models and instrumental variable (IV) methods. Data for the analysis is taken from selected villages in Gimbo district, south-western Ethiopia. The programme was found to raise the welfare of the average program participant household by approximately 400 Ethiopian Birr, or 22.5% of total welfare, and that result was robust to various specifications. Overall, the results suggest that JFM, combined with improved non-timber forest product market linkages, offers one avenue for both rural development and environmental improvement.

Dambala Gelo Kutela, Steve Koch and Edwin Muchapondwa, Common Property Right Forestry and the Welfare Distribution: Evidence from Ethiopian Villages Abstract: The extant empirical literature aimed at the evaluation of the welfare effects of common property forestry institutions have focused on mean effects. We extend this literature by testing whether there is heterogeneity in the impact of common property forestry management interventions on the distribution of welfare. The analysis is based on quantile treatment effects (QTE) evaluation under random and non-random treatment assignment using household data from selected rural villages of Gimbo district, in south-western Ethiopia.The results confirm that the interventions affect outcomes differently across the welfare distribution. Specifically, the programme was found to raise median welfare, as well as the welfare of those above the median; those at the bottom of the distribution were not found to have benefitted from the programme. Thus, we infer that the current common property forestry management regime is not pro-poor, and, therefore, are not equity enhancing

Johane Dikgang, The economic valuation of dryland ecosystem services in the South African Kgalagadi area and implications for PES involving the Khomani San Abstract: The economic importance of the dryland ecosystem services in the Kgalagadi area is generally unknown, as is the distribution of benefits from use of the ecosystem services. This study seeks to value ecosystem services in the Kgalagadi area by applying the Choice Experiment technique and thereafter assess the potential for ecosystem services to contribute to the Khomani San livelihoods through a payment for ecosystem services (PES) scheme. The values placed on dryland ecosystem services by both tourists and indigenous communities are estimated using a Random Parameter Logit model, a Random Parameter Logit model with interactions and a Latent Class Model to account for heterogeneity in tastes. The results show that local communities would prefer getting increased grazing, firewood collection and hunting opportunities. The park visitors prefer getting more pristine recreational opportunities and show disapproval of granting more grazing opportunities to local communities. This scenario shows that there is a possibility to craft a PES scheme where park visitors could compensate the local communities to accept a restriction of resource use in the Kgalagadi area.

Session B6

Corne van Walbeek, Using government revenue data to determine changes in illicit trade in cigarettes in South Africa Abstract: The tobacco industry claims that there have been substantial increases in the illicit cigarette quantum in South Africa in the past decade, and that the illicit market currently comprises at least 25% of the total market. This paper does not try to estimate the size of the illicit market, but investigates whether the alleged increase in illicit sales has had a detrimental impact on government revenue. In particular, the paper considers deviations from budgeted excise revenue for tobacco and whether there has been a change in the trend of these deviations over time. In order to provide context, a comparative analysis is performed for beer and spirits. Like tobacco, both these alcoholic beverages are subject to a specific excise tax, which makes them good comparisons. Data was collected from Auditor-General reports and Budget Reviews, going back to 1910. The deviation is defined as the difference between budgeted and actual revenue, expressed as a percentage of budgeted revenue. Mean percentage errors (MPEs) and root mean square percentage errors (RMSPEs) are calculated for each of the three products for appropriate (often decadal) periods. Should there be a significant illicit trade problem, one would expect the MPEs to become significantly more negative, and the RMSPEs to become larger as Treasury officials find it more difficult to budget. The analysis found that the deviations from budgeted tobacco excise revenue in recent years have not displayed significant and unexplained irregular behaviour, and that the MPEs for tobacco are in fact smaller than those of beer and spirits. Similarly, the RMSPE for tobacco excise revenue is smaller than for beer and spirits. The overall conclusion is that there is no evidence to suggest that illicit trade in cigarettes have increased to the extent that it significantly undermines government revenue.

Yolande Jordaan and Niek Schoeman, An empirical dissemination of the Personal Income Tax regime in South Africa using a micro-simulation tax model Abstract: This article is primarily concerned with the profile of the tax liability of individual taxpayers in South Africa as well as the impact of various tax reform policies since the mid-nineties on the progressivity of their tax liability using a static micro-simulation tax model. Using the 2005/06 Income and Expenditure survey data from Statistics South Africa, the revenue base had to be determined and aligned to the official figures published by the South African Revenue Services and the National Treasury. This exercise required substantial manipulation of the data. The model allows for the dissemination of individual taxpayers by income groups, gender, educational level, age group, etc. Testing for progressivity, the results show that although still more progressive than most other tax structures world-wide, the level of skewness has marginally declined over the past few years with the share of those in the lower income groups gradually increasing. This phenomenon is also enhanced by relatively more taxpayers entering the tax net at this level. With the top marginal rates already at the current high levels little can be done at the higher end of the scale to expand the revenue base and therefore the solution lies in raising the contribution of those in the lower but especially the middle income groups. As far as gender is concerned, disparities in the labour market require an examination of tax policy that may contribute towards a more equal distribution of individual tax on a gender basis. The results also show that tax policy adjustments that contribute towards the improvement of the quality of education would also be a positive investment for future revenue collection.

Willem Boonzaaier, Using modern portfolio theory to derive an efficient frontier of the South African tax product mix Abstract: This paper will attempt to apply modern portfolio theory, a finance technique used to maximize the return on an investment portfolio for a given amount of risk, to the current South African tax revenue mix. It is recognized that policymakers typically consider some combination of fairness, efficiency and stability when designing tax policy, which then ultimately impacts on the proportion of each tax product to the overall tax revenue stream. The rationale behind mean-variance optimization from a tax revenue perspective therefore is to derive a set of tax product combinations that would illustrate the trade-offs faced by the policymaker given a set of characteristics of each tax product such as the historical growth rate and dispersion as well as other desirable characteristics such as fairness and equity. The ‘optimal combination’ of tax products would be determined by the preferences of the policymaker, which in this paper will remain unspecified. This approach could serve as an alternative to the literature relating to optimal taxation, and apart from being less data intensive also provides greater scope to improve collection stability in the tax system.

Session B7

Andrew Kerr, Martin Wittenberg and Jairo Arrow, Job Creation and Destruction in South Africa Abstract: Analysts of the South African labour market have predominantly used household surveys to analyse the labour market. It has been more difficult to explore labour demand on the firm side, as a result of limited data availability. We use the Quarterly Employment Survey, an enterprise survey conducted by Statistics South Africa, to explore how South African firms create and destroy jobs, shedding light on many of the policy questions that are relevant in a high unemployment society like South Africa. We find job creation and destruction rates are similar to those found in OECD countries. There is little evidence that labour legislation creates rigidities that prevent firms from hiring or firing workers. We also find that larger firms are better net creators of jobs than small firms and that net job creation rates are negative in manufacturing. Our research has important policy implications- particularly for the South African National Planning Commission's suggestion that new jobs will come mainly from small and medium sized firms. Our research suggests this is not likely without changes to policy or legislation.

Frederick Fourie, The NDP and Unemployment: On Consistency, Coherence and Comprehensiveness Abstract: This paper critically evaluates the National Development Plan (NDP) against the backdrop of prior government initiatives such as the Medium Term Strategic Framework (MTSF) of 2009 and the New Growth Path (NGP) of 2010 and how they deal with the unemployment problem and economic growth. It asks, first, how the NDP and the other plans deal with poverty and the access of poor people to economic opportunities and labour markets (2nd economy / informal economy / inclusive growth). The analysis demonstrates that there has been a definite shift/drift in the economic policy approach from the MTSF to the NGP to the NDP with regard to the pursuit of growth and the inclusivity of growth. Secondly, it asks to which extent the NDP chapter on the economy (chapter 3: ‘Economy and Employment’) is comprehensive and consistent with other chapters. It does so by analyzing chapter 3 and relevant other chapters with regard to sectoral dimensions, the informal economy, the rural economy, social protection, public works programmes, spatial dimensions and human settlements, and so forth – and then evaluating the extent to which their analytical frameworks and approaches, employment projections and scenarios, growth models, etc. are consistent. The author identifies several inconsistencies between chapter 3 and the other chapters, notably with regard to unemployment and poverty. If these inconsistencies are not ironed out, it is unlikely that sufficient policy co-ordination and coherent implementation of the NDP will be possible.

Ayanda Hlatshwayo, Where have all the small firm jobs gone Abstract: The NDP emphasises the role of small firms in future job creation. In order to better understand whether this is a viable strategy this paper considers three aspects of small firm employment over the past 10 years. First, it documents the share of employment in small firms as reported in the LFS and QLFS between 2000 and 2010. This data suggests that the share of small firm employment is shrinking over this period. Second, the paper examines whether the characteristics of those employed in small firms have changed. This is done using the labour force data for 2000, 2005 and 2010. Using a probit estimator the results indicate that Africans, females, young workers and workers with lower than a matric qualification are more likely to work in small firms. They also show that larger firms pay higher wages compared to small firms although the wage gradient is becoming flatter. Thirdly, a dataset of firms is constructed based on the first two waves of the World Bank’s ICA surveys and a third round undertaken in 2011. This data set does not confirm the declining share of small firm employment but it does not take into account firm entry and exit, so the contribution of smaller firms may be overstated. However there is some indication that small firms are less likely to remain in the panel compared to medium and large firms. Taken together these results suggest that declining small firm employment may be explained by the flattening wage gradient. Small firms that employ people at the lower end of the wage distribution are exiting, or these firms are shedding these types of low paying jobs.

Wednesday12:50 - 14:00
EBW Building
Wednesday14:00 - 15:20Parallel Sessions C
Session C1


Grieve Chelwa, The crowding-out effect of tobacco consumption in Zambia: Evidence from the Living Conditions Monitoring Survey Abstract: Tobacco consumption is widely recognised as a leading cause of preventable death globally. In addition to direct mortality and morbidity costs, tobacco use has been shown to crowd-out the consumption of other goods and services especially among income constrained households (John, 2008;Koch and Tshiswaka-Kashalala,2008; Block and Webb, 2009). Goods and services likely to be affected by household expenditure on tobacco include food, healthcare, education, clothing and transportation among others. This paper formally tests the crowding-out hypothesis in Zambia using data from the Living Conditions Monitoring Survey (LCMS). In the absence of price data, we estimate Engel curves using the Quadratic Almost Ideal Demand System (QUAIDS) developed by Banks, Blundell and Lewbel (1997). The QUAIDS allows for goods to be luxuries at some levels of income and necessities at others by incorporating a squared income term on the right-hand side thereby approximating reality to a great extent. We use instrumental variables techniques to control for the likely endogeneity between tobacco expenditures on the right-hand side and expenditure shares on other goods and services on the left-hand side of our Engel curves. Our estimation technique also controls for possible preference heterogeneity since households reporting zero expenditure on tobacco might be doing so because of pure absention or corner solutions.

Nicole Vellios, The determinants of smoking initiation in South Africa Abstract: This paper investigates the individual and household variables that influence the decision to start smoking. The data was drawn from wave 1 of the National Income Dynamics Study of 2008 and was tested using survival analysis. The NIDS survey is a nationally representative survey of 7301 households in South Africa. Based on the international literature and the constraints of the NIDS survey, the following potential determinants of smoking onset were investigated: age, gender, population group, price of cigarettes, geographic location (urban/rural), socio-economic status of parents, whether the respondent’s mother was alive when the respondent was aged 15 or not, literacy, parents’ smoking behaviour, respondent’s alcohol consumption and tobacco control legislation. Smoking initiation in South Africa takes place in the late teenage years and early twenties. Smoking initiation amongst males is much higher than among females. For both males and females, the probability of starting smoking is highest amongst the Coloured population. African females have a very low uptake of smoking. Males are more responsive to price changes than females. Depending on the specification, a R1 increase in the price of cigarettes reduces the risk of smoking onset by between 1.1% and 2.8% for males. For females the impact of price on smoking initiation is insignificant. Males and females who have a parent who smokes are more likely to initiate smoking. Females whose mother died before the respondent was aged 15 are more likely to start smoking. The same effect was not found for males. Male and female respondents who currently drink alcohol one or more times a week were more likely to initiate smoking. The policy impact of this study is that an increase in the price of cigarettes will decrease smoking initiation, especially amongst males.

Joseph Oscar Akotey and Charles Adjasi, Microfinance Services and Household Welfare: Evidence from Ghana and South Africa Abstract: This paper examines the link between microfinance services and household welfare in Ghana and South Africa. Micro financial services improve household welfare through income and consumption smoothing, assets accumulation and women empowerment. This has facilitated the growth of its customers in developing countries from 16.5 million in 1997 to 154.8 million clients in 2007 representing 838.2% growth (Daley-Harris, 2009). Although, micro financial services have a lot of potential for extending markets, increasing welfare and fostering socio-economic change, they present a number of puzzles, many of which have not yet been resolved conclusively (Armendariz and Morduch, 2010). In particular the available empirical evidence of their impact on households’ welfare has been inconclusive and controversial. Whereas one group of researchers (eg. Schuler et al., 1997; Pitt and Khandker, 1996) provide evidence of the beneficial socio-economic impact, others such as Adams and Von Pischke (1992) and Rogaly (1996) indicate otherwise. Most studies either ignore or do not combine micro-insurance with the other micro financial services in their examination of the link between microfinance and household welfare. However the welfare effect of microfinance lies more in combining all three main pillars of microfinance namely: micro-savings, micro-credit and micro-insurance. This study seeks to address this gap and to make a significant contribution to the literature in this field and most importantly to re-focus policy directions on microfinance. The critical question asked is microfinance more welfare enhancing when based on all three pillars? Data for the study will be obtained from the FINSCOPE database (2003, 2004 & 2010), a comprehensive and unique emerging survey on household access to financial services in Africa. A pseudo-panel probit model as well as an IV based model will be utilized to ascertain the effect of microfinance services on household welfare.

Steven Gordon, Benjamin Roberts and Jarè Struwig, Measuring Financial Literacy in Post-Apartheid South Africa: A Quantitative Examination of a Multi-Dimensional Concept Abstract: The global economic downturn, coupled with rising consumer prices, indebtedness and persisting unemployment, has meant hard times for many South Africans. Recognition of this has prompted interest in financial education and scientific interest in measuring financial literacy in the country. The purpose of this study is to report on research on the measurement of financial literacy that was commissioned by the Financial Services Board as a basis for identifying vulnerable groups that would most benefit from financial education programmes. The study uses data from the nationally representative Financial Literacy Baseline Survey conducted in 2011 by the Human Science Research Council, consisting of 3,057 respondents older than 15 years. The survey adopted the Economic Co-operation and Development International Network on Financial Education approach of assessing four dimensions of financial capability: financial control, financial planning, appropriate product choice, and financial knowledge and understanding. Multivariate modelling is employed to examine the socio-demographic correlates of these components of financial literacy. The results indicate that a sizeable proportion of the population lacks knowledge of basic financial concepts and is under strain to maintain financial commitments. Regression modelling reveals that economic status and educational attainment are strong predictors across all domains. Age also emerges as a strong determinant of financial literacy, with significant generational differences present. The study highlights the need for the forthcoming national consumer financial education strategy to establish a set of differentiated and adaptive interventions that will incrementally promote financial inclusion and improve awareness of financial products and services for vulnerable groups. It is further argued that periodic, multidimensional evaluations of financial literacy are required in order to identify target groups and their changing needs, as well as monitor the cumulative effect of interventions directed at producing a more financial capable citizenry.

Session C2
economics and
interest rates


Rudi Steinbach, A structural decomposition of the South African yield curve Abstract: This paper extends the existing body of South African literature on the yield curve in four respects: Firstly, the macroeconomic shocks that have contributed to developments in the yield curve during the inflation targeting regime of the South African Reserve Bank is analysed within the context of a structural New Keynesian DSGE model. Secondly, the yield spread is decomposed into two subcomponents: the expected spread and the term premium. Moreover, whereas the literature to date has studied the predictive power of the aggregate yield spread with respect to economic activity, this paper goes further by distinguishing between the individual predictive ability of its subcomponents, i.e. the expected spread and the term premium. Finally, the model's ability to forecast South African 10-year government bond yields is evaluated against the accuracy of professional forecasters as polled by Reuters.

Marina Marinkov, Shaista Amod and Michael Kock, The Yield Curve and Macroeconomic Dynamics in South Africa: A Latent Factor Approach Abstract: The interaction between macroeconomic variables and the yield curve is widely recognised. The short end of the yield curve moves closely with the policy rate where the latter responds to changes in inflation, economic growth and other economic factors. In South Africa, a number of studies show that the yield curve is a good predictor of the business cycle, and there is also some evidence that it contains information about inflation expectations in South Africa. This paper describes the shape of the yield curve in South Africa by estimating its level, slope and curvature factors using the Nelson-Siegel decomposition, and hence captures the term structure more comprehensively than a single spread. These factors are then used together with macroeconomic variables in a vector autoregression (VAR) system that allows for testable hypotheses about the relationship between the term structure and macroeconomic dynamics. Macroeconomic variables under consideration include economic growth, inflation, monetary policy and fiscal policy variables, with the latter allowing for examination of the effects of fiscal policy on the yield curve in South Africa.

Dawid Johannes van Lill, The Decoupling Principle Abstract: The liquidity effect refers to the causal connection between the central bank’s balance sheet and the policy interest rate, with adjustments in bank reserves used to implement interest rate changes. New operational procedures at central banks, notably the corridor and floor interest rate systems, seem to have undermined the connection between reserves and interest rates. Under these operating procedures interest is paid on bank deposits and serves as a binding floor to the policy rate. Once this floor is reached various levels of bank reserves can exist for a given interest rate. This is known as the decoupling principle. According to the decoupling principle central banks with such operating procedures have divorced the central bank’s balance sheet from its interest rate policy and are able to control these policy instruments independently. This paper investigates the empirical evidence for the decoupling principle. To that end the paper investigates the relationship between the balance sheets and interest rates of several countries that have implemented these interest rate corridors/floors. Firstly, a moving window regression will provide evidence of the changing nature of the liquidity effect over time. Secondly, an identified VAR will be used to determine the effect of a shock to the level of reserves on the relevant policy rate for different sub-samples.

Meshach Aziakpono and Deodat Adenutsi, Inflation Targeting Monetary Policy Framework, Volatility and Interest Rate Pass-Through: International Evidence Abstract: With closed to 30 countries adopting inflation targeting as their monetary policy framework in the last two decades following the initial adoption by New Zealand in March 1990, it is evident that inflation targeting is becoming an increasingly popular monetary policy framework among economies around the world. One argument in favour of inflation targeting is that it increases the transparency of monetary policy which, in turn, reduces the volatility of interest rates and changes in inflation rates and improves the effectiveness of monetary policy transmission. An opposing view would argue that by increasing transparency, inflation targeting could lead to more volatile interest rates and as such reduce the efficiency of monetary policy transmission. In this paper, based on country specific analysis of 19 countries where data is available for countries that have adopted inflation targeting framework for at least five years until 2010, we investigate these propositions. Our results show that for the majority of the countries, adoption of inflation targeting led to a reduction in interest rates and inflation volatility with an improvement in monetary policy transmission for many of them. On the other hand, for few of the countries, the evidence suggests that inflation targeting increases the volatility of interest rates and inflation rates. The study further highlights the possible prevailing conditions that led to the observed outcomes and propose appropriate policy recommendations.

Session C3


Francois van Dyk and Gary van Vuuren, Hedge fund performance evaluation using the Sharpe and Omega ratios Abstract: The Sharpe ratio is widely used as a performance measure for evaluating the performance of traditional (i.e. long only) funds as well as more complex investment styles such as private equity and hedge funds. However, the Sharpe ratio is not the ideal measure for the latter, which are characterised by complex, asymmetric, highly-skewed return distributions. The Sharpe ratio is based upon mean-variance theory, which does not capture all risks because it only considers the first two moments of a distribution, while the hedge fund universe is sensitive to several of the higher distributional moments as well. The Sharpe ratio is also susceptible to manipulation and estimation error. These drawbacks of the most popular (traditional) risk-adjusted performance measure, the Sharpe ratio, have demonstrated the need for replacement measures, or, in some cases, additional measures of fund performance. This study assesses whether the Omega ratio should augment the use of the Sharpe Ratio when evaluating hedge fund risk and in the investment decision-making process for these funds. Over the period January 2000 to December 2011 the monthly returns of 184 international long/short (equity) hedge funds with geographical investment mandates spanning North America, Europe, Asia and the globe are examined. The Omega and Sharpe ratios are estimated by means of a rolling window analysis method to determine whether the Omega ratio provides useful additional information to investors when this information is considered in conjunction with the information provided by the Sharpe ratio. In addition, an alternative method that accounts for serial return correlation is used to evaluate the Sharpe ratio. This alternative method is non-naïve as standard techniques for annualising Sharpe ratios based on monthly estimators do not account for these effects.

Manoel Bittencourt, Rangan Gupta and Lardo Stander, Tax evasion, financial development and inflation: theory and empirical evidence Abstract: Using a standard overlapping generations monetary production economy, faced with endogenously determined tax evasion by heterogeneous agents in the economy, we provide a theoretical model that indicates that both a lower (higher) level of financial development and a higher (lower) level of inflation leads to a bigger (smaller) shadow economy. These findings are empirically tested within a panel econometric framework, using data collected for 150 countries over the period 1980-2009 to enable a broad generalisation of the results. The results support the developed theoretical model, even after having accounted for the differences in the levels of economic development, the level of institutional quality that includes different tax regimes and regulatory frameworks, central bank participation in the economy as well as different macroeconomic policies.

Christine Mitter, Andrea Weidinger and Johan Coetzee, The management of distressed loans: evidence from Austrian banks Abstract: Austria is characterized by a bank-based financial system with bank loans the dominant source of financing for Austrian companies. Although loan defaults are intrinsically tied to bank lending, non- and sub-performing loans (NPLs and SPLs) are becoming more unattractive for banks as a result of the economic crisis, Basel II and Basel III. Apart from write-offs that impair the bank’s profit and balance sheet as well as personnel and other resources tied to the workout process, distressed loans require much higher equity requirements than performing loans and therefore put severe constrains on the bank’s lending capacity. As a consequence, banks have to develop efficient strategies to deal with their distressed loans. As a result, this paper attempts to identify which strategies Austrian banks use to manage their non- and sub-performing loans. Further to this, the study attempts to find out whether or not there are any differences in the strategies depending on the different type of bank. Drawing on twelve in-depth interviews with workout specialists of different Austrian banks, the analysis reveals that all banks consider the internal workout the preferred strategy for dealing with distressed loans. While international banks transfer the sub- or non-performing account to the bank’s specialized workout unit and make use of loan sales, regional banks seem to be more concerned about the firm-bank relationship. They involve the firm’s personal banker in the workout process and rarely sell the distressed loan. Cooperation with other banks in the form of “bank pools” appears to be an effective strategy to reduce the bank’s NPL and SPL ratio, to thus gain higher recovery rates. This strategy, however, was found to be more important for large banks.

Nyankomo Marwa and Meshach Aziakpono, Technical and Scale Efficiency in Savings and Credit Cooperatives: Evidence from Tanzania Abstract: Microfinance institutions including saving and credit cooperatives play a significant role in offering financial services in the bottom of the pyramid. For most developing countries these group constitutes about 80% of the population. In Tanzania the growth in saving and credit cooperatives (SACCOs) has been unprecedented. To be specific, in the past decade SACCOs have grown by 565%, 585% and 1781% in numbers, memberships and savings respectively. Despite such impressive growth rates, the fact that these institutions operates in a relatively high risk and low cost of loan recovery segment of the financial markets warrants a rigorous scrutiny of their performance. Surprisingly, there is no study which has been done on the topic in Tanzania and there is systematic literature dearth on Sub-Saharan Africa. To address the existing knowledge gap, this study uses both parametric and non-parametric methods in estimating the technical and scale efficiency in SACCOs. Specifically, stochastic frontier analysis (SFA) and data envelope analysis (DEA) approaches will be used to test the robustness of the findings. The results from this study will provide a better understanding of the status quo in terms of technical and scale efficiency and provide evidence-based inputs for informed policy dialogue and decision making in microfinance sectors. Furthermore, the findings shall provide further insights into the development of long-term policy and management strategy for SACCOs in the country.

Session C4
Shipping and


Jack Alban Dyer, Creating the Ultimate Instrument for Customs Modernisation in the 21st Century Abstract: In order to modernise global customs for the twenty first century, this paper will outline a World Customs Organisation Economic Competitive Package Protocol as the ultimate instrument containing the essential elements for customs modernisation in the 21st century incorporating and prioritising global standards to improve economic competitiveness and sustainability through trade facilitation policy instruments and transit efficiency. Additionally, it will incorporate measures such as the CT–PACT seal requirements to ensure the securitisation of the international supply chain management system against potential risks. The establishment of these objectives will include recommendations advanced by global standards of existing conventions [including the Revised Kyoto (abbreviated to RKC throughout)], Johannesburg and Nairobi Convention, the Security and Facilitation in a Global Environment Framework of Standards (abbreviated to SAFE throughout), the Arusha Declaration, Integrated Supply Chain Management (ISCM) Guidelines and Convention on Facilitation of International Maritime Traffic (FAL). These will be assessed and prioritised in order of significance for the new Protocol in order to address the main challenges of customs simultaneously facilitating trade, while ensuring global security through adequate risk assessment.

Sanele Gumede and Mihalis Chasomeris, Assessing Stakeholders Perspectives on Maritime Port Pricing in South Africa Abstract: The South African government has recognised the importance to promote efficient and effective transport as well as the strategic role of maritime ports in the logistics chain. This study critically assesses stakeholders’ perspectives on maritime port pricing in South Africa. More specifically, the study analyses the annual Transnet National Ports Authority (TNPA) tariff application, the stakeholders’ submissions, as well as the Ports Regulator’s record of decision for 2010/11, 2011/12 and 2012/13 tariff years. The study uses content analysis to analyse the three TNPA tariff applications, 48 stakeholders’ comments/submissions and three Ports Regulator’s record of decision. The study gathers data on port pricing from 1999 to 2012 and uses descriptive statistics to analyses the trends in port pricing. The stakeholders’ perspectives are contrasted and compared with the three port doctrines identified in the literature, namely, the Anglo-Saxon, the European and the Asian doctrine. The findings show that the ports are financed and managed using a mix of elements from the European and Asian doctrines, whereas the pricing methodology appears to be following the Anglo-Saxon doctrine. Furthermore, South Africa’s complementary system of ports and uniform pricing policy is distinct. The content analysis found the following issues: ports stakeholders criticise TNPA for abusing its monopoly power; hindering global competitiveness; not taking into cognisance the state of the country’s economy; charging prices which are higher than inflation; creating an environment which does not support job creation; being inconsistent and non-compliant with the national policies; not applying cost-based pricing principles; not having a justifiable pricing methodology; low productivity and inefficiency; inconsistent and unreasonable pricing of products; poor service delivery and port security. South Africa needs to develop a port doctrine that would be consistent with the country’s vision and policies.

Sophia du Plessis, Ada Jansen and Krige Siebrits, Money well spent? Assessing the effectiveness of expenditure on road accident prevention programmes in South Africa Abstract: Road traffic injuries and fatalities and the promotion of road safety are important policy issues worldwide, in part because road accidents are such a big contributor to injury mortality. South Africa’s road traffic injury fatality rate is 33.2 per 100 000 of the population, which is much higher than the World Health Organisation’s estimate for all middle income countries of 19.5. From April 2010 to March 2011, 13 800 people lost their lives in South Africa in 10 800 road accidents. The reality that the road traffic fatality rate in South Africa is higher than the averages for all regions reported by the World Health Organisation suggests that the issue of road safety requires more study. The current policy framework includes formal institutions (traffic laws and enforcement, e.g. AARTO) and informal institutions (campaigns to influence road user behaviour, e.g. the Arrive Alive campaign). This paper investigates the cost-effectiveness of these policy interventions. We approach the issue by determining the number of road accidents they should prevent in order to warrant their cost. Using estimates of the unit costs of traffic accidents published by the National Department of Transport, we determine the average cost of a road fatality over a period of five years. Programme expenditures are then divided by this cost to establish how many road fatalities cost-effective interventions should have prevented. Since we lack a counterfactual, we use the number of road accidents and trends in this aggregate to interpret the results. We also use insights from the literature on the relationship between formal and informal institutions to comment on the effectiveness of the interventions and suggest policy recommendations.

Jack Alban Dyer, The Global Future of Shipping Abstract: The purpose of this paper is to assess the market outlook and prospects for both the dry-bulk and liner/container markets in terms of freight and charter rates; using empirical data to address the following in an attempt to assess the future of the international sea transport industry given the impact of the recent recession: (1) The recent behaviour of and prospects for the level of demand for sea transport capacity; (2) Supply prospects, across appropriate vessel types including demolition, scrappage; newbuilding and second hand prices/ markets. (3) The unfolding demand/supply balance (identifying current/recent market circumstances; (4) rates prospects for 2013 and beyond; and therefore ultimately (5) The view of overall profitability and sustainable recovery prospects in the respective markets, including the impact of environmental and legal regulations; the increased risk of piracy; decreased availability of shipping finance; and the rise in insurance and other costs

Session C5
The environment
and economic


Moses Herbert Lubinga, The impact of climate change on Uganda’s international trade flows: Evidence from weather anomalies Abstract: Unquestionably, climate scientists divulge that the Earth’s climate will change at a unique rate over the 21st century, thus envisioning global warming. Succinctly, it is postulated that African countries largely reliant on the agricultural sector seem to be predominantly vulnerable to this phenomenon. Hastening climatic changes are noted to influence migration (hence urbanisation in agricultural dependant economies), natural adversities like floods, pest and disease infestations, droughts, mass movements, and a rise in sea level among others. Some research has evaluated the impact of climate change on migration and economic growth, but no empirical study has examined the effects of climate change (proxied by temperature and precipitation anomalies) on international trade. This study therefore examines the impact of climate change on Uganda’s trade flows with six major trade partners. While using weather anomalies (temperature and precipitation) to proxy climate change, the study explores panel data methods basing on secondary data traversing from 1970 to 2000. The study uses the Feasible Generalised Least Squares (FGLS) estimator to run an augmented gravity model. Empirical results reveal that climate change exhibits negative effects on Uganda’s bilateral trade flows, particularly through its influence on the agricultural sector and through temperature fluctuations in the export markets. Conclusively, climate change has deterring effects on Uganda’s trade flows. Policy wise, it is prudent to invest in advanced agricultural technologies, such as developing tropical crop varieties and animal breeds that are tolerant to extreme climatic conditions. This is very vital in ensuring sustainable bilateral trade flows.

Alan Collins, Gavin Fraser and Jen Snowball, Could a Regulated Market Approach for Rhinoceros Horns Work in South Africa? Some Practical Issues and Concerns Abstract: One of the proposals for fighting rhinoceros poaching is to legalise the trade in rhino horn and adopt a regulated market approach (RMA), which would require a vote at the 2016 CITES meeting in order to overturn the ban on the trade in rhino horn. The legal trade in rhino horn would enable the auctioning of stockpiles of horn and encourage captive breeding programmes. The aim of increasing the supply of horn is to reduce incentives to poach by driving down the price. This paper uses a conceptual/theoretical approach to consider the practical implications of the adoption of an RMA, drawing on demand, supply and production theory. The intention is explicitly to set out some practical concerns and issues that seem to have been underplayed or neglected in most published economic discourse on the subject. To secure a stockpile for some species needs biological success in captive breeding programs (CBPs) but this varies across species and habitats. Rhinoceros herds in a CBP would need relatively spatially extensive terrain and costly permanent security measures, and only appear feasible for the less aggressive “white” rhino. Thus, market price would actually need to be sustained at a high level to cover the start-up and security costs of such a programme that are unlikely to fall significantly. This is a double-edged sword in that the persistent high price of rhino horn provides an incentive for continued poaching activities. Supplementary policy measures that differentiate among consumer groups may also prove necessary.

Nicholas Kilimani, Water Resource Accounts for Uganda Abstract: According to the OECD (2008), over half of the world’s population will be living under water scarcity by 2030. This is likely to have implications for the global economy. In Uganda, the increased variability in rainfall patterns has become a major development policy challenge because of their effects on the economy. For example, a key but climate-sensitive sector like agriculture is increasingly experiencing severe disruptions as a result of its reliance on unpredictable rainfall. Recent studies (see FEWSNET 2012) indicate a seemingly decreasing trend in the number of rainy days during the crucial months of crop growth. This makes rain-fed agricultural activity to be susceptible to the effects of this increasingly unreliable rainfall pattern. This calls for the need to develop and expand reliable alternative sources of water for economic activity in the country. However, these unpredictable rainfall-related challenges are occurring amidst the fact that Uganda is endowed with fresh water resources. Hence, we need to clearly understand the available supply of water resources and the level of utilization by the different sectors of the economy. This can only be achieved through having a developed water resources accounting framework. However, no developed water resource accounts exist for the Ugandan economy. Hence the objective of this study was to develop a national water resource accounting framework for the Ugandan economy. The study used the System of Environmental and Economic Accounting for Water (SEEAW) procedure in developing the water resource accounts for Uganda. The data shows evidence of under-utilization of the available water resources. The under-utilization is present across all productive sectors of the economy. Therefore, expansion of reliable water supply to the key sectors of the economy could mitigate the adverse effects of this increasingly variable rainfall on the economy.

Session C6

Mokgadi Maleka, The Measurement of poverty and income inequality in the poor areas of Soweto Abstract: Defining poverty, how it could be measured and alleviated have always been contested issues. Over the decades, different authors have proposed different definitions and measurement that have been applauded for a while before being discarded as inadequate (Nyasula, 2010). That is because there are many difficulties inherent in defining and measuring poverty (Townsend, 2004). Poverty is multi-dimensional and cannot be reduced to a single definition (Townsend, 2004). Some researchers, especially in developing countries, have attempted to broaden the concept of poverty to include aspects of wellbeing and inequality which reflect the experience of being poor more realistically (Davids, 2006). There are different views on how poverty should be defined. Some scholars or writers have tended to favour social definitions while others prefer statistical or political definitions (Townsend, 2004). However defined, there is consensus amongst researchers or scholars that the definition is assigned to poverty forms the basis on which intervention is drawn (Ife and Tesoriero, 2006). For instance a political definition necessitates political interventions to deal with poverty. Similarly, economic definitions inevitably lead to economic interventions. In recent years, it has come to the realisation of the donor community that while billions of dollars have been spent on social welfare programmes in developing countries, poverty continues to increase. The aim of this paper is to use data collected in 2008 to determine the level of households’ income and to measure the level of poverty on the sampled population in the poor areas of Soweto. This is an empirical study of 951 households with a survey population of 4532 people. Lorenz curve and quintiles will be used to measure the impact of social security in reducing the level of poverty and income inequality of the sampled population.

Dorrit Posel and Michael Rogan, Measured as poor versus feeling poor: Comparing objective and subjective poverty rates in South Africa Abstract: In this paper, we investigate subjective measures of poverty in South Africa based on data collected in the 2008/2009 Living Conditions Survey (LCS). In addition to collecting detailed information on income and expenditure, the LCS asked respondents to provide an assessment of the economic status of their household, ranging from 'very poor' to 'wealthy'. When we compare subjective measures of poverty with objective measures based on average per capita household expenditure, we find only a partial correlation between the groups of households which each measure identifies as poor. We then use descriptive and regression analysis to explore what can be learnt about objective poverty measures when subjective and objective measures do not overlap. Two key findings are that among households measured as objectively poor, the probability that they are also self-assessed as poor decreases significantly with household size and with the share of children in the household. One consistent explanation for these findings is that per capita expenditure poverty measures overstate the extent of poverty in larger households and in households which include relatively more children.

Ling Ting, Savings and Poverty: Is there really a link? Abstract: Poverty is one of the main concerns in developing economies. At the macroeconomic level, the cost to government as well as society is heavy while at the household level the cost to the individual’s present and future is entrenching. A potential factor that moves individuals out of poverty and the poverty trap is that of savings or a build-up of assets. The notion that money that is put aside and consumed during times of need especially amongst the poor as a survival strategy illustrates an important feature savings can have for the poor. Investigating the link between savings and poverty in a developing country such as South Africa is therefore the objective of this study. Although savings were diagnosed as a factor that can move those in poverty out of poverty, this factor has been under-investigated due to the assumed role that it plays in South Africa. The study therefore employs the methodology of the random effects Probit regression analysis as well as the mobility matrix to analyse the impact savings have on poverty. Results suggest that savings and poverty have a significant and negative relationship implying that those who save are more likely to move out of poverty while those who do not remain in poverty.

Ferdi Botha, Mirror, mirror on the wall, which is the best African society of them all? Abstract: Though many indicators of quality of life exist, such measures are often aimed at the individual rather than at the societal level. Given the broad nature of the quality of life concept and a need to focus on the well-being of whole societies as well, the Good Society Framework (GSF) provides a foundation on which to build a multidimensional index of the quality of life within and across countries. The GSF provides a frame of reference indicating a range of qualities that a good society might have, and as such is relatively flexible in the choice of indicators. Despite a substantial body of literature on quality of life and well-being, very few studies have examined societal well-being, and none have focused on the overall quality of African countries. Using the GSF, this paper is the first to construct a Good Society Index (GSI) for African countries, termed the Good African Society Index (GASI). Though the GSI index generally can, but does not have to, consist of up to 12 components, due to data availability the GASI consists of nine main indexes: (i) economic sustainability, (ii) democracy and freedom, (iii) child well-being, (iv) environment and infrastructure, (v) safety and security, (vi) health and health systems, (vii) integrity and justice, (viii) education, and (xi) social sustainability and social cohesion. Each component is split into 4 sub-components for a total of 36 indicators. The GASI is obtained by summing the standardised mean scores of each component, ranking countries according to their GASI score. The GASI is also presented according to national GNI per capita estimates to investigate whether richer societies are necessarily ranked higher on the GASI. Finally, the paper applies regression analysis to examine social and economic determinants of a good African society.

Session C7


Michael Johan von Maltitz, Extending the Reach of Sequential Regression Multiple Imputation Abstract: It has been shown in numerous studies that missing data should not be ignored when survey data is being analysed. Dropping incomplete cases can lead to biases and inefficient analyses. Other schemes commonly used to handle incomplete data, such as single imputation, can lead to falsely accurate analyses and incorrect conclusions. While expert statisticians can model missing data within an overall analysis, it is necessary to separate the handling of missing data and the analysis tasks so that non-experts can obtain valid and reliable inferences from basic survey data analysis. The missing data handling needs to incorporate the uncertainty associated with the way in which the data became missing in the first place, the uncertainty of the model with which missing data points are predicted, and the uncertainty associated with each survey observation. These uncertainties are incorporated by the multiple imputation (MI) methods. The paper presented will review the use of an easily applied form of MI known as sequential regression multiple imputation (SRMI), and will discuss the way in which the analysis of the multiple datasets arising from MI are combined for a single set of results. The purpose of this paper is to familiarise researchers with these important (and easily implemented) methods of handling missing data, essentially extending the reach of SRMI.

Heinrich Bohlmann and Martin Breitenbach, The South African Economy from 2006-2020: Developing a Baseline for the UPGEM CGE Model Abstract: Historical CGE simulations are used for updating a model's underlying database and identifying recent trends that may be used to inform baseline forecasts. It has also become a popular tool for estimating movements in factor productivity, technical change and foreign demand curves that are compatible with observed data at both an industry and macro level. In this paper we conduct a historical analysis and combine insights gained from this simulation with available forecast data to build a plausible baseline for the South African economy over the period 2006 to 2020. We conduct our analysis using the dynamic version of the UPGEM CGE model.

Wednesday15:30 - 16:50Parallel Sessions D
Session D1


Mamello Nchake, The impact of monetary agreements on product market integration: the case of the Botswana, Lesotho and South Africa Abstract: The achievement of exchange rate, monetary and price stability is one of the significant achievements of market integration for a developing country. Such stability usually promotes allocative efficiency which is therefore conducive to the overall economic performance of the economy.The results found in the developed countries have intensified recent interest in assessing the consequences of monetary union in developing countries, more so in Africa. This stems from the fact that monetary unions are viewed as a symbol of hope to provide support for economic and political integration within Africa (Jefferis, 2007). This paper looks at the micro-economic impact of monetary integration on product market price integration within the Southern African region. The paper draws largely from a unique dataset of disaggregated retail prices over 183 products and 99 cities of the three countries (Lesotho, Botswana and SA) within SACU, for the period 2004-2008. We analyse the case study of Botswana policy reforms in 2005 and 2008 which were aimed at enhancing further integration between Botswana and its trading partners. Macro-economic trends show that over the sampled period, there is evidence of increased integration between the CMA countries and Botswana. Secondly, there is also evidence of increased product market integration between Botswana and the CMA countries at the micro level. The econometric analysis reveals that transport costs and border effects drive price differences between the three countries. However, recent macroeconomic policy developments in Botswana have resulted in further price integration in product markets, particularly between Botswana and SA. Consequently, cross border price differences decline substantially between these countries, particularly post-2006. Overall, these results confirm that even within a highly integrated area such as SACU, border effects are present. However, with appropriate policy reforms, further integration in product markets between Botswana and CMA countries can be realized.

Marinda Pretorius and Ilse Botha, Determinants of sovereign credit ratings in Africa Abstract: Sovereign credit ratings are one of the most influential determinants of investors when venturing into any foreign market. It is therefore imperative to consider the specific determinants of these ratings as it influence the decisions of investors. Most literature focus mainly on the determinants of sovereign credit ratings for developed markets, but are they applicable to Africa too? The main focus of this article is to quantify the relationship between sovereign credit ratings and their determinants in Africa. A panel data regression approach will be followed in this study in order to define the determinants of sovereign credit ratings in Africa by making use of the credit ratings of 29 African countries. A systematic analysis of the determinants of the sovereign credit ratings will enable us to estimate which quantitative indicators weigh most heavily on the determinants of ratings. This will be compared to empirical literature on the determinants of developed markets.

Thandolwamahlase Sibisi, The Uncovered Interest Parity hypothesis, risk aversion and nonlinearity: Testing the hypothesis in an emerging economy Abstract: The Uncovered Interest Parity Hypothesis features among several puzzles in international finance in that a number of empirical analyses have failed to prove its existence, moreover in the short run. However, the hypothesis is important in providing tools to assess the degree and magnitude of financial integration between nations, the efficiency of the stock markets as well as risk neutrality/aversion. This paper proposes a novel approach to assess the hypothesis by controlling for risk and applying a nonlinear time-series model. In testing the hypothesis between South Africa and a developed economy as well as the relationship between South Africa and an emerging market economy, the paper finds that there are regimes whereby the hypothesis holds. This infers the degree of financial integration between South Africa and the respective economies.

Anmar Pretorius and Alain Kabundi, South Africa’s stock market integration with developed and emerging markets Abstract: Established in 1888 the (then) Johannesburg Stock Exchange (JSE) is one of the oldest stock exchanges in the world. Despite this long participation in the international financial markets, South Africa is classified as an emerging market. This poses the following questions: Does the classification as emerging market lead to increased co-movement with other emerging markets – or are the South African financial markets more inclined to follow the older and more established developed economies? This paper empirically investigates the nature of South Africa’s stock market integration with developed and emerging markets. Factor analysis is used to extract latent common factors that explain co-movement between global equity indices for the period May 1998 until August 2011. Samples of three different country groupings are employed: in the first group, stock market indices of all 50 countries representative of global stock markets; in the second group indices of all developed countries and in the third group indices of all emerging markets are included. From each of the three groups, two common factors are extracted. The common factors from the global group explains 62.05% of the variation in the weekly stock market returns on the JSE, the common factors from the developed countries explains 59.64% and the common factors from the emerging market countries explains 66.63%. It is therefore concluded that the South African stock market is integrated with global stock markets, and more specifically that it follows the emerging markets more closely than the developed markets. 24-week rolling regressions are estimated to establish whether the relationships with the common factors are stable over time. Idiosyncratic factors influencing the JSE are identified for the periods of lower integration. As a final contribution, some economic meaning is added to the extracted common factors through correlations with economic variables.

Session D2
Labour market


Rashaad Amra, Ayanda Hlatswayo and Landon Mc Millan, SMME Employment in South Africa Abstract: The promotion and development of SMMEs is a key policy focus area of South Africa, identified in 1995 with the White paper on small business and most recently in the NDP. The key rationale for the promotion of SMMEs is the potential this sector offers the economy in terms of employment creation. A wide range of policy programs and initiatives have subsequently been initiated in this respect. Given the current policy emphasis on SMME promotion, this paper seeks to shed light on the nature of employment created by SMMEs. This paper seeks to investigate the nature of SMME employment in South Africa utilising the Quarterly Labour Force Survey. This study analyses the skill levels of individuals employed in SMMEs. It tests the hypothesis that formal sector SMMEs are more likely to employ skilled workers compared to unskilled workers and unskilled workers are more likely to be found in the informal sector.

Frederick Fourie and Philippe Burger, Can current macroeconomic models explain South African unemployment? Employment dynamics in a multiple-segment macro model Abstract: Almost all macroeconomic work on South African unemployment deals with the formal sector only. However, evidence indicates substantial segmentation in the economy: between the formal and informal economies and a survivalist segment. The labour market assumptions of standard macroeconomic models (and derived policy proposals) are at odds with such segmentation and barriers, and with dynamics of labour flows between segments. This paper first presents a critical evaluation of the labour market assumptions of standard macroeconomic models as well as the ability of standard macroeconomic theories to explain the South African unemployment situation. The authors find that these theories provide a very partial explanation. They then argue for a macroeconomic framework that incorporates formal, informal sector and survivalist activities and which would provide a more suitable basis for macroeconomic policy analysis in South Africa. The paper illustrates such a framework with a novel three-segment model that explicitly incorporates the informal economy and a survivalist segment, as well as segmentation and mobility barriers. It provides novel insights into labour flows between segments in the presence of shocks, as well as the persistence of involuntary unemployment. Policy applications are also discussed. Finally the paper suggests a research agenda including issues such as: the differential impact of demand and supply shocks on employment and unemployment in the three segments; how labour market structural conditions (segmentation; entry barriers) can soften or aggravate this impact; the impact of macroeconomic growth on employment and unemployment in different segments; the impact of labour market structural conditions on the employment effect of macroeconomic growth; and the extent to which labour market structural conditions are a constraint on macro-economic growth.

Nwabisa Makaluza, Double-edged sword: Segmentation within the South African informal sector Abstract: Despite a high unemployment rate and widespread poverty, the South African informal sector is relatively small. This is attributed to a combination of high reservation wages and low physical capital. While distinguishing between the formal and informal sectors, the current literature on labour market segmentation generally treats the informal sector as a homogeneous entity. In reality, the informally employed consists of both lower-tier workers who are regarded as survivalists as well as upper-tier workers who intend on transitioning into formal employment. The paper extends the conventional job-search theoretical model to include the informal sector and on-the-job search. At any given point in time, the informal sector is populated by two types of workers. There are active job-seekers with insufficient nonwage income pushed into informal employment with the expectation of an easier transition into formal employment. The other group consists of discouraged work-seekers pulled into the informal sector at adequate levels of capital because their labour market productivity is higher than their home production. The empirical analysis is based on the rotating panel Labour Force Surveys from September 2001 to March 2004. This data is used to estimate the effect of informality on earnings by using propensity score reweighting techniques. The extended job-search model is modified and then applied to conditional logistic regressions to measure the effects of the constraints on the likelihood of entrance into the sector. The main contribution of this paper is that it provides a theoretically based analysis of informal employment. The theoretical model allows one to distinguish between an increase in informal employment due to enhanced welfare and one that protects the individual's wellbeing. The empirical analysis sheds light on the duality within the informal sector and how the incentives to join this sector vary across individuals.

Session D3
and banking


Malan Rietveld, An institutional analysis of sovereign wealth funds Abstract: The academic literature on sovereign wealth funds has identified good governance as an important determinant of sovereign wealth fund effectiveness and legitimacy. However, the literature has not yet investigated the broader institutional setting in which these funds are situated or how this broader context translates to specific institutional arrangement and rule-based policy frameworks. This paper addresses this shortcoming by drawing on the literature on modern monetary policy. It considers how the origins and lessons of the “modern monetary policy consensus” can be applied to the emerging discussion around sovereign wealth funds. While there are a number of important differences between central banks and sovereign wealth funds, there are significant areas of overlap. Consequently, those charged with establishing the institutional arrangements and policy frameworks for sovereign wealth funds can draw on the theoretical insights from the extensive literature on modern monetary policy.

Greg Farrell, Countercyclical capital buffers and real-time credit-to-GDP gap estimates: A South African perspective Abstract: Countercyclical capital buffers are intended to protect the banking sector and the broader economy from episodes of excessive credit growth that have been associated with financial sector procyclicality and the build-up of systemic risk. As part of the guidance to national authorities operating the countercyclical capital buffer, the Basel Committee on Banking Supervision has suggested that the credit-to-GDP gap (calculated using a one-sided Hodrick-Prescott filter) would historically have been a useful guide to taking decisions regarding the capital buffer, and that lower and upper thresholds (L and H) for the gaps of L=2 and H=10 may provide a reasonable specification for mapping the gaps to the capital buffer. This paper provides a South African perspective on the implementation of this guidance. Credit-to-GDP gaps are estimated by applying a range of one- and two-sided (forecast-augmented) Hodrick-Prescott filters to real-time South African data specifically constructed for this study, and the reliability of these estimates is investigated. The calibration of the lower and upper thresholds in the South African case is also considered. The study confirms that the mechanical application of the credit-to-GDP guide is not a good idea. Real-time credit-to-GDP gaps are not particularly reliable (in the sense that they are not highly correlated with revised ‘final’ estimates) in certain important cases, but since the revisions are mainly attributable to new data points (endpoint problems) not data revisions, it is not always possible for policymakers to adequately correct for this in real time. The analysis also suggests that the calibration of the lower and upper thresholds for the gaps may need to be adjusted in the South African case if the Basel Committee’s expectation that the buffers be employed only every 10-20 years is to be met.

Ivan van der Merwe, A macroprudential policy framework for South Africa: What challenges lie ahead? Abstract: Since the recent financial crisis the term “macroprudential” has become somewhat of a buzzword. In paraphrasing Milton Friedman, Borio (2010) asserts that “we are all macroprudentialists now”. Although observers already alluded to a missing policy pillar in the overall regulatory and supervisory framework years earlier, the crisis provided new momentum towards developing this missing policy pillar. In response, institutions such as the IMF, BIS, FSB have been actively involved in advancing their work on macroprudential policy frameworks and many central banks around the globe have been assigned a dual mandate, which now also include financial stability. In South Africa the development of a macroprudential policy framework is also high on the agenda since it was made clear by National Treasury that such a framework [“will form the basis of our financial system regulation and broader financial sector policy reforms in the years ahead” (SANT, 2011: 5)]. But although we are all macroprudentialists now, much confusion still prevails regarding what constitutes macroprudential policy, how it relates to financial stability and where responsibility for it should settle. Assigning a central bank with a mandate to achieve and maintain financial stability is merely the first step and, as with the development of monetary policy frameworks during the previous century, much remains to be done in order to create an operational framework. Since a macroprudential policy framework is still very much in the development phase in South Africa it seems appropriate to provide clarification regarding the core elements inherent to such a policy framework. This paper contributes in this regard by explicating not only the essential elements that should be present, such as types of policy instruments, operational procedures, goals, discretion and independence, but also certain key operational challenges that lie ahead for the SARB in developing and implementing such a policy framework.

Jaco Mostert, A critical evaluation of the Basel III revised proposal on the Liquidity coverage ratio Abstract: Banks have been regulated since 1988 based on the Basel I capital accord. To address the deficiencies in the 1988 Basel Accord, Basel II was implemented. Basel II is a more risk based approach to the regulation of banks. Under the Basel II accord the banks can determine their capital adequacy ratio based on their own internal risk based model or on the credit ratings of rating agencies. The recent global crises highlighted various issues in terms of the prudent regulation and supervision of banks. Some of these issues include the issues that banks are deemed too-big-to-fail, moral hazard and the role of regulators in preventing these kind of concerns. The Basel Committee on Bank Supervision has indeed proposed new rules for the capital adequacy of banks after the crisis (BIS, 2011). The Basel III proposals focus on the additional requirements and new definitions for capital and capital adequacy and the impact of liquidity on the safe and sound management of banks. This paper will provide a detailed analysis of the revised proposals for the liquidity coverage ratio that was published by the Bank for International Settlements in January 2013. The analysis will specifically deal with the challenges of implementing the proposals in South Africa. The impact of the establishment of a facility at the South African Reserve bank to obtain additional liquidity will also be evaluated. One such possible issue is the impact on the cost of credit in South Africa. The paper is a critical literature review.

Session D4
Trade, the BoP
and economic


Carike Claassen, Elsabe Loots and Alain Kabundi, Decoupling between emerging and advanced economies: An exploratory analysis Abstract: Advocates of the decoupling thesis state that the changing structures in the world economy over the past two decades have contributed to the divergence of emerging markets from the growth trajectory and business cycles of advanced economies. The recent financial crises and subsequent recession in much of the advanced economies and the impact on emerging economies have again put the notion of possible decoupling under the spotlight. It seems to be that the changing nature of growth spill-overs is associated with the evolution in the degree of global cyclical interdependence. Many of these emerging economies do indeed appear to have weathered the storm of 2008 much better than their advanced counterparts. This seeming resilience owes in part to the fact that growth rates in these economies had, at the onset of the crisis, already been relatively high. Growth performance has varied significantly, however, both between emerging regions and individual emerging economies, and the question of possible business cycle decoupling between emerging markets and advanced economies remains to a large extent unanswered. This paper aims to investigate the level of business cycle co-movement between 33 advanced and emerging economies, in order to determine whether decoupling has occurred or not. Quarterly data on real, nominal and financial variables for the period 1990Q1 to 2011Q2 are used to perform dynamic factor analysis. The analysis will be used to extract the global and common factors between these 33 countries. These factors indicate the extent of co-movement in country business cycles which can be ascribed to global factors, indicating whether emerging markets are decoupling from or coupling to business cycles in advanced economies over the entire period as well as after the financial crises. Preliminary results show that the importance of the global factor has declined, substantiating the decoupling phenomenon.

Sibanisezwe Alwyn Khumalo, Syden Mishi and Duduzile Dlodlo, Influence of trade agreements on South Africa’s trade patterns Abstract: The paper seeks to look at the long-standing argument pitting regional trade agreements versus multilateral agreements. Various studies have looked at the possible impact of the increase in regional trade agreements and how these have affected existing multilateral agreements and the trend of trade liberalisation. The paper will assess the trade performance of the South Africa in the context of regional agreements; these being the SADC and SACU against multilateral agreements that South Africa is a party to. Using panel data the study will utilise the gravity model to analyse the trade patterns that exist within the regional trade blocs and outside the regional trade blocs to determine the new trends that exist within South Africa’s trading partners. It is of importance to ascertain the extent to which South Africa has benefited and gained over the years, from the year 1994 to 2011, from the two forms of trade agreements. The issues of trade diversion and trade creation are of great importance in assessing the long-term benefits of regional trade agreements and the gravity model will help determine the extent to which these have influenced South Africa’s trading.

Session D5


Claire Vermaak, Earnings mobility and employment dynamics during an economic recession Abstract: This paper examines the extent and nature of employment dynamics and earnings mobility during South Africa’s most recent recession. Using matched individual-level panel data from the 2008 and 2010 waves of the National Income Dynamics Study, the paper shows that there was considerable churning in the labour market during this time. In line with the decline in aggregate employment over this period, the paper shows that only two-thirds of individuals maintained employment across both waves, with workers who were initially at the bottom of the earnings distribution being the most likely to exit employment. Workers who were geographically mobile were more likely be employed in both waves, while workers employed in private households, agriculture and construction in 2008 were the most likely to leave employment during the recession. Individuals who retained employment, either in the same job or by moving to another job, were substantially more likely to experience upward than downward real earnings mobility. The paper thus goes on to examine the correlates of earnings mobility in a multivariate context, by estimating the predictors of transitions out of, or persistence in, various real earnings categories, conditional on the level of earnings in 2008. Regression analysis shows that highly educated workers living in urban areas were the most likely to get ahead, and stay ahead. In contrast, part-time workers and those employed in agriculture, manufacturing or construction were the most vulnerable to persistently low, or falling, earnings. Finally, the paper attempts to identify instruments for the endogenous selection into the initial earnings category.

Abieyuwa Ohonba, Naiefa Rashied and Modeste Some, The impact of obesity on employment in South Africa Abstract: Obesity is a growing health problem in South Africa. This health problem could have various implications on the South African economy. The aim of this study is to investigate the impact of obesity on employment status in South Africa using household survey data. The study follows a quantitative research design which involves secondary data analysis of household survey data and the use of an econometric model to validate the relationship between obesity and employment. The secondary data was gathered in the National Income Dynamic Study (NIDS) and administered by the South African Labour and Development Research Unit (SALDRU). The findings suggest that obesity has a negative impact on employment status for the South African economy.

Kholekile Malindi, Wage effects of labour market experience and job tenure for black South African male workers Abstract: There exists a wealth of theory and empirical literature detailing and illustrating the importance of on-the-job training for human capital formation. To proxy and measure the associated rate of capital formation, labour economists have largely focused on the effects of labour market experience and job tenure on expected wages over the life-cycle. A key finding of this literature suggests that average individual wages increase at a decreasing rate with additional years of both labour market experience and job tenure. This research agenda has, unfortunately, to a large extent confined itself to developed country labour markets. Developing country labour markets are often characterised by high rates of unemployment, especially among the youth. More broadly speaking, labour market conditions in developing countries are systematically different to those faced in developed country labour markets. These conditions in developing country labour markets may present new sources of bias in the estimation of the wage effects of on-the-job training. The goal of this paper is to better understand the role of on-the-job training in the accumulation of human capital in a developing country context. More specifically, the paper will attempt to estimate the causal effect of labour market experience and job tenure on the expected wages of black South African male workers. To identify the labour market experience and job tenure effects, the paper makes use of Altonji and Shakotko’s (1987) instrumental variables procedure and Topel’s (1991) two-stage differencing estimation procedure in addition to Pooled OLS estimation. These additional estimation procedures are also useful in addressing the heterogeneity bias that accompanies the estimation of the wage effects of labour market experience and job tenure. Stats SA’s LFS Panel data set is used to implement these estimation procedures.

Maria Ngarachu, Neil Rankin, Gareth Roberts and Volker Schoer, Can an intervention aimed at improving economic inclusion make recipients less happy? Findings from a Randomized Control Trial of a targeted youth wage subsidy in South Africa. Abstract: To combat high youth unemployment, in 2009, the South African government tabled a youth wage subsidy for discussion in order to facilitate entry in the job market for young job seekers. In the same year, the African Micro-Economic Research Unit was commissioned to investigate the impact of a targeted youth wage subsidy through a Randomized Control Trial (RCT). The RCT consisted of the allocation of a voucher to a group of young Africans aged 20-24. Any firm that employed a voucher holder could claim back some of the wage paid to the voucher holder. One year after allocation of the voucher, individuals in the treatment group were 25 percent more likely to be employed compared to the control group. However, individuals of the treated group report to be less happy with life in general. This surprising finding is contrary to the vast body of literature showing that employment is correlated with higher levels of happiness (See Crost, 2012, for discussion). Given the random allocation to treatment, this difference is likely to be caused by the allocation to the voucher. Thus, announcing and implementing such a policy might increase expectations of targeted individuals and subsequently lead to more discontent if expectations are not met. The aim of this paper is therefore to unpack this finding using the RCT survey data and to investigate if the unemployed of the treated group who did not find a job despite the voucher, the employed of the treated group who are unhappy with the type of jobs they got, or both groups together account for the difference in the average level of happiness. Since we cannot directly compare the two groups, we use propensity score matching and instrumental variables to instrument for the employment probability with the assignment to the treatment itself.

Session D6


Clive Coetzee, Growth-Maximizing Allocation of Provincial Public Capital – a KwaZulu-Natal Case Study Abstract: The provision of infrastructure is one factor that influences economic growth (Canning 1998). Adequate supply of infrastructure seems to be an important factor and vital to achieve higher productivity and growth (Calderón and Servén 2004). Most studies found that infrastructure positively and significantly impact on economic growth for example the World Bank in their report on Infrastructure in 1994 claimed that 1% increase in infrastructure stock will increase the GDP by 1% across all countries. In principle, public spending enhances economic growth through its external effect in the production function of private firms. This effect can be modelled by adding into the production function the aggregate flow of public spending. In this paper drawing from the theoretical framework developed by Shieh et al., (2002), I will present an endogenous growth model to empirical analyze the growth maximizing allocation of provincial public capital. This paper will specifically attempt to address the issue of whether provincial infrastructure expenditure is at, above, or below their growth maximizing levels. The approach is based on the growth model of Barro (1990). Infrastructure capital is an input into aggregate production, but it comes at the cost of reduced investment in other types of capital. In this approach (adopted from Canning and Pedroni, 2004) there is an optimal level of provincial infrastructure expenditure which maximizes the provincial growth rate (6% pa as stated in the PGDS); if infrastructure levels are set too high they divert investment away from other capital where income growth is possible reduced. This model implies a simple “reduced form” relationship between income per capita and infrastructure stocks per capita. The paper focus on the province of KwaZulu-Natal employing a variety of econometric techniques using quarterly data from 2001 to 2012, addressing the question of the growth maximizing levels of provincial infrastructure expenditure.

Isaac Kanyama, Firm Growth and the Business Environment in SADC Countries Abstract: This paper aims at evaluating the economic impact of business environment factors on firm growth and productivity growth, using the data from the World Bank Enterprise Surveys on 13 SADC countries between 2006 and 2010. One of the stated objectives is to allow policy makers in the region to take appropriate actions on factors of the business environment in order to boost growth. The research will identify the factors that have direct impact on firm growth and performance as well as those that have an indirect effect through other factors. For this purpose, both directed acyclic diagrams and regression methodologies will be used. Existing literature on developing countries points to the evidence that financing, political instability and crime are the factors of the business environment that directly affect firm growth. This research article has and additional objective to assess whether these conclusions also apply to countries in the SADC. In other words, the paper will answer the question of whether or not the major factors that have a significant economic impact on firm growth and performance are the same for the developing countries as a whole and for the SADC as a subset of the developing world. Preliminary results show that when all the business environment factors are accounted for, the economic impact of the factors that are significant in the regression model (competition from the informal sector, tax rates, corruption, and access to land) varies from 6% (competition from the informal sector) to 10% (access to land) of reduction in firm growth. Robustness of the results will be tested by including aggregate indicators on the business environment such at the economic freedom index and the corruption perception index, amongst others.

Jannie Rossouw, Melting the golden curtain: The funding of the Millenium Development Goals Abstract: This paper considers the pressing international challenge of poverty eradication from the perspective of the funding of the Millenium Development Goals (MDGs), set for achievement by 2015. The global challenge is to ensure that the golden curtain between the rich north and the poor south melts away in the shortest possible time. The roles of rich and poor countries differ in their quest to alleviate poverty. From the perspective of the rich countries comprising the Development Assistance Committee (DAC), the funding of the MDGs within the timeframe to 2015 no longer seem affordable. The DAC countries continue to suffer financial difficulties in the aftermath of the global economic crisis and Great Recession of 2008. This paper assesses the ODA flow from DAC countries over the period 2000 to 2012 and reaches the conclusion that the MDGs will be underfunded in 2015. These goals will therefore not be achieved in all poor countries by 2015. Based on recent ODA flows, this paper shows that the MDGs set for 2015 will only be fully funded by 2027. From the perspective of the poor countries the MDGs are problematic in as much as they hardly place any commitments on these countries. The MDGs set no clear requirements or commitments for the eradication of impediments to growth such as political oppression, a lack of democratic processes, maintenance of property rights, and/or disregard for the rule of law. Africa has shown clearly that liberation movements are not necessarily democratisation movements. It is shown for the first time in this paper that South Africa serves as an example for other countries in meeting ODA targets when customs union and seignoirage sharing transfer payments to neighbouring countries in access of economically justifiable levels are taken into consideration.

Talita Greyling, Validation of a new instrument to measure quality of life: a confirmatory factor analysis approach Abstract: Assessing quality of life is a challenge as the concept is multi-dimensional and there is no universal definition, therefore an integrative and well developed measure of quality of life can advance the measurement and analysis of this concept. In this research paper we validate an instrument of quality of life and determine the relationships between the different dimensions of the concept. The methodologies used are Explanatory Factor Analysis (EFA) and a form of Structural Equation Modelling (SEM) namely Confirmatory Factor Analysis (CFA), a sophisticated method of analysis. To the author’s knowledge this is the first study of this kind in South Africa and one of the first studies internationally which validates a measuring instrument of quality of life and analyse the interrelationships between the different dimensions of the concept. A validated instrument of quality of life is essential to measure wellbeing and follow wellbeing trends. Furthermore the establishment of the interrelationships between the different dimensions of quality of life encourages an integrated policy approach which can realise collective achievements in various dimensions of quality of life. It was found that the model fitted the data well and the measurement of each sub-dimension, including ‘housing and infrastructure’, ‘social relationships’, ‘socio-economic status’, ‘safety’ and ‘governance’, were confirmed. Furthermore the relationships between the sub-dimensions of quality of life, except for the relationship between ‘health’ and ‘housing and infrastructure’ were found to be statistically significant and positive.

Wednesday18:00 - 
EBW Building
Thursday08:00 - 09:00
EBW Building
Thursday09:00 - 10:00Parallel Sessions E
Session E1


Steven F. Koch and Jeffrey S. Racine, Healthcare Facility Choice and User Fee Abolition: Regression Discontinuity in a Multinomial Choice Settin Abstract: We apply parametric and nonparametric regression discontinuity methodology within a multinomial choice setting to examine the impact of public healthcare user fee abolition on health facility choice using data from South Africa. The nonparametric model is found to outperform the parametric model both in- and out-of-sample, while also delivering more plausible estimates of the impact of user fee abolition. In the parametric framework, treatment effects were relatively constant, around 7%, and that increase was drawn equally from both non-treatment and private treatment groups. In the nonparametric framework, on the other hand, treatment effects were largest for the least well off (also 7%) but fell for the most well off. More plausibly, that increase was drawn mostly from the non-treatment group, suggesting that the policy favoured those least well off as more of these children received at least some minimum level of healthcare after the policy was implemented. For the most well off, despite having access to free public health care, children were still far more likely to receive healthcare at private facilities than at public facilities, which is also more plausible in South Africa's two-tier health sector.

Shaista Amod, National Health Insurance: implications from a measurement perspective Abstract: The South African Department of Health (DoH) has reached the pilot stage of the proposed National Health Insurance (NHI) program. The NHI has been justified on the basis of healthcare as a basic human right, rather than on the basis of economic efficiency or gains. However, the NHI to date includes no explicit consideration of the measurement or quantification of health outcomes, both of which are essential as part of monitoring and evaluating the system as emphasised by the DoH. Measurement becomes especially vital in an environment of scarce resources, where trade-offs across patients and treatments may unavoidably occur, in order to justify objectively the decisions to favour one patient or treatment over another. The Quality-Adjusted Life Year (QALY) appears to be an obvious candidate as an individual health metric; as it is the most widely used measure of health-related quality of life and is used in other national health programs such as the United Kingdom’s National Health Service. Yet analysis of the QALY raises further questions regarding the extent to which individual preferences are valued within the larger welfare framework of public policy in South Africa. The QALY combines quantitative and qualitative aspects of health for the individual, diverging from the idea that health care is an objectively quantifiable good that should be distributed identically across individuals. The latter idea poses a dilemma with respect to healthcare allocation, as there is no indication of how to choose between individuals in case of insufficient resources, where treatment for all patients is not possible. An accurate and theoretically validated measurement tool such as the QALY can assist in clarifying this rule. This paper is an extension of my LSE Masters thesis and is not affiliated with the South African Reserve Bank.

Anja Smith and Ronelle Burger, Explaining the demand for medical scheme membership: implications for National Health Insurance (NHI) Abstract: Against the backdrop of the proposed National Health Insurance (NHI) and the move to universal health coverage, this paper examines the factors associated with selection into medical scheme membership. We explore the role of price and perceptions of the quality of care amongst other considerations motivating individuals to insure themselves against catastrophic health expenditure. This allows for a tentative assessment of the scope for financing the expansion of insurance coverage via user contributions and the importance of the quality of care for securing such contributions. Medical schemes are the main vehicle through which the formal risk pooling of health expenditure in South Africa occurs. The transition into post-apartheid South Africa created the expectation that medical scheme membership would expand commensurate with the new economic opportunities open to all races. However, during the period 2002 to 2012 medical scheme membership experienced limited growth. Despite some growth in membership due to roll-out of the Government Employees Medical Scheme (GEMS), the total growth in scheme membership has been small. It is therefore important to identify the main factors that determine selection into medical schemes with a view to inform future policy. This paper explores the relationship between medical scheme membership and a number of variables including but not exclusively race, income, gender, age, household coverage and structure, asset ownership, chronic disease, self-reported health status, the price or affordability of medical schemes and perceived quality of private care. It also considers whether and how broad changes in South African society may have impacted medical scheme membership. The Quarterly Labour Force Surveys (2008-2012) and a pooled version of the General Household Survey (2002-2011) provide the basis to track trends and explore associations between the above variables using Ordinary Least Squares (OLS) and probit regression analysis.

Session E2
development and
monetary policy


Jannie Rossouw, Adél Bosch and Vishnu Padayachee, A selected history of South African inflation perceptions: The question matters Abstract: This paper provides a selected historical overview of inflation perception surveys undertaken in South Africa. These surveys are undertaken to assess the perceptions of respondents on the degree in which historic inflation figures reflect perceptions of actual inflation, and to find some link to inflation expectations. All the pilot studies on inflation perceptions and representative samples undertaken between 2006 and 2010 (six pilot studies, three representative samples and one survey among central bank employees) failed to show any link between inflation perceptions and inflation expectations. These findings cast some doubt on the premise that a policy of inflation targeting anchors inflation expectations in the current rate of inflation and therefore in the announced inflation target policy rate. In response to the earlier survey results, the question on inflation perceptions was put in different ways to respondents in the most-recent (2012) inflation perception survey to retest the hypothesis that inflation perceptions and inflation expectations are linked. The findings of this survey are analysed in this paper. These findings show a possible link to inflation expectations will be the subject of further research. The conclusion on the assessment of inflation perceptions is that the question matters.

L Mann and Gavin Keeton, The impact of financialisation on commodity prices in the post-2003 commodity “super-cycle”. Abstract: Commodity prices have risen sharply since 2002. This period of rising prices has been labelled a “super-cycle”. While rapid resource-intensive growth in India and China clearly contributed to rising prices, some authors have argued that the extent of price increases was greater than could be explained by “fundamental” determinants of commodity supply and demand. These authors point to the growing “financialisation” of commodity markets and the role this has played in increasing prices. The “financialisation” of commodity markets is illustrated by the rise in investments by commodity index funds from about $8bn in 2002 to more than $200bn in 2007. Most of this investment takes place in the commodity future markets, where the number of contracts traded increased fivefold between 1998 and 2007. This paper examines the extent to which this “financialisation” of commodity markets impacted on commodity prices since 2002. The question is important because it is possible that “financialisation” resulted in commodity prices rising much more than would otherwise be the case. Secondly, it increases the vulnerability of commodity prices to a sharp downward correction if investment buying of commodities reverses. To do this, rolling correlations of changes in commodity future prices are calculated. This is because index funds buy baskets of commodity futures, not futures of a single commodity. It is found that there has been a significant increase in the correlation of futures prices for exchange traded commodities, but no change in the correlation between exchange-traded commodities and non-exchange-traded commodities such as iron ore. This supports the view that the growth of investment funds has impacted significantly on prices in the futures markets in which they trade. However, no change was found in the correlations of spot commodity prices, suggesting that “financialisation” did not cause recent record-high spot prices.

Lorraine Greyling and Grietjie Verhoef, Vector autoregression, cointegration and causality: testing for financial development and growth in the Cape Colony and Colony of Natal before 1909 Abstract: The connection between finance and growth has been a field of interest all through the development of the modern economies, where there is consistent agreement that financial deepening and financial efficiency has a positive impact on growth. In the current discourse about a higher rate of economic growth for South Africa, a higher savings rate is considered a prerequisite. The current savings rate in South Africa is discouragingly low. The question arises what the legacy of savings and economic growth was in nineteenth century South Africa? This paper investigates the following research question: What was the relationship between savings and growth in the Cape Colony and the Colony of Natal during the last half of the nineteenth century? Does a causal relationship emerge between economic growth and savings? Since no comprehensive statistics are available for this period, a new dataset is compiled for the Colonies between 1850 and 1909. The investigation addresses the question in the following manner: • A brief outline of the economic development of the Cape Colony and Colony of Natal, with specific reference to the development of financial institutions • Explanation of the methodology used to conduct this research • Presentation of the data and assessment of the emerging relationship between savings and economic growth The goal of this paper is to examine the long-run causality between financial development and economic growth employing the multivariate VAR framework over the period 1850 –1909. It is important to determine whether financial development matters for economic growth and if there is evidence of bi-directional causality between financial development and economic growth or whether it is found that financial development led to growth in the short-term, but in the long term, it is bi-directional causality. This is important to advice policies aiming at improving financial markets (economic growth) will have a significant effect on economic growth (financial development).

Session E3
Measuring the
middle class


Justin Visagie, Race, gender and the development of the affluent middle class in post-apartheid South Africa Abstract: This paper examines the development of the affluent 'middle class' in post-apartheid South Africa, using data from the 1993 Project for Statistics on Living Standards and Development, the 2000 Income and Expenditure Survey/Labour Force Survey and the 2008 National Income Dynamics Survey. The affluent 'middle class' are defined as individuals residing in a household with a per capita income of R1,400 – R10,000 per month in 2008 prices. The paper explores changes in the size, racial and gender profile of the middle class within the context of Black Economic Empowerment in South Africa. The affluent middle class experienced very modest growth over the period, only slightly ahead of population growth. There was however substantial churning in the racial composition of the middle class, with a large increase in the number of Africans and to a lesser extent Coloureds. The gender profile of the middle class showed less conclusive evidence of transformation.

Ronelle Burger, Carmen McAvarey and Servaas van der Berg, The Capability Threshold: Re-Examining the Definition of the Middle Class in an Unequal Developing Country Abstract: Utilising Nobel Prize-winning economist-philosopher Amartya Sen’s Capability Approach, this paper proposes an alternative perspective on the definition of the middle class, characterizing this group in terms of having achieved a minimum level of economic and social functionings and capabilities. This approach departs from reigning developed country conceptualisations of the middle class that imply strong assumptions about the existence of a large and cohesive middle group that can be identified via median income measures or standard cut-offs. The Capabilities Approach is proposed as an alternative basis for defining the middle class because it provides stronger and more robust linkages to the social benefits ascribed to this group, such as its role as stabilising force and an engine for economic growth. Encouragingly, the research shows that there has been an increase not only in the income, but also in the choices available to South African since 1993, reflected as a significant expansion of the middle class – both when defined according to income measures and when defined based on capabilities and functionings. Our study also indicates that there has been considerable growth in the portion of Africans in the middle class. This is indicative of growing disassociation between race and class, which is expected to help heal the deep divides in South Africa’s social landscape. We find that measured over a single period this approach fares as well as an income cut-off in distinguishing a group of individuals who tends to invest more in education and health and who are generally happier, more hopeful and more likely to own marketable assets such as a brick house. We will also examine fluctuations in group membership over time to assess the stability of this approach cf. the more traditional income approach.

Session E4
Economics and


Samuel Mensah, International Migration: The Theories and the Evidence from Lesotho Abstract: The conditions that initiate international movements of workers across borders may be quite different from those that perpetuate it across time and space. Thus international migration theories may be dichotomized into theories of initiation (the neoclassical, new economics of migration, world systems, and, to some extent, the dual labour market theories) and theories of perpetuation (the network, institutionalist, cumulative causation, and migration systems theories). This paper will argue that the neoclassical and the new economics of migration theories of international migration form the base on which many of the other theories stands. A juxtaposition of the insights from these theories and the evidence from the migration experience of men from Lesotho – “Africa’s number one migration country” – to the mines in South Africa is expected to provide guidance for migration policy formulation in Africa. The paper analyses primary data generated from a survey of households conducted during December 2006 and January 2007.

Antonie Pool, Migration, Remittances and Poverty in KwaZulu-Natal: A structural equation model approach Abstract: Migration and remittances are individual and household strategies aimed at alleviating poverty, although these strategies are not always available to the poor. This paper aims to determine the links between migration, remittances and poverty and investigates how migration and remittances may be employed to alleviate poverty and how poverty may hinder these strategies. The KwaZulu-Natal Income Dynamics Study (KIDS) data, which surveyed a panel of African households from the KwaZulu-Natal province in 1993, 1998 and 2004, are used to investigate these factors and relationships. Preliminary analysis of the KIDS data revealed that core households are significantly less mobile than their dynasty households, therefore increasing the probability that dynasties receive remittances, which in return may affect poverty. The link between migration, remittances and poverty is complex due to their reciprocal inter-dependence. Structural equation modelling (SEM) is a comprehensive statistical technique for testing and estimating causal relations using a combination of statistical data and qualitative causal assumptions. This paper uses SEM to investigate the interplay between these factors and to shed light on the complexity of the relationships between migration, remittances and poverty.

Session E5
Capital flows

Richard Ilorah, Is Africa trapped between foreign aid dependency and failed growth initiatives? Abstract: The endemic nature of Africa's dependency on foreign aid seems to support the popular view that the continent is incapable of an existence free from aid. Budgets by Africans for national and continental projects are planned based on expected aid flows, the implication being that these projects often fail because, among other reasons, aid fails to materialize or is misused. On the other hand, Africa's access to aid, in the first place, is argued to discourage proper implementation of the region's growth initiatives. Countries on the continent make a mockery of integration initiatives despite the dismally low intra-trade in the region. These countries also neglect the need to develop proper domestic institutions for revenue collection. Often, many countries, especially those occupying strategic positions or those endowed with vital raw materials use threats of domestic instability, sub-regional conflicts or even full blown wars to coerce donors to release aid uninterruptedly. This study argues that African countries generally have cleverly managed dependence, exaggerated hopelessness and instrumentalized aid to obtain resources that have mainly enabled undemocratic regimes a long stay in power. Using historical data, the study shows that foreign aid to Africa has not led to any significant sustainable growth in the region but has, at best, provided short-term reliefs to few poverty-stricken countries and, at worst, pushed recipient countries deeper into debts. The study concludes that Africa needs trade rather than aid.

Barend Christoffel de Beer and Logan Rangasamy, The South African experience with FDI flows Abstract: Global FDI trends have been characterised by noticeable shifts in geography, mode of entry and sector specific dynamics between countries. Of these, the most striking change relates to the evolution in the geographical FDI patterns over the past decade, with greater FDI flows between emerging economies being recorded. More recently, post-crisis trends also depict major sectorial differentiations in global FDI flows. In line with global developments, South Africa has attracted significant FDI inflows over the past decade. A record annual net inflow of R100 billion was recorded in 2008. However, with the onset of the financial crisis, net FDI flows declined to R35,7 billion in 2009 before declining to R9,5 billion in 2010 (lowest since 2007). However, there was a significant net inflow of R46,8 billion in 2011. This paper will provide a detailed analysis of the post-recession FDI landscape in South Africa. More specifically the paper will address the following questions: How has South Africa’s experience with FDI flows compared to those of other emerging economies?; What has been the geographical and sectorial differentiation in South African FDI flows?; What has been the extent of greenfield FDI over the last three years in South Africa?; What is the nature and extent of South African FDI into Africa? The analysis will be based on a novel dataset that has been compiled at the South African Reserve Bank over the last three years. Standard econometric techniques and procedures will form the basis of the analysis. This study will undertake a detailed interrogation of the geographical and sectorial disaggregation of South African FDI flows, and in so doing, attempt to provide a much richer analysis of the South African experience with FDI flows, than has been the case in the empirical work to date.

Logan Rangasamy, Capital flows: The South African experience Abstract: Large swings in capital flows can have a significant bearing on macroeconomic developments. Access to foreign savings help offset domestic savings constraints by reducing the cost of capital and stimulating investment, consumption and economic growth. On the other hand, significant capital inflows can lead to increased macro-economic vulnerabilities as a result of large surges in asset prices. Thus, the size, volatility and nature of capital flows can have a significant bearing on economic policy through its effect on macro-economic outcomes. Hence, it is not surprising that there has been a significant rise in the empirical work distinguishing between episodes of sharp slowdowns (“stops”) and sharp rises (“surges”) in capital inflows. Much of this analysis has centred on gaining a better understanding of the cyclical behaviour of capital flows. This paper continues in this vein by identifying capital flow episodes for South Africa and analysing the nature and main drivers of cross-border flows during these episodes. The paper pays particular attention to the role of domestic and foreign agents in South Africa cross-border flows and the issue of capital flow reversals These issues are of importance to economic policy since it contributes to a better understanding of the macro-economic impacts of cross-border capital flows. This will be informative for policy formulation. Standard dating algorithms employed in the empirical work and regression techniques form the basis of the analysis in the study. The results show that domestic agents have at times also been responsible for Africa’s net positive capital inflow position. In addition, the results indicate that portfolio inflows are not necessarily “hotter” and hence more susceptible to capital flow reversals than the other forms of capital inflows.

Session E6

Jacoba Viljoen and Rinie Schenck, Barriers that prevent street waste pickers from improving their socio-economic conditions Abstract: Street waste pickers are the most visible group of people trying to survive under poor socio-economic conditions. Despite the fact that their activities towards recycling benefit the community at large, their social and economic conditions remain under stress. In a national study on the social and economic conditions of street waste pickers in thirteen major cities around South Africa, a number of social, economic and labour market barriers were identified that prevent street waste pickers from improving their socio-economic conditions. These barriers are dualistic in nature as they do not only put them in an environment that is not economically sustainable, but also keeps them trapped in that environment. The paper is based on data collected from 914 street waste pickers in South Africa. A mixed method research approach was used to collect the data. The purpose of this paper is to discuss these barriers and to emphasise the need for socio-economic support to improve the socio-economic conditions of the street waste pickers. Policy makers should take these barriers into consideration to prevent interventions that are aimed to support these people, of depriving them of their only livelihood.

Nthabiseng Mohale and Ling Ting, Is Financial Inclusion Viable in South Africa? Abstract: Financial Inclusion (FI) has been coined as one of the most critical aspects to consider in economic development and poverty alleviation. This is due to its ability to drive savings within households, provide credit for entrepreneurial businesses and basic banking products. As a society, South Africa has one of the highest income disparities in the world that, in a way, projects the current dire state of the lack of financial inclusion within the country. One of the tools used to execute FI currently is through provision of basic bank accounts e.g. Mzansi account incentive. This has not yielded positive results as poverty and lack of economic development is still visible. The question therefore is does providing an individual with a bank account necessarily imply an effective implementation of FI? The research aims to resolve this by illustrating the benefits as well as the costs of FI for both individuals and banks through utilising cost-benefit analysis. The purpose of the study is to understand the impact of FI in its current form within the South African market and discover alternative methods of implementing FI that can be used to achieve inclusive economic development and poverty alleviation.

Charles Adams, Rochelle Gallant, Ada Jansen and Derek Yu, A multidimensional analysis of non-income poverty in South Africa in 1993-2011 Abstract: Eradicating poverty has always been high on the agenda of the democratic government. Implementing effective poverty-reduction policies however, requires a thorough understanding of the nature and extent of poverty. Various studies have attempted to explain this, but many only applied an income or money-metric approach, in which the per capita income or expenditure variable and a poverty line are used to distinguish the poor. They found that poverty had increased since the advent of democracy, before a continuous downward trend since 2000. Poverty, however, is a multidimensional concept. In other words, poverty can be measured from a non-money-metric or non-income approach, by looking at the ownership of public assets (e.g., dwelling type, sanitation facility, water access, fuel source) and private assets (e.g., television, radio, internet facility, fridge), human capital and the labour market outcome of household members, as well as connection to social networks (e.g., membership of religious groups, social interaction with neighbours). Very few studies have looked at non-income poverty in South Africa. This paper adopts a fuzzy sets approach to poverty measurement as a means to address the vertical and horizontal vagueness of poverty. The total fuzzy and relative approaches of Cheli and Lemmi (1995) are discussed and applied to the 1993 PSLSD, 2000 IES/LFS, 2005/2006 IES and 2010/2011 NIDS datasets to measure non-income poverty levels and trends since the advent of democracy. The focus is on the public asset variables. A deprivation index is constructed to measure the changes in non-income welfare over the 18-year period, to ascertain if the government has been successful in improving public service delivery to people from the previously disadvantaged groups (females, non-whites), those residing in the less developed provinces, as well as those coming from households with low income.

Session E7
uncertainty and


Alexander Zimper, Speculative trade with incorrect price inferences Abstract: This paper introduces an equilibrium concept for boundedly rational agents who base their demand-supply decisions on incorrect price anticipations. For the benchmark case of rational agents, our equilibrium concept is observationally equivalent to Radner's (1979) concept of rational expectations equilibria (=REE). In contrast to REE, however, there may exist strict incentives for speculative asset trade if the agents are boundedly rational.

Nicky Nicholls, Aylit Romm and Alexander Zimper, The impact of statistical learning on violations of the sure-thing principle Abstract: This paper reports an experimental study which tests whether violations of Savage's (1954) subjective expected utility theory decrease if people reduce the ambiguity of an uncertain decision situation through statistical learning. Because our data does not show such a decrease, existing models of decision making under ambiguity---which reduce to expected utility theory in the absence of ambiguity---cannot accommodate our experimental findings. To explain our data decision theoretic models would be required that allow for a violation of the independence axiom whenever uncertain decision situations transform into risky decision situations for which probabilities are known.

Martin Odendaal, Do stock market returns affect risk attitudes? Abstract: Investigating attitudes towards risk is intimately linked to the goal of understanding and predicting economic behaviour. This paper examines the relationship between financial risk attitudes and past stock market returns. Using panel data from the CentER DNB Household surveys between 1994 and 2008, it finds that past returns are positively and significantly related to an individual's willingness to take risks. These findings are relatively robust across all models and specifications. Owning stocks or mutual funds increased the strength of the relationship; however the relationship is also significant – albeit smaller – for non-stock holders. No robust evidence was found of the presence of asymmetric effects or nonlinearities. Inflation was consistently found to have a strong and negative relationship with the willingness to take risks.

Thursday10:00 - 10:30
EBW Building
Thursday10:30 - 12:00
EBW Auditorium
AGM and presidential address
Thursday12:00 - 12:30
EBW Auditorium
(Research Project on Employment, Income Distribution and Inclusive Growth, funded by the National Treasury and based at SALDRU, UCT). Information session, presented by Murray Leibbrandt and Andrew Kerr, on research opportunities and, in particular, new and improved data sets being made available
Thursday12:30 - 13:30
EBW Building
Thursday13:30 - 14:50Parallel Sessions F
Session F1


Michael Mbate, Domestic Debt and Economic Growth in Sub-Saharan Africa Abstract: Exercising fiscal prudence in periods of deteriorating fiscal balance requires sound policies which promote debt sustainability. This is especially important in SSA where domestic debt, defined as debt owed to lenders within the country through the issuance of treasury bills and treasury bonds, has been on the increase as governments mobilize domestic resources for development. This paper estimates a dynamic cross country regression model and investigates the impact of domestic debt on economic growth and private sector credit in a panel of 21 Sub Saharan African countries over the period 1985 to 2010. In order to address reverse causality, omitted variables and country specific characteristics, the empirical estimation relies on System Generalized Methods of Moments econometric techniques. All variables included in the model are assumed to be endogenous and therefore instrumented for using their own lag values as instruments. The validity of the instruments used is verified using the AR (2) tests, the Hansen test and the Difference-in-Hansen tests. The results reveal a non-linear relationship between domestic debt and economic growth, characterized by a maximum turning point of 11.4 percent of GDP. This threshold is found to be lower than the 15-20 percent proposed by the Breton Wood Institutions for Low Income Countries. The difference in result is attributed to the shallow nature of financial markets in SSA. In fact, further analysis reveal that domestic debt crowds out private sector credit by an elasticity of negative 0.3 percent of GDP, deterring capital accumulation and the growth of the private sector. These findings underscore the need for effective domestic debt management strategies which incorporate debt ceilings to limit domestic indebtedness and the design of financial policies which enhance credit availability, fiscal discipline and deepen debt markets on the continent.

Michael Sachs and Ian Stuart, Structural balances, fiscal rules and medium-term objectives Abstract: Structural budget balance rules have become increasingly popular in recent years. These ‘next-generation’ rules have been adopted by a number of countries, partly as a reaction to the failure of standard fiscal rules. Accounting for the business cycle is thought to give a clearer picture of the fiscal stance and provide greater discretion to policymakers in a rules-based framework, thus avoiding the pro-cyclicality of standard fiscal targets. In 2011, the Government of South Africa proposed the introduction of a structural budget balance rule. However, while the structural balance does appear regularly in budget documentation, no such formal rule has been adopted. This paper critically reviews the rationale of structural balance rules, and argues that the benefits in terms of transparency and discretion are not likely to materialise. From a technical perspective, estimating the structural balance is complicated by uncertainties about the size of the output gap and tax-to-GDP elasticities. Politically, the complexity of structural balances can make public communication of the fiscal stance more difficult, and shift debate away from more concrete measures of fiscal performance. We argue that these problems are more acute for developing economies undergoing transition, which makes ‘real-time’ use of structural rules for policy-making particularly difficult. Lastly, we compare the Chilean and South African experiences in proposing a structural budget balance rule. We conclude that structural rules can strengthen the policy process provided that: (1) technical innovations are embedded in a widely legitimate political process; (2) there is no dichotomy between medium-term objectives and permanent constraints as an anchor of fiscal policy; (3) medium-term objectives are embedded in long-term constraints which evolve together over time. Overall, however, medium-term objectives focused on observable targets may be more useful as a policy anchor.

Olufemi Saibu, Fiscal Institutions and Oil Resource Management in Nigeria: The case of Sovereign Oil Wealth (SOW) Fund Abstract: Nigeria is facing major adjustment problems. The current upswing in oil revenue made the manufacturing industries come under pressure as resources are drawn into the non-traded sector There is tendency that once resource income starts declining, those very manufacturing industries that are comatose due to oil resource curse will be needed again to earn foreign exchange. Hence the need to develop an appropriate macroeconomic management strategy that will adequately address all these issues. The aim of the paper is to examine how fiscal policy can be used to manage these problems by examining the appropriateness permanent income equivalent (PIE) approach to sovereign oil wealth (SOW) fund saving rather the current approach where the target to be saved depends on the current budgetary allocation and political consideration. The objective of the study is to determine the appropriate level of deficit to be maintained and how much should be invested today in order to maintain fiscal sustainability in the foreseeable future in Nigeria. This paper differs from most studies in the existing literature in many ways: unlike existing studies it pays extensive attention to uncertainty, both in the choice of discount rates, and the derivation of the entire distribution of possible future outcomes, instead of focusing on one, or a few, scenarios. Secondly, the extension of the commonly used PIE framework to determine how much to SOW also allows for the explicit analysis of debt management policies designed to reduce volatility. The paper also simulates likely debt stocks in the future under various policy rules for the non-oil deficits. In one scenario, the non-oil primary deficit (NOPD) is limited to the calculated value of the permanent income equivalent (PIE) of all current and future oil revenues. Additionally, the consequences of high spending and low oil prices are explored.

Giovanni Ricco and Nicola Viegi, The Ages of South African Fiscal Policy - 1970-2012 Abstract: We study the different phases of South African fiscal policy both in its formulation and its macroeconomic impact. Firstly we analyse the rhetoric of successive South African Treasury Ministers in their budget speeches pointing out the shifts in policy priorities and policy framework. We use a change point VAR to identify 3 regimes in the economic history of South Africa from 1970 to the present. Subsequently we study fiscal shocks over these three periods using a large information approach to control for fiscal foresight and anticipation. Given the very skewed distribution of wealth fiscal anticipation is potentially a very relevant issue in South Africa even in presence of a large portion of the population that could be described as hand-to-mouth consumers. In particular we identify fiscal shocks using a recursive identification and a Large BVAR with Minnesota priors. The results show that in the identified sub-periods it is the different combination of expenditure policy, tax policy and monetary response that determine the macroeconomic effect of fiscal policy. The combination of a fiscal shock with a medium term stability framework magnifies the real effect of the shock because it minimize the negative feedback on monetary policy.

Session F2

Sandra Mollentze and Bonakele Hlongwane, A financial cycle for South Africa Abstract: Financial stability evolved over time and is an important part of macroprudential policy. Prior to the global crisis, financial stability did not get a lot of attention from central banks. The period before the financial was referred to as the Great Moderation. Pre-crisis, the task of central banks were relatively straightforward; keep inflation within a tight range through control of short-term interest rates, and everything else will take care of itself. However, post crisis, many certainties have gone. Price stability has proven no guarantee against major financial and macroeconomic instability. As a direct result of the crisis, an increasing number of central banks were given explicit financial stability macroprudential mandates. Macroprudential analysis is a key building block of vulnerability analysis as it helps quantify and qualify the soundness and vulnerabilities of financial systems. Macroprudential indicators comprise both aggregated microprudential indicators of the health of individual commercial banks and other financial institutions (such as capital adequacy, earning and solvency) and macroeconomic indicators associated with the soundness of the financial system (such as the volatility in exchange and interest rates, growth rate of the economy) and market-related data. It is aimed at detecting and monitoring cyclical and structural vulnerabilities in the financial system. When these vulnerabilities are present, certain destabilising events, such as a stock market crush may rapidly lead to financial instability with potential adverse effects on the real economy. The purpose of the paper is to investigate the possibility of including various indicators to eventually construct a financial cycle for South Africa. A historical overview of financial cycles will be done, and then the motivation or rationale for including various indicators would be described. Interaction of the financial cycle with the business cycle as well as the multinational cycles would be discussed. Finally a dashboard of potential indicators of the financial cycle would be portrayed.

Kirsten Thompson, Renee van Eyden and Rangan Gupta, Identifying a financial conditions index for South Africa Abstract: In the wake of the global financial crisis of 2007-08 policy-makers and decision-makers the world over identified the need for a better understanding of financial conditions, and more importantly, their impact on the real economy. To this end, we have constructed a financial conditions index (FCI) for the South African economy, to enable the gauging of financial conditions in the country. The FCI is constructed using monthly data over the period 1966 to 2011, and is based on a set of sixteen financial variables. These variables are representative of global financial affairs, asset prices, rate spreads, stock market yields and volatility, bond volatility and monetary aggregates. We test different methodologies for constructing the FCI, and find that recursive principal components analysis (PCA) yields the best result. We furthermore test whether to purge the FCI of the real effects of inflation, economic growth and interest rates. We finally utilise the identified FCI for identifying policy scenarios via impulse response functions, and for conducting preliminary out-of-sample forecasts of economic activity.

Johannes Hermanus Kemp, Constructing a finance-neutral output gap for South Africa Abstract: In a recent paper, Borio et al (2013) show that information embedded in the financial cycle can serve to improve measures of potential output and output gaps. It is argued that output may be on an unsustainable path despite low and stable inflation if financial imbalances are accumulating. The authors show that incorporating information on the financial cycle yields measures of potential output and output gaps for the US, UK and Spain that are estimated more precisely and are more robust in real time. Additionally, this finance-neutral output gap measure gives a substantially different perspective on the amount of slack in these economies in the run-up to the financial crisis. In contrast to conventional measures, a finance-neutral measure of the output gap suggests that output was on an unsustainable path leading up to the crisis. Existing measures of the output gap for South Africa do not generally incorporate information on the financial cycle. Using a similar framework to that used in the Borio et al (2013) paper, a finance-neutral measure of the output gap is estimated for South Africa.

Frederick Lutz, Using Google Trends to Nowcast Consumer Confidence in South Africa Abstract: Google Trends search data was used to predict current consumer confidence in South Africa as proxied for by current retail sales. These relatively successful nowcasts are used to show that the online behavior of South Africans shows a similar correlation to the real economy as was found in other studies using the data and, more importantly, shows the potential that online data has for developing countries.

Session F3
Economics and


Ewert Kleynhans, A Microeconomic Analysis of the Level of Optimisation of the Capital and Labour Input Base of the South African Petroleum Industry Abstract: High and rising fuel prices are taxing consumers and depress the economy, leading to high inflation and ever increasing cost of living. This study makes a micro-economic analysis of the allocation of the input factors of production of South African petroleum industry, to determine whether production factors are allocated most productively. The study applies a Cobb-Douglas efficiency criterion in a unique way as measurement and quantification of productivity to estimate a production function, determine the point of optimisation, and to determine the extent to which capital or labour are over- or under-utilised. The study then suggests how the over- or under- utilisation of factors of production can be rectified and what gains this may yield to the industry and the consumer. The results show that the petroleum industry can assist in dampening the ever rising fuel prices through the streamlining of its internal operations. These results are indeed interesting and substantiate the hypothesis that the low level of productivity does contribute significantly to the increasing cost of fuel in South Africa.

Asha Sundaram, Crime and Firm Dynamics: Evidence from South Africa Abstract: This paper looks at the impact of crime on firm dynamism in South Africa. A large literature highlights the importance of institutions, especially security of property rights, in ensuring economic dynamism and firm performance. The argument is that while business-related crime can impose direct economic losses upon firms, causing smaller firms to shut down, failure to secure property rights can also discourage firms from investing in technology and physical capital by increasing their uncertainty about returns from such investment. This can result in productivity losses, compromising performance. Using a unique, new data set on firms, at the level of the municipal unit over the period 2003 – 2011, this study employs panel-data techniques to look at the impact of crime on firm births, exit and on the growth in the number of firms across regions. Results indicate that after accounting for regional size and time invariant, region specific factors affecting crime and firm dynamics simultaneously, high levels of business-related crime in the region are associated with greater exit and smaller changes in the stock of firms. The study finds that a one percent increase in the level of business-related crime is associated with a one percent increase in the exit rate of firms and a six percent decrease in the stock of active firms. We find that qualitatively, our results are robust to measures of various types of crime. This suggests that threats to the security of property are associated with lower firm dynamism across regions in South Africa. Given that allowing firms to thrive might be essential to ensure economic development at the regional level, our findings highlight the need for ensuring better quality institutions, specifically, a crime-free environment, resulting in security of property rights.

Ralitza Dobreva, The Impact of Acquisitions on Profitability: evidence from listed firms in South Africa Abstract: There are various theoretical and strategic reasons used by firms to justify embarking on acquisitions. The theory is somewhat ambiguous about acquisitions impact on the acquirer’s performance in terms of profitability, shareholder wealth, R&D, resource redeployment, management effectiveness and a variety of other indicators of value creation. The expansion of firms through acquisitions creates competition concerns in the cases where acquirers and targets are linked vertically or horizontally. However, the long-term effects of this method of expansion in the context of developing countries in general and of South Africa in particular require further investigation. This paper adopts the approach taken by Dickerson, Gibson and Tsakalotos (1997) to analyse the long-term impact of acquisitions on the acquirers’ profitability using a panel of companies listed in South Africa and observed over at least ten years. The aim is to compare the rate of return on company growth through acquisitions to the rate of return of growth through internal investment and to study whether embarking on acquisitions has positive or negative effects for generating value in the form of profits.

Geoffrey Scott Chapman, Economic impact of standards Abstract: Separating the role of standards and measuring their impact is extremely difficult because standards are an integral component of so many economic activities. On the one hand, their diversity makes it difficult to sensibly aggregate them into a single measure; while on the other, the economy-wide, rather than the specific effect of standards, may be the most important. That being said, previous micro-level research has shown that standards contribute positively to the financial performance of companies and at a macro-level, to total factor productivity, labour productivity and economic growth. Eight previously conducted national studies have found that the implementation of international standards leads to increased economic efficiency and this generates economic benefits for the supplying industry, through increasing profits. However, users also face economic benefits in the form of lower prices for goods and services. Furthermore, international standards can reduce risks and increase quality of service , while standards in general have been shown to increase exports and imports. Through utilising the Cobb-Douglas specification as in the previous national studies, the South African Bureau of Standards (SABS) embarked on an investigation to determine the macro-economic impact of standards on South Africa’s economy, through modelling labour productivity. The proposition that the implementation of standards leads to increased economic efficiency thus appears proved and in line with previous research.

Session F4
Economics and


Debra Shepherd, Distributive effects of curriculum coverage in South Africa: an unconditional quantile regression approach Abstract: Recent unconditional quantile regression (UQR) methods based on Firpo et al (2009) are used to analyse the distributive effects of curriculum coverage on schooling outcomes in South Africa. The increasingly popular conditional quantile regressions (QR) method of Koenker and Bassett (1978) and Koenker (2005) has helped researchers shift focus away from traditional methodology and average effects to the effects of a covariate on the whole conditional distribution. However, the estimates obtained from QR cannot be used to estimate the impact of a covariate on the unconditional distribution. The UQR approach runs a regression of a transformation of the outcome variable, the recentred influence function (RIF), on the covariate/s of interest. This allows us to retrieve both the partial effect of a shift in the distribution of curriculum coverage on the unconditional quantiles, as well as the "policy effect" of a more general change in curriculum coverage across the South African school system. A recently collated dataset of grade 5 learner performance in numeracy and literacy that captures detailed information on curriculum coverage within a classroom is used. The analysis is performed for the dataset as a whole, as well as restricting only to the subset of historically disadvantaged (blacks) schools.

Marinda Pretorius and Derick Blaauw, Happiness among first year students, does orientation programmes make a difference? Abstract: The last few decades has seen a significant increase in research on the individual’s subjective experience of well-being. The subjective well-being of university students has received less attention. This is important given the widespread concern over the high dropout rates at institutions of higher learning in South Africa. Macfarlane (2005) estimates this to be as high as 50% on average. The aim of this paper is to explore possible factors that have an impact on the overall subjective well-being of students. An exploratory enquiry into the possible determinants of subjective well-being of first year economics students at a comprehensive university will be used as a case study. The paper offers a unique contribution to the existing body of literature through an exposition of the possible effect of a targeted first year orientation programme on the overall subjective well-being of first year Economics students. The study follows a mixed method research approach. Available demographic data is supplemented by a purposefully developed survey instrument. The survey component was developed with the assistance of the academic development and support centre at the institution. The envisaged research population will consist of 130 first year students majoring in Economics. All ethical considerations were strictly adhered to and ethical clearance was obtained before the research commenced. Qualitative and quantitative analyses of the data will be utilised to explore the role of the orientation program for first year students in the Economics Department in terms of students’ subjective well-being. The hypothesis is that the program played a positive role in the subjective well-being of the students, Students may well feel more in control of their destiny through this continues interaction with the Department. The paper presents the empirical results pertaining to the analysis, laying the foundation for future studies on the subjective well-being of students.

Ravinder Rena and Sophia Egelser, An evaluation of the effectiveness of training on entrepreneurship development in Windhoek Abstract: The study assessed the effectiveness of training and development programmes for SME’s in the Windhoek area. The study focused on the given problem and as such, the literature review was conducted in an effort to uncover training and development needs of these SME’s. Following that, a survey was conducted with the purpose to investigate and assess the views of SME’s and those responsible for these SME programmes, training and whether they are aware of the training objectives and understand their roles and their significance. The study also assessed the strengths and weaknesses of these training strategies. The study assumes that before an entrepreneur enters a business field, proper training is given to them about ledgers, cash book and cash flow and how to receive goods and conduct stock taking. The study looked at the different roles of the SME’s, the key role players and how they contribute to the Namibian economy as a whole. The study focused on improvements as well as suggestions SME’s might have to improve their business. The researcher has observed that SME’s, training and development is a critical shortcoming in the Windhoek area, due to an increasing number of SME’s that are developing in the Windhoek area. The research questions also show that there is a great need for training and development of existing entrepreneurs. Some of these SME’s are a direct result of unemployment. The results suggest that training and development lead to higher SME performance. Most of the SME’s are trained on the job as expressed in the various literature reviews in the Windhoek area; therefore, the study concludes that there is a need for training and development for SME’s.

Session F5


Requier Wait and Riaan Rossouw, The economic benefits of shale gas extraction in the southern Karoo, South Africa Abstract: It has been said that the development of a shale gas industry could be a “game changer” for South Africa. However, despite this significant claim independent economic modelling shows that, on the contrary, the benefits to the local economy of the planned development will be quite small and that the major beneficiaries will be the owners (e.g. Shell, Falcon Oil and Gas, Bundu, etc.) of the extraction activities who predominantly reside outside of the development area. Accordingly, this paper provides a number of findings on the estimated economic impact of shale gas extraction—based on the application of an economy-wide impact modelling methodology—which should be of interest to both opponents and proponents of the shale gas industry. By including all possible results, such as the boost in public sector jobs and the analysis of the impact on the exchange rate and jobs in other sectors, this paper attempts to reveal more about the likely impact of shale gas extraction in the southern Karoo of South Africa.

Edward Blight and Peter Baur, Conflict of Energy in South Africa Abstract: With growing infrastructural pressure induced by urban intensification combined with rural development and the increasing demands of industrialisation, South Africa is facing two related challenges. The first of these is a lack of sufficient energy to satisfactorily fulfil the needs of the expanding economy. The second challenge is that South Africa has limited access to water. Electricity generation using the traditional coal burning power stations requires vast amounts of water for steam generation to drive the turbines, and in the cooling process. However, as the demand for electricity grows, so too does the demand on the country’s strained water supplies. Furthermore, the growing demand for electricity argues in favour of new traditional coal burning power stations, leading to a degree of conflict between stakeholders such as the energy producers, government bodies, and the limited water supply. In response to this, this paper looks at the issue of ‘clean’ energy, as an alternative to the electrical power produced through the traditional coal burning power stations. The approach of this paper is to examine, using a quantitative analysis using water and energy data from 1969 to 2012 to examine, the changes in the growing energy demand both from the microeconomic and macroeconomic perspective. The data is analysed with the use of Hirshleifer’s empirical model of resource conflict and the risks theory associated with the conflict between the scarce resources. Within this model we can see clearly the aggravated level of conflict between the policies governing energy production and the availability of usable water. This model will then support an argument that it is in South Africa’s best interest to support a viable, large scale, alternative energy generator.

Rashaad Amra, Back to the drawing board? : A critical evaluation of South Africa’s electricity tariff-setting methodology Abstract: Electricity tariffs in South Africa are determined by an independent regulator using the “rate-of-return” methodology. The efficacy of the “rate-of-return” methodology to meet the country’s developmental needs has been questioned in the wake of South Africa’s electricity crisis. This paper presents a critique of the current tariff setting methodology considering its relative merits and weaknesses and considers potential alternate methodologies in the South African context.

Andrew Sylvester, Are the recent coal mergers partly to blame for soaring electricity prices? Abstract: South Africa produces over 200 million tons of saleable thermal coal through 3 markets: about 60% to the tied domestic market which are long term contracts to Eskom and Sasol; less than 10% to the residual domestic market which are spot or short term contract sales; and, about 30% is exported. Glencore/Xstrata was one of a number of coal mergers to be approved by the competition authorities in recent years and resulted in the 4 largest firms having market shares of approximately 90%, 60% and 75% in the tied, residual and export markets respectively. These same 4 firms own and control the activities of Richards Bay Coal Terminal: the only significant coal terminal in South Africa. Concurrent with the concentration of coal markets, electricity prices in South Africa soared and ignited national debate alongside raising serious investment concerns. Amongst the various reasons given to justify these price hikes is the growing cost of coal to Eskom. Eskom has paid close attention to these mergers to the point of almost intervening in the most recent merger before reaching a private settlement with Glencore. It is easy to pre-maturely conclude that there a causal link between these two facts must exist. This paper uses merger analyses to evaluate the credibility of various theories of harm that might apply to coal mergers in South Africa. In doing so it shows that the incentives of coal producers combined with capacity constraints in logistics, exports and non-renewable resources result in little likelihood of a significant lessening in competition resulting from the recent coal mergers. Finally, it then posits alternative explanations for Eskom’s rising coal costs and makes brief mention of the already widely discussed options available to the South African government in addressing this issue.

Session F6

Ada Jansen, Mariana Moses, Stanford Mujuta and Derek Yu, Multifaceted poverty: Absolute, relative and subjective poverty in South Africa Abstract: The poverty concept is diversified and multidimensional. Poverty can be measured in either absolute or relative terms. The former approach is based on the minimum requirement needed to sustain life (e.g., the expenditure required to purchase the essential food and non-food items; the calorie intake required to meet the nutritional requirements for a healthy and active life). The latter approach changes with the standard of living, with the poor being defined as people whose income or expenditure is below a percentage of that of their contemporaries (e.g., the median income or income at the 40th percentile of the population). Poverty can also be measured subjectively as people make subjective and different judgements on what constitutes a socially acceptable minimum standard of living in a society, and distinguish themselves as poor if, for instance, they think their income level is below that of the others in the same area, or if they are not satisfied with their life as a whole. Using the NIDS 2010/2011 data, this paper intends to conduct comparative studies of multiple poverty measures into absolute, relative and subjective poverty incidence in South Africa. Probit analyses are conducted to identify the poor using the following approaches: (1) absolute income poverty method; (2) relative income poverty method; (3) subjective income poverty method; (4) subjective poverty method; (5) subjective wellbeing method. Whether the demographic, educational, labour market and socio-economic characteristics of the poor differ significantly amongst the different methods will also be analysed. An ordinal logistic regression will be conducted to establish the characteristics of people who are distinguished as poor in more than one of the above approaches, in particular those who are classified as poor in all five approaches. They should be the most vulnerable people who should be targeted in the poverty reduction strategies.

Asmus Zoch, Life chances and class: Estimating inequality of opportunity in South Africa for various life stages Abstract: This paper aims to determine the degree to which class and socio-economic background influence a child’s life chances and their future perspectives. We build on the growing number of papers that deal with the concept of inequality of opportunity. Comparing children from poor and middle class households we find significant differences in terms of access to basic education, sanitation, clean water and mobility. Our multivariate analysis highlights the importance of class membership for schooling outcomes and labour market prospects of a child. The single most important variable to explain schooling outcomes are mother’s education. While income seems to be less important for younger ages it becomes increasingly important for the chances of reaching matric and obtaining tertiary education. The results are robust for various models and panel data.

Session F7
China, BRICS
and the EU


Lumengo Bonga-bonga, Assessing the readiness of BRICS grouping for mutual beneficial financial integration Abstract: This paper assesses the transmission of equity market volatility shocks between BRICS (Brazil, Russia, India, China and South Africa) countries to infer the degree of their mutual influence and the possibility of a beneficial financial integration. The paper makes use of the spillover index methodology suggested by Diebold and Yilmaz (2012) for this end. Nonetheless, the paper extends this methodology by computing volatility series taking into account the possibility of conditional heteroscedasticity and leverage effects in each of the BRICS countries’ equity market. The paper finds unequal influence between BRICS countries in relation to the mutual transmission of volatility shocks. The finding indicates the possibility of unequal benefit that can result from a possible financial integration between BRICS countries.

Lynsey Mugomba and Doreen Bekker, China, the future hegemon of the global economy? Abstract: The emergence of China as an industrial powerhouse has been a major driving force in shaping the modern day global economy and this has given rise to speculation that there may be a shift in global economic power - China’s new economic status has fuelled talk that it could soon overthrow America as world leader. However, according to Gilboy (2004), China’s economic accomplishments and potential as a hegemon are overstated. Besides which, Lieberthal and Jisi (2012) state that the U.S. welcomes a wealthier and globally more involved China - on condition that China tries to be a constructive player at a regional and global level. This paper looks at these different views on China’s place in the global economy. The question is posed as to whether or not the Chinese economy could become the new global economic core. After considering the literature on this topic and analysing some data, the objective view arrived at is that while China’s economic achievements are indeed impressive, there are other factors that could prevent this country from becoming a serious contender to America’s hegemonic position. In addition, the notion of a strategic partnership between the two countries is also considered, provided they can move past the general air of mistrust between them. It would appear that the American economy remains reasonably strong and steady compared to other economies - even in light of the current world recession. While China may seem to have the potential to acquire great power, she still has some way to go before reaching developed-country status. On the other hand, it is contemplated that when China does reach this stage of development there may in fact be space in the world for two hegemons – a situation which could significantly alter the world’s power dynamics.

Tobias Knedlik, The impact of preferences on early warning systems - The case of the European Commission’s Scoreboard Abstract: The European Commission’s Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system. It allows the preferences of the politicians involved to be analysed with regard to the two potential errors of an early warning system – missing a crisis and issuing a false alarm. Such an analysis is done for the first time in this article for early warning systems in general by using a standard signals approach, including a preference-based optimisation approach, to set thresholds. It is shown that, in general, the thresholds of the Commission’s Scoreboard are set low (resulting in more alarm signals), as compared to a neutral stand.

Lawrence Edwards and Rhys Jenkins, The margins of export competition: A new approach to evaluating the impact of China on South African exports to Sub-Saharan Africa? Abstract: Chinese manufacturing exports to Sub-Saharan Africa challenge South Africa’s economic influence in the region. To evaluate this, the paper develops and applies a conceptual framework that distinguishes between the intensive and extensive margins of Chinese export competition. South African manufacturing exports of new products and existing products to Sub-Saharan Africa are found to have been more negatively affected by Chinese competition than exports from other countries. As a result South Africa’s exports to the region in 2010 were 20% lower than they would have been if they had been affected to the same degree as other countries. The crowding-out effects are strongest in medium- and low-technology products.

Thursday15:00 - 16:20Parallel Sessions G
Session G1

Estian Calitz, Krige Siebrits and Ian Stuart, Enhancing the credibility of fiscal forecasts in South Africa: Is a fiscal council the only way? Abstract: The paper asks whether South Africa should follow the international trend and establish a fiscal council. Given that fiscal councils and numerical fiscal rules are increasingly seen as complementary aspects of fiscal policymaking frameworks, the theory and practice of fiscal councils and recent international experience with fiscal rules are reviewed. The empirical evidence on fiscal councils is very limited. We therefore review a few countries’ experience as brief case studies, which provide stark examples of institutional success and failure. In the light of this evidence – in particular, the increasingly recognised need for flexibility in fiscal rules, respect for the country’s political environment in considering the appropriateness of fiscal councils and the importance of transparency in any fiscal regime – we discuss lessons for SA, and the mechanics of our proposal. SA’s fiscal performance and regime are assessed, with reference to the literature’s finding of historical fiscal sustainability and macro fiscal forecasting accuracy (assessed in a separate paper proposed by the same authors) and various measures characterising the current transparency-enhancing regime of fiscal discretion. It is recognised that SA does not have numerical fiscal rules and that the National Treasury has not been outperformed by nongovernment economists in forecasting key variables used in drafting the annual budget. Projections nevertheless become increasingly inaccurate over three-year periods. On average, budget deficit forecasting errors have during the previous decade been lower than in European Union countries. The case for a fiscal council on the basis of better short-term forecasting accuracy alone is not strong. Instead of a fiscal council, an institutional innovation is proposed, namely structured bi-annual discussions of government’s macroeconomic budget forecasts in public parliamentary hearings, integrated into the budget process. This avoids drainage of scarce resources from Treasury and political pitfalls encountered elsewhere and might strengthen credibility of medium-term projections.

Goodness Aye, Mehmet Balcilar, Rangan Gupta and Anandamayee Majumdar, Forecasting Aggregate Retail Sales: The Case of South Africa Abstract: Forecasting aggregate retail sales may improve portfolio investors’ ability to predict movements in the stock prices of the retailing chains. Therefore, this paper uses 26 (23 single and 3 combination) forecasting models to forecast South Africa’s aggregate seasonal retail sales. We use data from 1970:01 – 2012:05, with 1987:01-2012:05 as the out-of-sample period. We deviate from the uniform symmetric quadratic loss function typically used in forecasting evaluation exercises. Hence, we consider loss functions that overweight forecast error in booms and recessions to check whether a specific model that appears to be a good choice on average is also preferable in times of economic stress. To this end, we use the weighted RMSE and weighted version of the Diebold-Mariano tests to evaluate the different forecasts. Focusing on the single models alone, results show that their performances differ greatly across forecast horizons and for different weighting schemes. However, the combination forecasts models in general produced better forecasts and are largely unaffected by business cycles and time horizons.

Estian Calitz, Krige Siebrits and Ian Stuart, The accuracy of fiscal forecasts in South Africa Abstract: Forecasting accuracy is important for fiscal policy credibility. Three questions are posed. (1) Are forecasts by National Treasury good, compared to those of non-government economists? Using results of Van der Wath (2013), Treasury’s forecasts are compared to non-government projections with reference to the mean absolute and root mean square errors. It is concluded that nongovernment economists do not necessarily forecast GDP and inflation better than Treasury. (2) Have forecasts by National Treasury been good, over time and compared to those of other countries? We calculate the forecast error (the final figure minus the budget estimate), using data for 2000/01-2010/11. This is most relevant because retrospectively the outcome of fiscal policy is analysed and judged with reference to final figures. National Treasury’s budget forecast errors are found to be significant. Margins of error in forecasting revenue, expenditure and GDP have partially neutralised each other in terms of their impact on the budget balance as a percentage of GDP. Except towards the end of the period, the fiscal balance was better than budgeted. On average and calculated as a percentage of GDP, revenue forecasting inaccuracies made the biggest contribution to inaccurate estimates of the budget balance, but this is largely explained by GDP forecasting inaccuracies. SA fiscal forecasts show a smaller forecast error than that of 14 member countries of the European Union. (3) Has the forecasting ability of National Treasury improved over time? A trend line higher Treasury forecast errors towards the end of the period and an underestimation bias for GDP and revenue forecasts. This amounts to a conservative fiscal strategy, which may be good for fiscal discipline. A simple example of the dynamics of fiscal politics is presented to demonstrate that a persistent underestimation of revenue could, however, also erode fiscal credibility. ________________________________ 1. Van der Wath (2013): “A comparison of the BER’s economic forecasts.” Unpublished research note. Stellenbosch: Bureau for Economic Research.

Maggie Thobejane and Isaac Kanyama, Forecasting Macroeconomic Variables in South Africa: Parametric versus Non-parametric Methods Abstract: The objective of this research article is to evaluate whether the modern non-parametric model can outperform the simple linear time series model in forecasting macroeconomic variables such as inflation unemployment and economic growth in South Africa. Using the predicted mean squared error (PMSE) obtained from the estimation of the two models we decide on which method provides the best forecasting accuracy which policymakers can rely on in forecasting the inflation, unemployment and economic growth. Often researchers a priori assume that the distribution underlying these variables is normal and that the functional form is known hence a parametric model will be suitable for forecasting however in reality that is not the case. By fitting these variables in a simple linear time series model and obtaining an out-of-sample forecast result tend to be misleading. Thus the forecast of these macroeconomic variables is important for policymakers since national budget and efficient allocation of resources are based on this result. Therefore for the government to allocate resources more efficiently in order to stimulate the economy projection of these macroeconomic variables should be accurate enough and the policies put in place should be consistent with these projection.

Session G2
Inflation and
monetary policy


Gideon du Rand and Stan du Plessis, An Agent Based Computational Model of Monetary Policy, Banking and Bank Regulation Abstract: We present an agent based computational model where banks have a productive purpose to serve in an economy with incomplete information: banks serve as investment vehicles that allow agents with low productivity but high wealth to affordably invest in bank deposits or equity that is used to fund loans to individuals with high productivity but low wealth. The central feature of the model is that each agent has a unique stochastic investment technology that only she may invest in. This set of assets forms the entire basis of production of this economy. All other assets (bank deposits or equity) are derivatives of the underlying set of assets that is invested in in equilibrium. Agents may choose not to invest in their private technology but rather in bank deposits or bank equity if the return to the individual specific asset is deemed sufficiently low. Furthermore, bank equity holders are the decision-makers that choose bank policies regarding loan approval. The model thus simulates a financial/equity market that responds endogenously in size and distribution, in growth and volatility to exogenously imposed policy and regulatory conditions. The model is rendered computationally feasible by assuming a finite, imperfectly informed population of agents that have to learn about the nature of the economy from observed data generated by the economy to independently make simple consumption/portfolio decisions. Crucially, since institutions determine which assets are worth investing in, they also determine what data are available for the agents to learn from - i.e. multiple equilibria are guaranteed to exist. We document whether there is any regularity in the relationship between the type of equilibria converged upon (distinguished along dimensions of growth and inequality) and institutions, regulations or monetary policies. As illustrative example, we study the aggregate outcomes under limited or double liability for bank equity holders.

Monique Reid and Stan du Plessis, See no inflation, hear no inflation: how the media influences inflation expectations in South Africa Abstract: Inflation expectations play a central role in the modern understanding of inflation. To manage inflation a central bank pays close attention to these expectations and their communication strategy is a critical to this end. However, the general public (as distinct from financial analysts) are rationally inattentive to the communication of the South African Reserve Bank. To lower the costs of collecting and processing information about monetary policy, the general public relies on the media (Reid and du Plessis, 2011). However, Reid and du Plessis (2011) found that the South African media does not interpret and present monetary policy critically for the South African public. This paper extends their work to consider the response of the South African public to monetary policy information as presented in the media. More specifically, the paper considers how the inflation expectations of the general public are influenced by media reports on monetary policy. Do the general public treat the media as an independent and trustworthy source of specialist financial information? The paper also considers whether the sensitivity of the general public to the media reports varies under different macroeconomic conditions.

Franz Ruch, Quantifying second round effects on inflation: a spillovers approach Abstract: This paper quantifies second-round effects to core inflation from food and energy prices using the spillover methodology of Diebold and Yilmaz (2009). Forecast error variance decompositions from a vector autoregression (VAR) model is used to distinguish between own shocks (referring to shocks to the components of inflation) and the spillover of shocks. This methodology has been used to analyse a number of issues in the South African context including by Duncan and Kabundi (2013), Ruch (2013) and Kavli and Kotze (2013).

Eliphas Ndou and Siobhan Redford, Relative price variability: Which components of the consumer price index contribute towards its variability? Abstract: This paper follows work by Choi, Kim and O’Sullivan (2011), but deviates from their analysis by looking at the relative price variability (RPV) of selected components of the consumer price index (CPI) rather than an aggregate measure. The purpose of this work is to analyse which components are more variable and to see if there has been a change in the RPV (i.e., mean and distribution) since the adoption of inflation targeting (IT) in South Africa. A semi-parametric methodology has been used, and the RPV of components pre-IT and during the IT era were considered to see if the relationship of RPV components produces results similar to those presented for aggregate headline CPI for South Africa in Choi et al. (2011). The results suggest that in most cases, the components of the CPI have experienced decreased mean inflation rates and narrower distributions during the IT period with the changes in the mean and distribution of RPV decreasing and narrowing in most cases. Furthermore, the nature of the relationship of the RPV of the components with inflation seems to fit a quadratic specification well, with a minimum relative price variability at a positive rate of inflation. These results are found to be fairly robust during the period tested.

Session G3
SADC and


Kwena Matjekana, Regional Economic Integration in Southern Africa - Dreams, Challenges and Realities Abstract: The recent decade has witnessed an increase in the formation of regional trade agreements. This has seen the emergence of, among others, nine regional trading blocs in Africa. The driving forces for the formation of these agreements can roughly be placed into two categories, viz., geopolitical considerations in which countries desire to hold their own politically on international issues, and economic considerations in which countries desire to hold their own economically in global context. In Africa, the main driving force has apparently been the result of a realization by the countries involved of the need to confront inherent challenges of vulnerability from recurring climatic uncertainties, the threat of political instabilities originating from contestation of power and the desire for increased economic cooperation across borders. It is often expected that trade liberalization and expected increased intra-regional trade would improve performance of the region’s economies. Theories of economic integration show that integration may have both positive and negative outcomes. This paper attempts to question whether the SADC, one of the regional groupings, is ready for complete integration. This will be looked at from the perspective of key policy issues that are needed to be in place for the successful operationalization of effective integration. Relying on secondary, data the paper will use GDP, FDI, intra-regional trade and other macroeconomic indicators to compare the performance of the economies of the member countries included in SADC grouping. In addition, the paper addresses a number of key factors that continue to present formidable challenges to the region. The argument is advanced that these factors need to be confronted honestly in order for regional integration initiative to succeed. An attempt is made to highlight insight from lessons that could be learnt elsewhere so as to enhance the integration framework in the current context of a changing global environment.

Carolyn Chisadza and Manoel Bittencourt, Modernisation hypothesis: evidence from sub-Saharan Africa Abstract: According to theory, a positive relationship exists between economic development and democracy. Countries are more likely to transition to democracy the more developed they become, and remain a democracy as they continue to develop. This is the backbone of Lipset's (1959) modernisation hypothesis. A number of papers have been able to find evidence in favour of it (e.g., Barro (2012), Heid et al. (2011), Gundlach and Paldam (2008), and Epstein et al. (2006)). On the other hand, there have been just as many studies disproving the hypothesis (e.g., Burke and Leigh (2010), and Acemoglu et al. (2009 and 2008)). Our paper revisits this relationship between development and democracy with a data set that includes 48 sub-Saharan African countries between 1960--2010. Using dynamic panel data techniques with fixed effects and instrumental variables (we use the Fixed Effects with Instrumental Variables, SYS-GMM and FGLS estimators), we obtain a negative and significantly robust relationship between income and democracy in the region. We interpret the results in two different, but complementary, ways: firstly, putting Lipset's argument upside down, we can argue that sub-Saharan Africa is rather poor for democracy to survive and mature, and therefore the negative sign between income and democracy. Secondly, following Huntington (1968), we suggest that rapid economic modernisation, alongside a slow development of political institutions, lead to political disorder and rather unstable political regimes, which is in line with the results we find for the region as well. All in all, given the recent wave of rapid economic development affecting sub-Saharan Africa, the results reported here are suggestive of the importance of not only economic modernisation, but also of the need for political institutions to adapt to the demands of development, so that democracy survives and matures in the region.

Neil Balchin, A Disaggregated Analysis of Product Price Integration in the Southern African Development Community Abstract: Empirical evidence on the extent to which product markets are integrated within Africa remains noticeably limited. Much of the evidence that is available is drawn from studies that use quantity based measures of integration, such as the volume of trade flows between markets. These approaches are potentially problematic as trade volumes may be an endogenous outcome of market integration and are also influenced by unrelated factors. Recognising these shortcomings, increasing focus in the international literature has been placed on alternative approaches that use price-based metrics to assess product market integration. However, very limited attention has been afforded to price-based analyses of product market integration in Africa, especially in the case of markets within the Southern African Development Community (SADC). This paper addresses the lack of price-based studies of product market integration in the SADC region. Using highly disaggregated retail price data collected at the district level in Botswana, Malawi, South Africa, Tanzania, Zambia and Uganda (which serves as a control), the paper assesses the extent to which product prices are integrated within and between these countries. Dispersion in the absolute price levels of products is examined by measuring deviations from the law of one price (LOP). Kernel density estimates are computed to provide estimates of product-by-product deviations from the LOP, which are compared across districts within and between countries. The mean absolute deviation in product prices is then measured over time. Thereafter, the paper examines dispersion in average prices – computed as the mean squared error of relative logs of prices. Through a disaggregated, price-based analysis of product price integration, the paper provides empirical evidence on the extent to which product markets are integrated within and between SADC economies. The findings offer important insights into the state of regional integration within the SADC region.

Rachel Chater and Mark Ellyne, Exchange Controls and SADC Regional Integration: Measuring SADC Restrictiveness Abstract: This paper addresses the issue of foreign exchange and capital controls in the context of the Southern African Development Community’s goal of regional integration. It reviews the theory and evidence surrounding current and capital account liberalisation and argues that there is a lack of sufficiently refined de jure measures of capital account openness. A new index for measuring foreign exchange and capital account restrictiveness is created based on data from the International Monetary Fund’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) for the 15 SADC member states. It identifies substantial variation in the regulation and effects of capital and exchange controls across SADC countries that other existing, more aggregated capital control indices fail to account for. It also correlates with several measures of financial development, growth rates and balance of payment items. While substantial evidence exists showing that free trade and low tariffs for goods are favourable for growth and development, there is a lack consensus on the benefits of free trade in services and capital. Most countries have liberalised current account transactions and the focus is now shifting to the debate surrounding capital account liberalisation. The motivation for this paper is two-fold: 1) To examine such questions, test hypotheses and present robust arguments, detailed measurements of the extent of current levels of exchange and capital controls are needed. 2) In the context of increasing regional integration, consistent controls across member countries of the regional block are important and thus so too is an understanding of the current state of exchange and capital controls. The new index created and presented here addresses these issues and provides avenues for further research.

Session G4
Economics and


Sean Muller, A Critical Reassessment of South African Public Education Expenditure Abstract: The failings of the South African education system in the pre- and post-democracy eras are well-known. The current consensus in the relevant academic literature is that South African public expenditure on education is high, implying that only efficiency- and quality-related measures are required to remedy failures in outcomes. Furthermore, with a high proportion of the budget going to personnel costs a number of authors have argued that wage moderation is required. We critically assess each component of this argument and conclude that it is ill-founded: once one accounts for factors such as demographic differences, class sizes, and changes in the composition of funding, South African education spending does not compare as favourably in cross-country comparisons. Maintaining or reducing total real education expenditure while simultaneously reducing personnel costs may therefore exacerbate existing problems rather than removing them. In addition to the above we examine the implications of an alternative process of constructing measures of real education expenditure for cross-country comparisons that better accounts for relative costs. This, also, has important effects on the conclusions from international benchmarking. We conclude with a brief discussion of the implications of the above results in the context of evidence of serious inefficiencies in the public education system.

Rulof Burger, Estimating the South African schooling-productivity profile: A production function approach Abstract: This paper uses the production function approach to estimate the effect of schooling on the productivity of South African workers. Production functions are estimated for South African industries using a novel industry panel dataset that combines education and employment data from a series of household surveys with output and physical capital data from the South African Reserve Bank Quarterly Bulletins. The pooled ordinary least squares estimates indicate that the returns to education are substantial and concave, but these effects disappear when industry fixed effects are included in the regression. This result is similar to what has been found in other African production function studies. However, we demonstrate that the strong schooling effects are restored when making proper allowance for measurement error or parameter heterogeneity and cross-sectional dependence. The results suggest that industry productivity and the average schooling level of workers are highly correlated and difficult to identify simultaneously using only time series variation in the data.

Martin Gustafsson and Stephen Taylor, Treating schools to a new administration: The impact of South Africa’s 2005 provincial boundary changes on school performance Abstract: The impact that the systems and practices of education authorities have on school performance is usually difficult to quantify. Provincial boundary changes occurring in South Africa in 2005 appear to offer a valuable quasi-experiment that lends itself to impact evaluation techniques. A total of 160 public secondary schools experienced a switch in administration and at least two types of switches, one from Limpopo to Mpumalanga and another from North West to Gauteng, were sufficiently common to yield statistically significant performance trends. Various indicators of Grade 12 mathematics performance are explored which take into account passes at a low threshold, achievement at an excellent level and selection into mathematics. Models used include a simple value-added school production function and a difference-in-difference model. The data include annual Grade 12 examination results for the period 2005 to 2012, which allows for lags in the impact to be explored. Using just schools situated close to the moving boundary in the control group, as opposed to all schools in the sending province, is attempted. A key finding is that schools moving from North West to Gauteng appear to enjoy benefits associated with the treatment as far as the number of students excelling in mathematics is concerned. Migration towards treatment schools by students from control group schools seems not to have contaminated the results seriously. The dynamics of the positive treatment effect are investigated through a comparison of the plans and educational materials of the North West and Gauteng provinces. Specific aspects of what appears to be better governance and resource availability in Gauteng are discussed. The paper ends with some tentative conclusions in relation to how governance responsibilities in education can be optimally spread across the national, provincial and local levels in South Africa.

Janeli Viljoen, Does falling behind lead to being left behind? – Evidence form the National School Effectiveness Study (2007-2009) Abstract: The South African education system is characterised by a dichotomous nature, with stark contrast in performance along socio-economic status lines. Considerable faith is placed in education as the instrument with which to eradicate this severe inequality, but regrettably, historically disadvantaged schools are still performing in the same debilitated manner as during the Apartheid era. Even though the poor are attaining more years of education than before, it has become evident that they are learning so little from each year of education that the completion of basic schooling leaves them lacking the necessary skills of basic literacy and numeracy. This dilemma raises the question as to whether this lack of proper skills development is not perhaps cleaving South African society even wider apart. The unacceptably high education inequalities have long been a matter of concern amongst policy makers, which warrants the necessity of more comprehensive research into this matter. Learning profiles, which track changes in student skills per year of learning, can therefore be used as an instrument with which to examine the changes in performance between the rich and the poor over time. The National School Effectiveness Study (2007 – 2009) provides a unique three-year panel dataset that tracked students from grade 3 to grade 5. This allows one to examine the changes in educational gains between the rich and the poor over time. An item analysis using Rasch modelling demonstrates that many children in the historically disadvantaged part of the school system still failed to master mere grade 1 level items by grade 5, suggesting that virtually no learning took place over the period. Analysis of overall scores suggest that educational inequalities are established as early as grade 3 and that by grade 5, children in poor schools actually fell further behind those in more affluent schools.

Session G5

Emilie Kinfack, The border effect on intra African trade evidence from monopolistic competition model Abstract: The study aims to analyse the border effect on intra-African trade. We apply an advanced gravity model - based on the monopolistic competition model of trade introduced by Krugman (1980) - in order to investigate the impact of border effects on intra-African trade, and to determine whether non trade barriers and consumer preferences have a significant impact on trade flows between African countries. The contribution of this paper to the related literature is twofold: on one hand this paper is the first to use industry-level data on intra-Africa trade flows to estimate a gravity model. On the other hand, it is the first to introduce consumer preference in order to explain intra-African trade; previous studies on the border effect in the African countries have only considered NTB as proxy to border effect. The study used data on 26 manufacturing industries of 41 African countries over the period 1996 to 2001. This allows estimating a gravity model with about 17,000 observations. The first econometric results suggest that border effect negatively and significantly impact bilateral trade in Africa.

Kwame Osei-assibey, A Revisit of the Diverse Empirical Findings on the Impact of Exchange Rate Volatility on Trade: Some Evidence from 3 Developing Economies Abstract: Although exchange rate volatility is widely believed to negatively affect international trade, empirical studies on this relationship have produced mixed results. This paper empirically examines this relationship for three Sub-Saharan developing countries namely Ghana, Mozambique and Tanzania, whose real growth policies depend heavily on international trade; taking into consideration that the choices of modelling specification, class of countries considered (developed vs. developing) and exchange rate proxies among other factors can potentially influence findings (Baum et al 2004 and also Ozturk 2006). Using three different exchange rate volatility proxies in an augmented gravity model (which in itself was estimated using two different techniques), it was observed that exchange rate volatility did not impact on trade for these three developing countries and their trade partners considered. However, findings from this study does not firmly support the suggestion that different model specifications affect empirical findings; it was however observed that to some extent, the nature of relationship between bilateral trade and some of the variables considered in the augmented gravity model can be sensitive to the exchange rate volatility proxy used as well as interestingly, the country trade pair under consideration.

Prudence Madiba, Magda Kasyoka Wilson and Josine Uwilingiye, Current account balance and exchange rate dynamics in South Africa; an empirical investigation. Abstract: The 2008/09 financial and economic crisis triggered a recession in Europe which has affected its trading partners such as South Africa. The fall in foreign income has resulted in worsening current account deficit in South Africa. Many analysts believe that the deteriorating current account deficit has led to depreciation of the rand. In this paper, we examine this relationship using the monetary approach to exchange rate determination where assets are assumed to be perfect substitutes and macroeconomic variables play a significant role in the exchange rate determination through their effect on the current account. Using a time varying structural vector autoregression, where the sources of time variation are both the coefficients and the variance we empirically demonstrate how changes in current account balance affect the exchange rate in South Africa for the period 1990 to 2012.

Dale Mudenda, Tariff Reform and Product Market Integration In Zambia: 1993 -2011 Abstract: Zambia presents a unique case study for an evaluation of the impact of trade reform on product market integration. The economy embarked on an ambitious programme of tariff liberalisation from the early 1990s with average tariff rates falling from 28 to 13.5% between 1992 and 2000. These reforms are expected to have significantly affected the economy, including the integration of product markets. Analyses of trade liberalisation commonly analyse the impact of lower tariffs on employment, trade and output. The impact on price integration within countries has not yet been explored, at least within the African context. This paper explores the effects of tariff reforms on Zambia’s product market integration from the price perspective. The study uses detailed databases of approximately 300 product-level retail prices used in the construction of CPI and tariffs from official publications. The objectives of the paper are to examine the extent to which: •product markets are segmented across various towns in Zambia; •tariff reforms have affected price dispersion across various towns in Zambia. Methods The theoretical framework is that of the law of one price (LOP). Tariffs impose barriers between cross border trade and hence impose a wedge between domestic and foreign prices. Protection, particularly in the form of non-tariff barriers, also preserve market power enabling domestic industries to price discriminate across regions within a country. Reductions in tariffs should foster price integration across countries and towns within countries. This study estimates the LOP where price dispersion is conditioned on distance between towns controlling for product, time and town specific effects. Product markets in Zambia are found to be fragmented. The dispersion of prices differs across products. Price dispersion among non-perishables and non-durables is much lower compared to durables, services and perishables. The estimates show that distance is a significant source of price dispersion, with different magnitudes across products. Evidence suggests that price convergence is slower for cities farther apart. Further, distance only explains a small portion of dispersion. Finally, tariff reforms have fostered domestic market integration.

Session G6


Wynnona Steyn and Yolande Jordaan, Comparing the employment and compensation of public and private sector employees Abstract: The structure of the economy and market forces direct wages and the distribution of income. Research into the distribution of private sector versus public sector employment and remuneration will provide insight and a better understanding of the existing differences and recent changes thereof. This is important for understanding the workforce dynamics in private sector employment and more specifically the nature of remuneration and distribution of wage income versus the public sector. This research will analyse the employment and distribution of taxable income amongst personal income taxpayers. All employed persons who have been issued with a tax certificate, be it an IRP5 or an IT3(a) would be included in the analysis. This analysis will therefore also include personal income taxpayers below the minimum tax threshold. The scope of the analysis will cover the differences between the public and private sector workforce in terms of the number of employees, taxable income, sources of income, tax deductions, tax paid, gender and age. This paper will also include an analysis of significant private sectors in terms of employment and remuneration. The SARS PITSIM micro simulation model will be used to do the calculations. This analysis will be conducted over 4 years for the period 2008/09 to 2011/12 for which available comparable data is available to measure the dynamic trends in the respective average changes. The paper will also endeavour to include analysis of panel data to track income changes of private and public sector taxpayers across income groups.

Ferdinand Niyimbanira and Waldo Krugell, More about the good Samaritans: Characteristics of volunteers in South Africa Abstract: Volunteers are people who supply labour for the production of goods and services, for the benefit of others. Volunteer work is of significance in a time when social safety nets are thinning and there are ever increasing demands on welfare organisations. If volunteers are understood better, it may be possible to harness their power for the greater good. The question is “who are these good Samaritans”? The consumption model of volunteer work states that individuals choose to spend time on paid work, leisure and volunteer work. It is then an empirical question whether volunteers are high-income or low-income individuals. If the substitution effect dominates, an increase in the wage rate will lead to a decrease in volunteer work as the opportunity cost of an hour of volunteering increases as the remuneration of paid work increases. If the income effect dominates, a higher wage rate means that an individual can work fewer hours to earn the same income as before and this will lead to an increase in volunteer work. This study examines the characteristics of volunteers in South Africa using data from the Volunteers Activity Survey. We describe the characteristics of the volunteers and estimate a cross-section model of the predictors of volunteerism, testing the consumption model of volunteer work.

Martin Abel, Rulof Burger and Patrizio Piraino, Productivity Signals in the Labour Market: Evidence from South Africa Abstract: Numerous programmes aimed at reducing barriers to labour market success have been evaluated in both developing and developed economies. Most studies have analysed the effect of programmes that directly raise participants’ job skills (e.g. training) or actively intervene in matching them to suitable employers (e.g. job search assistance, subsidized employment). This study analyses the effect of job search assistance while also testing the impact of pure productivity signals. This is achieved by use of randomized evaluations. We present preliminary evidence from a pilot study where participants were randomly assigned into one of three treatment arms: the first group received the regular job counselling provided by the labour centre. The second group met with a job counsellor and received a certificate with their score on a literacy and numeracy test. Participants in the third group met with a job counsellor to go over their work history and discuss who of former employers can serve as a reference. The remaining participants formed the control group. Preliminary results show that both the reference letter and certificate group searched for jobs more actively than the control group and received more interview invitations.

Derick Blaauw and Ilse Botha, Location, location, location – does it matter for the subjective well-being of day labourers in South Africa’s provinces? Abstract: Individual unemployment has a potentially negative impact on subjective well-being. Given the high levels of unemployment and poverty in South Africa, many people are forced into the informal economy where they engage in a variety of survivalist activities. Presenting their labour on street corners and at intersections as day labourers is a pertinent example of this. Previous research on the subjective well-being of day labourers established that comparison variables are important as far as subjective measures of well-being are concerned. The same applies for attitudinal variables in terms of an objective measure of well-being. Economic variables were found to be important in both. These factors proved to play a role in both rich and poor geographical areas (Knight, Song and Gunatilaka 2009 ). The aim of this paper is to probe the possible effect of location on the subjective well-being of day labourers in South Africa. This is an important question given the patterns of migration among day labourers, which could possibly be linked to the differences in economic activity, income and inequality between the provinces in South Africa. Data is sourced from the first country wide survey of day labourers in South Africa. Panel regression analysis will be conducted to compare the subjective well-being among day labourers across the nine provinces of South Africa. In the analysis an objective measure of wellbeing will be used, namely the income earned during a good week. Incomes, in poor communities, have been proven to be a main determinant of subjective well-being. Attitudinal, comparison and economic variables will be included as control variables in the function. Knight, J., Song, L., & Gunatilaka, R. (2009). Subjective well-being and its determinants in rural China, China Economic Review, 20, 635–649.

Session G7
DSGE modeling

Charl Jooste and Ruthira Naraidoo, Frictions and perfect foresight in a fiscal DSGE model Abstract: In this paper we test and compare the effects of differentiated tax shocks and aggregate fiscal expenditure in a DSGE framework. We test the effects of taxes and spending on output and consumption by incorporating various frictions such as labour market segmentation, sticky prices, and investment adjustment costs. We also differentiate between consumers that have limited asset exposure and those that smooth consumption via an asset channel. In addition to these frictions, we introduce perfect foresight into the DSGE model that enables us to study the propagation of tax and spending shocks when agents know the exact path of future tax and spending policies. Under this foresight, the effects of taxation and spending on consumption become more muted. If the size of liquidity constrained households are large then foresight matters very little. We also conduct sensitivity analysis and show that the results vary with the Frisch elasticity which at certain calibrations yields indeterminate equilibria.

Mehmet Balcilar, Rangan Gupta and Kevin Kotze, Forecasting South African macroeconomic data with a nonlinear DSGE model Abstract: This paper considers the forecasting performance of a nonlinear dynamic stochastic general equilibrium (DSGE) model. The results are compared to a wide selection of competing models, which include a linear DSGE model and a variety of vector autoregressive (VAR) models. The parameters in the VAR models are estimated with classical and Bayesian techniques; where some of the Bayesian models are augmented with stochastic-variable-selection, time-varying parameters, endogenous structural breaks and various forms of prior-shrinkage (which includes the Minnesota prior as well). The structure of the DSGE models follows that of New-Keynesian varieties, which allow for several nominal and real rigidities. The nonlinear DSGE model makes use of the second-order solution method of Schmitt-Grohe ́ and Uribe (2004) and a particle filter to generate values for the unobserved variables. Most of the parameters in the models are estimated using maximum likelihood techniques. The models are applied to South African macroeconomic data, with an initial in-sample period of 1960Q1 to 1999Q4. The models are then estimated recursively, by extending the in-sample period by a quarter, to generate successive forecasts over the out-of-sample period, 2000Q1 to 2011Q4. We find that the forecasting performance of the nonlinear DSGE model is almost always significantly superior to that of its linear counterpart; particularly over longer forecasting horizons. The nonlinear DSGE model also outperforms the selection of VAR models in most cases.

Thursday16:30 - 17:30
Academic Committee meeting
Thursday19:00 - 
Centenary Complex
Gala dinner - Centenery Complex UFS
Friday08:00 - 09:00
EBW Building
Friday09:00 - 10:20Parallel Sessions H
Session H1
Asset markets,
exchange rates
and monetary


Philippe Burger, Market Uncertainty and Inflation in South Africa Abstract: A comparison of the movements in the VIX index, the rand-dollar exchange rate and the South African CPI inflation rate reveals a striking resemblance between these three variables, thus raising the question as to whether or not there is an empirical relationship between them. This question is also linked to some evidence of rand depreciations during times of market uncertainty, which may be reflected in higher levels for the VIX index. In addition, evidence exists linking depreciations of the rand to increases in domestic inflation. The main aim of this paper is to determine whether or not changes in market uncertainty, as reflected in the VIX index, influence the South African inflation rate. Given that the VIX index reflects market uncertainty, its impact on the inflation rate may differ between times of heightened uncertainty and times of normality, thus suggesting the presence of multiple regimes. To cater for this possibility, the analysis uses Markov-switching models. The results show that market volatility as measured by the VIX indeed does explain South African inflation. Moreover, as shown by the second regime of the Markov-switching model, when market volatility is elevated, its influence on inflation also increases.

Catherine Macleod and Charl Jooste, Time-varying exchange rate pass through Abstract: The relationship between the rand and domestic inflation holds important implications for the conduct of monetary policy, both as an indicator of success in managing expectations and in highlighting structural obstacles to the attainment of the inflation target. The pass-through of shifts in the rand to consumer price inflation has been well documented in South Africa. Although estimates of the absolute level of pass through vary, some studies document a decline in pass through over time. In order to better illuminate the policy implications of this decline, this paper seeks to add to the literature in two ways. Instead of averaging pass through over a discrete time period, the pass through function is decomposed into a number of time varying impulses at each point in time. This has the advantage of understanding pass-through over time and across various monetary policy regimes. Secondly, the existing literature on the factors influencing the degree of pass through will be synthesised and added to. Factors that may affect pricing decisions such as the magnitude and speed of exchange rate changes, the degree of competition and consumer demand will be investigated alongside structural factors such as the degree of openness, the homogeneity of traded goods and the monetary policy regime which has been found in a number of studies to affect the degree of pass through in EMs.

Benjamin Willem Smit, Christelle Grobler and Catrijne Elizabeth Ijssel de Schepper, The macroeconomic effects of a sudden stop (slowdown) in South Africa's foreign capital inflows Abstract: South Africa’s balance of payments has been characterized by both continued relatively large foreign capital inflows and high current account deficits over the past decade. The great recession has tempered the current account deficits since 2009 but these have now increased again to more than the 6% of GDP level. Such foreign capital inflows are obviously useful in financing capital formation and thus growth in a savings-constrained economy such as South Africa’s. However, should these inflows slow down sharply (or stop altogether), it could have quite onerous macroeconomic implications for the country. Such a slowdown (stop) could be triggered by either global developments affecting emerging market economies in general or domestic South Africa-specific developments. Against this background, the purpose of the paper is to consider the possible macroeconomic impacts of a substantial slow down or sudden stop of foreign capital inflows to South Africa. The analysis will be based on simulations with the Bureau for Economic Researches’ macroeconometric model of the South African economy (appropriately respecified) and presented against the summarized experiences of other countries as detailed in the literature. A number of alternative scenarios will be considered, providing for both global and domestic shocks as triggers of the capital flow slowdowns.

Stan du Plessis and Monique Reid, The exchange rate dimension of inflation targeting: target levels and currency volatility Abstract: The surprising volatility of floating exchange rates have puzzled macroeconomists and challenged policy makers since the seventies. This is no less true in South Arica where the Rand’s volatility is a longstanding policy and business challenge. The literature on currency volatility distinguishes real, nominal and institutional factors in various econometric models. This paper extends the literature on nominal and institutional factors associated with currency volatility. Rose’s (2007) description of inflation as Bretton Woods “in reverse” is the departure point and is read with Berganza and Broto’s (2012) recent demonstration in a time series study that inflation targeting emerging market economies have experience higher exchange rate volatility. Meanwhile Bleany and Tian (2011) have shown the cross-sectional connection between the level of inflation and exchange rate volatility. We build on Bleany and Tian’s (2011) cross sectional approach to investigate the association between the level at which inflation targeting countries target inflation and exchange rate volatility over the long-run. To this end we use a large cross-section of developed and emerging countries covering the roughly twenty years of the inflation targeting era.

Session H2


Joseph Pearson and Jaco du Toit, It is the weight that counts, silly! Abstract: Background: The Great Financial Crisis (GFC) of 2008 changed the way in which investment management institutions viewed investments. Recent trends suggest that investors are no longer prepared to pay high active management fees and only receive beta-type performance. This article therefore focuses on addressing how different weighting schemes to the traditional capital-weighted index perform in terms of risk and return within the South African investment context. We will argue that these newly-constructed indices could be used as an alternative benchmark for active managers to which alpha could be added. Constructing portfolios based on a benchmark that is superior to the traditional capital-weighted index would ultimately improve the alpha of the active manager to the traditional capital-weighted index. This should, however, be undertaken in a manner which is cognisant of the inherent risk the new weighting scheme introduces. Methodology: The study will incorporate JSE constituent data for the All Share Index for the period 2008 to 2012. Optimisation techniques will be used to construct indices based on various criteria, including minimum variance, mean variance, maximum diversity and risk parity approaches. These newly-constructed indices will be compared to the traditional capital-weighted FTSE/JSE All Share (ALSI) Index, the FTSE/JSE Share Holder Weighted All Share (SWIX) Index, capped versions of SWIX and a naïve diversification or equally-weighted index. Conclusion: The article aims to prove that weighting schemes which differ from the traditional capital-weighted index have beneficial characteristics, both in terms of risk and return, within the South African investment context. These preferred attributes should be employed to construct improved building blocks to which alpha could be added for active asset managers.

Jesse de Beer, Consumer protection in the financial sector in South Africa: a review of recent developments Abstract: The South African financial system, as well as the financial regulatory framework, is recognised as highly sophisticated and developed. Consumer protection in South Africa has historically played a less prominent role in certain financial sub-sectors such as banking. In line with the recent international financial regulatory community increased focus on financial consumer protection, the South African consumer protection framework is re-evaluated and new legislation and regulatory structures are being proposed. The introduction of a Twin Peaks regulatory structure will transform the FSB-SA into a dedicated market conduct regulator with a new mandate, objectives and regulatory and supervisory frameworks. The new framework centres on an intensive and intrusive approach. This implies that the regulator should proactively identify areas of concern and act to prevent negative consumer outcomes, rather than reacting to complaints or existing prejudice. The approach will be pre-emptive and proactive, in contrast to the current largely reactive approach. Furthermore, institutions will have to comply with both principles and rules based regulations, in contrast to the current largely rules based regulations. These changes pose significant challenges to the industry and the regulatory community alike. The purpose of this paper is to provide an overview of the proposed consumer protection regulatory framework and how it differs from the existing framework. Challenges posed by the implementation of the new framework will be discussed. The new framework will also be benchmarked against international best practices for consumer protection in the financial industry and the international literature on the effectiveness of different policy remedies in helping consumers make welfare-enhancing decisions. The method of research is mainly a literature review and cover both theoretical and empirical papers, as well as policy papers.

Session H3


Martin Grancay, Observations on the historical usage of the term comparative advantage Abstract: The authorship of the principle of comparative advantage has been attributed to different economists, most often to David Ricardo, Robert Torrens, James Mill and two anonymous authors. The majority of economic historians agree Ricardo was the first to successfully state the principle in full. It is also generally accepted that the first economist to correctly use the term "comparative advantage" in connection with international trade was Torrens in 1826. However, this is not to say Torrens invented the term. The goal of this research is to show how historical usage of the term "comparative advantage" developed from random mentions of the term in papers from various fields of science in the beginning of the 18th century to a more specific usage in agriculture, and later in international economics. We use quantitative text analysis to find early 18th and 19th century mentions of "comparative advantage" and "comparative cost" in a database of more than 100,000 works. We analyse each search result to determine the nature of the term´s usage and its relation to the modern definition of the principle of comparative advantage. We conclude that none of the 18th century mentions of the term is compatible with its modern perception.

Tasha Naughtin and Neil Rankin, Exporting, Importing and Productivity: An Investigation of the Dynamics of the Entry and Exit into the Export and Import Market Abstract: International evidence indicates that exporters exhibit different characteristics from non-exporters. Exporters are generally larger, more capital intensive, more productive and pay higher wages than non-exporters. Previous South African research has used surveys to show similar results, however these results are based on small cross-sectional datasets. This paper uses official data collected by Stats SA across a large number of firms in the manufacturing sector to investigate the relationship between productivity, exporting and importing at the firm level. It also exploits the panel dimension of the dataset to examine the dynamics associated with entry and exit into exporting and importing. In line with the international evidence we find that the characteristics of exporters do indeed differ from non-exporters in terms of size, capital intensity, productivity and wages even after controlling for sector-specific effects. One finding of this paper, which differs from most studies on other countries, is that there seems to be little difference in productivity between continuous exporters and new entrants into the export market, but that new entrants seem to be paying lower wages. There are a number of potential explanations for this which require further investigation. These explanations include that these new entrants are different types of firms, or because wages increase with participation in the export market.

Francois Steenkamp, A product level decomposition of South Africa’s export growth Abstract: A significant constraint to economic growth in South Africa, as identified by the international advisory panel for the Accelerated Shared Growth Initiative (ASGISA, 2005), is its ‘external constraint’ – the inability to grow without running into balance of payments constraints. Key to combatting this constraint is the promotion of export growth. However, South Africa’s export performance has been lagging in terms of growth and sophistication (Hausmann & Klinger, 2008). Export growth occurs along a number of margins: increased volume (intensive margin), increased sophistication (quality margin) and a change in composition (extensive margin). In order to gain insight into the evolution of South Africa’s export performance, this study provides a comparative analysis on the extent to which South Africa’s export growth is driven by these margins relative to other emerging economies and natural resource exporters. Using an extension of the Zahler (2011) decomposition technique, this study identifies the relative importance of the margins of export growth and whether these vary by regional, product and industry characteristics. The analysis is enhanced by the use of a highly disaggregated data (HS 6-digit). Empirical research shows that the extensive margin is a central component of the export growth dynamics of emerging economies. South Africa is no different in this regard.

Arno van Niekerk, Africa, Globalisation and the role of Economic Governance: Pre and post the GFC Abstract: Africa’s integration into the global economy and its increasing competitiveness depends heavily – among other aspects – on two critical factors: how ‘economically globalised’ it is and how its economic governance is improving. From a country perspective and a continental perspective, there appears to be a strong relation between these two factors in the sense that they tend reinforce each other. However, the question is in what way and how severely? The paper investigates the nature of the relation between economic globalisation and economic governance from a pre- and post-global financial crisis (GFC) viewpoint. It does so to gain a better understanding of these two factors’ significance for Africa’s economic progression by focusing on specific African country groupings, and not just generalised African perspectives. The intention is to inform African countries’ policy formulation, prioritisation and critical adjustments, thus providing them with insight into requirements for becoming more globally competitive. Research question: Do economic governance and economic globalisation in the context of African countries impact on each other, and how severely? Method used: Literature study and a qualitative analysis of data from the KOF Index of Globalisation and the Ibrahim Index of African Governance.

Session H4
Economics and


Marisa Coetzee, Measuring the effect of school choice on the performance of disadvantaged learners: The case of South Africa Abstract: In South Africa, the quality of public schools is heterogeneous and highly stratified along race, socio-economic status and geographic location. Because of the lingering effect of apartheid, schools which historically served the white minority are still out-performing schools which historically served the black population. Attending one of these former black schools reduces the opportunity of poor black children to find employment after school and escape the poverty trap. In order to avoid these schools, many poor black parents send their children to former white schools situated outside of their immediate geographic area. In this paper, we use longitudinal data from the National School Effectiveness Study in order to estimate the effect of attending a historically white school on the numeracy and literacy scores of black children. In keeping with the most recent literature on the private school effect in other developing countries, we use a Value Added Model. This allows us to estimate the persistence of learning while controlling for unobserved heterogeneity in the form of past endowments and ability, which would otherwise have biased the estimates of the effect of school choice. In addition, we are able to control for measurement error in the test scores by the inclusion of other subject scores as instruments. As a robustness check, we also control for attrition by using Inverse Probability Weighting and a sub-sample of test scores to take into account the ceiling effect. We find that the effect of attending a former white school in South Africa is within the range of estimates of the private school effect in India and Pakistan. However, we find that persistence in the South African system is higher than estimates for other countries. The paper accordingly extends the current literature on value-added models and school choice to the South African context.

Hendrik van Broekhuizen, Higher Education and Graduate Labour Market Status in South Africa Abstract: The emerging consensus regarding high and rising levels of graduate unemployment in South Africa in recent years has primarily been based on a select number of studies, all of which have serious shortcomings ranging from deficient definitions of “graduates” to the use of outdated, incomplete, or unrepresentative data. Moreover, given the heterogeneity in the quality of higher education in South Africa, existing findings regarding aggregate graduate unemployment in the country, even if accurate, mask the substantial variation in labour market outcomes which are likely to be faced by graduates from different higher education institutions. This paper attempts to address these issues by examining graduate unemployment and employment in South Africa with specific emphasis on the type and quality of higher education using multiple labour force survey and administrative datasets. Its primary contribution is to incorporate the effect of potential measures of higher education institution type and quality on the likelihood of graduate unemployment and employment by probabilistically linking graduates that are observed in labour force survey data to the institutions from which they are likely to have graduated given their time-invariant observable characteristics and the known demographic composition of the graduates produced by each of South Africa’s formal higher education institutions every year. The analysis shows that graduate unemployment in South Africa is not only low in relation to overall unemployment in the country, but that much of the racially-delineated differentials in graduate unemployment and employment outcomes can likely be attributed to heterogeneity in the quality and type of higher education institutions commonly attended by individuals from different racial backgrounds.

Marisa Coetzee and Stephen Taylor, Estimating the impact of a switch in the language of learning and teaching in South African primary schools Abstract: One of the most debated policies within the South African education system is that of language. Although the South African Constitution allows for a choice of any of the eleven official languages as the language of learning and teaching in primary schools, most primary schools have chosen to implement home language education for the first three years and to switch to English at the beginning of grade 4, while some primary schools use English as the language of teaching and learning, even though the majority of the children in the school do not speak English as home language. Since children with an African home language perform significantly worse than English home language speakers, one of the questions that is frequently raised is to what extent this switch in language contributes to the under-performance of these African home language speakers. In this paper we make use of a difference-in-difference strategy in order to separate out the impact of the language switch from other confounding factors influencing test scores. We make use of longitudinal data from the National School Effectiveness Study (NSES), in which children were tested in numeracy and literacy in grades 3, 4 and 5. These tests were conducted in English for all learners in the sample. In order to control for the potential bias arising for children that were taught in their home language, we make use of the fact that the same sample of children wrote the same tests that were used in the NSES in their home language as part of the Systemic Evaluation of schools within a month of the NSES survey during the course of 2007. In addition, we make use of these two baseline scores to separate the effect of writing a test in a second language and the effect of the switch in language policy.

Stephen Taylor, The impact of study guides on matric performance: evidence from a randomised experiment Abstract: A large international literature indicates that textbooks are a relatively cost-effective way to improve educational achievement. However, recent experimental evidence from developing countries has called this into question, suggesting that resources alone are unlikely to have an impact on performance and that changes in school organisation, pedagogical methods or incentives facing teachers are more effective. South African studies, using observational data, typically show weak associations between achievement and additional resources, though in some studies textbooks emerge as an exception. Some argue that school management is a key mediating variable. This paper evaluates the impact of providing study guides to pupils shortly before their secondary school leaving examination (“matric”). From a sampling frame of 318 schools in the Mpumalanga province, 79 schools were randomly selected to receive study guides, leaving 239 control schools. These study guides were developed by the National Department of Basic Education and distributed to treatment schools for four subjects – accounting, economics, geography and life sciences – resulting in four sub-treatments per school. The impact of the study guides was estimated using matric results from 2011 (baseline) and 2012. The accounting and economics guides did not have a significant impact on performance. However, the geography and life sciences guides improved scores in those subjects by approximately two percentage points. Treatment heterogeneity was apparent for geography where students in better-performing schools gained more from the guides than students in low-performing schools. This may relate to other studies suggesting that additional school resources matter conditionally upon overall school functionality, particularly management. A simulation indicated that distributing the geography and life science at scale (as is happening in 2013) could increase the overall matric pass rate by roughly one percentage point. Possible reasons why the guides were effective in two subjects but not the other two are discussed.

Session H5

Trust Reason Mpofu, Real Exchange Rate Volatility and Employment Growth in South Africa: The Case of Manufacturing Abstract: This paper uses the Auto-regressive Distributed Lag (ARDL) cointegration method to examine the impact of real exchange rate volatility on manufacturing employment growth in South Africa for the period 1995 to 2010. The results show that real exchange rate volatility has significant contractionary effects on manufacturing employment growth. Using point estimates, the results suggest that a one standard deviation increase in real exchange rate volatility reduces employment growth in the range of 0.77-2.99 percentage points. The results also show that a depreciated real exchange rate enhances manufacturing employment growth. Real manufacturing exports, real manufacturing sales, real manufacturing investment and interest rates are also shown to have significant impact on manufacturing employment growth. The results suggest that the government can reduce the adverse effects on manufacturing employment growth by adopting macroeconomic policies that promote employment creation and economic growth e.g. less restrictive policies, measures that minimise real exchange rate volatility and by intervening to depreciate the exchange rate.

Corne van Walbeek and Evelyne Nyokangi, Macroeconomic data revisions: Nominal and real changes Abstract: Statistical authorities update macroeconomic data as more data becomes available. Most of the policy impact and media attention is on the first release, since this is “news”. Revisions in subsequent quarters and years typically do not receive much media or policy attention. Time series econometric studies use data that is typically extracted from a database that has gone through very many rounds of revisions, rather than first release data. The econometric results derived from first release data and “database data” can be very different (Van Walbeek, SAJE, 2006). The current study expands on the 2006 study, in that it considers not only official changes in real variables over time, but also changes in nominal variables and the associated implicit price deflators. The study considers various vintages of data as published in the SARB Quarterly Bulletins since 1986, for GDP and the various expenditure components, for both nominal and real variables. For each release (i.e. quarter) I calculate the difference between the first release growth rate, as published in the SARB Quarterly Bulletin, and the growth rate as published (or implied) on the SARB database (in both real and nominal terms). Similarly I calculate the difference between the growth rate in the first release implicit price deflator and the growth rate in the implicit price deflator obtained from the SARB website. Descriptive statistics of the magnitudes of these differences, for the various GDP components, for real, nominal and price variables and for various time periods are calculated, and the differences are shown to be substantial for some variables. In the econometric section I investigate whether the subsequent official changes in the various macroeconomic variables are randomly distributed or predictable. If they are predictable (I have not yet performed this analysis), the first releases can in principle be improved upon.

Le Roux Burrows and Anthonie Botha, Explaining the changing input-output multipliers in South African: 1980-2010 Abstract: The aim of this study is to calculate and analyse GDP multipliers for the South African economy from input-output tables for seven data sets for the 1980-2010 period. The paper commences with a discussion of the nature, limitations, uses and underlying assumptions of input-output tables/models. The theory and methodology of the calculation of output multipliers is discussed. The basic open and closed model methods used in this study are developed and distinguished. The four sets of multipliers generated by the model, namely simple GDP multipliers, simple type II GDP multipliers, total GDP multipliers, and total type II GDP multipliers are discussed and analysed for all seven data sets. The most significant trend identified is the steady decline in the value of the total GDP multiplier over the three decades reviewed. The composition of the total GDP multipliers, in terms of the relative and absolute proportions of the direct, indirect and induced impacts are presented and analysed. The decline in the value of the total GDP multiplier was primarily due to a reduction in the relative and absolute contribution of the induced effect over the period reviewed. This trend reflects the structural changes in the South African economy, the hallmark of which is the decline in the secondary industries, whose declining profitability was due to increased competitive discipline. This trend was compounded by overvalued and volatile real exchange rates, and resulted in low levels of investment and employment creation in this sector. An examination of the intra-sector multipliers for the same period also showed a marked and consistent declining trend in the multiplier effect over the period under review. This was especially pertinent in the case of the secondary industries, for which a very similar pattern emerged across industries, with the time paths of the mean multiplier effect showing a very similar movement for almost all manufacturing industries.

Session H6


Gareth Roberts, The Dimensions of Youth Unemployment in South Africa Abstract: The government of South Africa has initiated a number of programmes that are intended to help young people transition into employment, although they have had only limited success (Bernstein, 2008). One feature of the problem in South Africa is that the National Youth Policy (2009) refers to young people as “those falling within the age group of 14 to 35 years”, and the National Youth Development Agency (2011) points out that “[t]hose aged 20-35 who are not employed and not at school become the key focus for youth development efforts.” Both the National Youth Policy and the National Youth Development Agency do, however, recognise that “the 14 to 35 age range is by no means a blanket general standard, but within the parameters of this age range, young people can be disaggregated by race, age, gender, social class, geographic location, etc.” (NYP, 2009). This raises an important question and may provide a possible explanation for the limited success of the youth development programmes in South Africa: to what extent are these young people disadvantaged because of their age, and not just by these and other characteristics? Since the presence of omitted characteristics associated with being employed and unemployed at a particular age is, however, likely to bias any estimates of the causal relationship between age and employment, we specify this relationship as a dynamic correlated random effects model that considers the conditional distribution of these age-independent characteristics associated with the initial state of the respondent. This paper finds that those less than 25 who are looking for work are consistently less likely to be in employment , because of their age. Furthermore, we argue that there is no reason to extend the definition of youth beyond age 30.

Neil Rankin, Wage subsidies and youth employment in South Africa. Evidence from a randomised control trial Abstract: Unemployment rates for South Africans in the 20 to 24 age group are high – in the region of 60%, and labour force participation rates are low. One policy proposed by the South African government to encourage the transition of young South Africans into employment is a youth wage subsidy. This paper summarises a randomised control trial which investigated whether providing a wage subsidy voucher to young people, which firms who employed them could claim, resulted in higher employment. We find that one year after allocation young people with the voucher were six percentage points more likely to be in wage employment than those without the voucher. This impact persists even after the vouchers lapses and two years later the magnitude of the impact is similar. Furthermore, two years after allocation those in the voucher group had spent more than a month more in wage employment compared to those without the voucher. This indicates that policies which get young people into jobs earlier can have longer term effects. We find no impact on labour force participation – which suggests that young people are not exiting education to search for, or take, jobs. We also find that average wages are not significantly different between the two groups. The low take-up rates, and the persistence of an impact even after controlling for take-up suggest that supply-side responses contributed to the observed result. There is little indication that those in the treatment and control groups searched differently but there is some evidence that there may be differences in acceptance of job offers. Those in the control group where other members of their household were already in employment were more likely to turn down job offers than those with the voucher in similar households.

Asmus Zoch, Understanding the underlying dynamics of the reservation wage for South African youth Abstract: This paper aims to explore the underlying dynamics of the reservation wage for South African youth. The impact of reservation wages on unemployment is highly controversial. While some economists argue that reservation wages may be too high, indicating voluntary unemployment (Lam et al., 2010) others find that reservation wages are not higher than predicted wages (Nattress & Walker, 2005) or have no conclusive findings (Kingdon & Knight, 2001). Our analysis tests different hypotheses potentially explaining these contradictory findings: Firstly, young people have very little information about their true value in the labour market. Secondly, high search and transportation costs increase reservation wages. Thirdly, intra household-transfers and pensions reduce the need for employment. Finally, individuals report “fair wages” rather than true reservation wages. We add to the existing literature by providing a comprehensive analysis of reservation wages in South Africa using three different datasets: NIDS, SAYPS and CAPS. The CAPS dataset is unique in the South African context due to its longitudinal aspect which enables direct comparisons of reservation wages with accepted wages. Furthermore, SAYPS and CAPS make use of different methods to capture reservation wages: One shot questions as well as a series of questions taking the form “would you accept a job doing occupation x at monthly wage w?” Using this information, as well as observed accepted wages will enable us to achieve a deeper understanding of the true nature of reservation wages. To test the hypothesis that reservation wages are too high, we follow the method used by Nattrass & Walker (2005), comparing predicated wages with the reported reservation wages of unemployed workers. With five waves of panel data CAPS, we can control for individual heterogeneity and observe changes in reservation wages over time.

Timothy Hinks and Volker Schoer, Predicted and Expected Earnings amongst the youth of South Africa: Are the young unemployed queuing for better paid jobs? Abstract: Unemployment continues to be high in South Africa and it is a common perception that at least some of this unemployment is due to job queuing as the unemployed might have overvalued reservation wages. Given that the youth are over-represented within the unemployment group, it has been argued that this is partially due to their inflated wage expectations. Thus, in line with standard search theory, reservation wages that exceed actual market wages can be used to explain higher levels of unemployment. Previous work by Kingdon and Knight (2001) and Rankin and Roberts (2011) analyses whether imperfect or incomplete labour market information can possibly explain differences between predicted labour market earnings and reservation earnings of the unemployed. This paper extends previous work by investigating the correlation of relative over- and under-valuation of the unemployed youth and their future employment likelihood. We use information from the first two waves of the NIDS data set and follow the same methodology as Brown and Taylor (2011). Thus, we compute selection corrected estimates and OLS estimates to predict wages for the unemployed and use these as proxies for their market wages. We then compare the predicted wages against reported reservation wages in the first wave of NIDS (2008) using a MNL regression in order to establish the extent to which reservation wages are over- or undervalued. Finally, we investigate how over- and under-valuation are correlated with the employment probability of the respondents in the second wave of NIDS (2010). Preliminary results indicate that respondents with overvalued expectations do experience a significantly lower employment probability. However, more surprisingly, respondents with under-valued reservation wages are even more likely to remain in unemployment.

Session H7


Eddie Rakabe, Planning and budgeting for outcomes in a decentralised fiscal system Abstract: There is a global sea of change in public sector performance management reforms as a variety of internal and external forces converge to make governments more accountable for results. A combination of public pressure as well as growing uneven and often poor performance of public service (NDP, 2011) from public spending, have resulted in adoption of a government wide outcomes-oriented delivery approach. The fundamental aim this approach is to monitor and evaluate various elements of performance value chain, examine whether government derives value for money from public expenditure and determine public services bring desired or maximum impact on/to intended beneficiaries and the country at large. However, the complex decentralisation machinery of government, with powers and functions diffused across three spheres poses a number of operational problems for implementation of a government wide outcomes based M&E system The concurrency of functions which overlaps national sector planning and decentralised sub national budgets creates inherent tensions that makes linking of planning and budgets difficult and delivery of outcomes less amenable to shared implementation and accountability. For this study the fundamental question of interest within these reforms concerns the practicality of attributing a single outcome to widely diverse semi-autonomous institutions with cross-cutting roles and individual budget and planning responsibilities. Thus the study intends to assess compatibility between the current institutional framework for budgeting and planning and the government wide outcomes orientated delivery and M&E approach. The study follows a qualitative analysis of current budgeting, planning and M&E processes to identify potential areas of misalignment. Such misalignments are discussed within the context of intergovernmental fiscal coordination and results or performance based budgeting.

Ramos Mabugu, Ismael Fofana and Margaret Chitiga, Assessing Interregional Equity and Efficiency Effects of Intergovernmental Transfers in South Africa Abstract: This paper applies an integrated multi-region applied general equilibrium model to assess the equity and efficiency of intergovernmental revenue transfers. The value added of the work carried out lies in the explicit regional modelling accomplished through the use of a multi-region model combining nine regional sub models interacting through trade and factor mobility. There is no parallel work in South Africa and indeed in the rest of Africa that we are aware of that has applied such a rich technique to analysis of intergovernmental transfers. The main lesson from this exercise is that distinguishing regions within a country has important policy consequences that policy makers must be aware of. The analysis demonstrates that the current intergovernmental revenue transfer system has significant inter- and intraregional equity effects, although its nationwide impact is less important. When transfer revenues fall and, consequently, regional and local government revenues drop, poor households are the most affected, as they depend more on public services that are essentially financed by governments. This has immediate policy implications in various policy modelling areas, including fiscal policy design in countries with decentralised government systems seeking to grow their economies with broader inclusion.

Eddie Rakabe, The State of Fiscal Stress in South Africa’s Provinces: Improving fiscal performance Abstract: The aftermath of post global economic crises for South Africa and many other developing economies continue to manifest in various facets of the fiscal system. Rising needs for public services on the one hand and the resulting deceleration or stagnation of revenues to pay for such services on the other hand causes stress in the budgets of sub-national governments which are predominantly reliable on central transfers for revenue. For provinces in South Africa two divergent views dominate the discourse on the existence of fiscal stress. The one view suggests that budget imbalances and delivery deficiencies are purely a function of poor fiscal performance. The other view implies that provinces are confronted with exogenous cost pressures (some of which are imposed by national policies) and increasing demand for service which are not always matched by adequate transfers thus resulting in fiscal stress. Evidently, lack of clarity over existence of fiscal stress has dire implications on the overall functioning of the intergovernmental fiscal relations. Firstly national government’s ability to hold provinces accountable for delivery becomes limited. Secondly, provinces have limited incentives to use resources economically and efficiently knowing fully well that they cannot be held directly responsible for non-delivery. This study seeks to unpack the question of whether provinces in South Africa are fiscally stressed or not. The study answers the question by constructing a fiscal stress index which takes into account various structural, institutional, legislative as well as expenditure and revenue factors associated with fiscal performance. The study draws from literature on intergovernmental fiscal relations, sub national budget constraint, resource use and allocation management and fiscal adjustment.

Friday10:20 - 10:50
EBW Building
Friday10:50 - 11:25
EBW Auditorium
South African Journal of Economics
In this session Steve Koch, managing editor of the SAJE, will talk about what the SAJE is looking for in an article, both in terms of content and focus.
Friday11:30 - 12:50Parallel Sessions I
Session I2
Economic growth

John Dunne, Giorgio D'agostino and Luca Pieroni, Military Expenditure, Endogeneity and Economic Growth in Sub-Saharan Africa Abstract: The debate over the economic effects of military spending continues to develop, with no consensus, but a deepening understanding of the issues and limitations of previous work. One important issue that has not been adequately dealt with is the possible endogeneity of military spending in the growth equation. One reason for this has been the difficulty of finding any variables that would make sensible instruments. This paper deals with this issue, by using conflict as an instrument for military spending. This may at first sight seem a strange choice, but it can be justified as conflict tends to impact upon military spending, but not directly on growth and is found to work well empirically. A theoretical endogenous growth model provides a structural model and is estimated using a panel of Sub Saharan African countries for the period 1989-2010. This entails estimating reduced form equations, for growth and military spending, with armed conflict onset introduced as an exogenous shock. The structural IV estimate for growth is then the ratio of the reduced form coefficients and corresponds to the causal estimates of the parameters associated with military spending. Given the nature of the structural model, this is repeated for non-military government spending and various robustness checks are undertaken. The approach taken is shown to be an improvement on the usual estimation methods and military spending is found to have a significant negative effect on growth.

John Paul Dunne and Nan Tian, Military Spending, Conflict and Economic Growth in Africa Abstract: This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 104 countries over the period 1988-2010. A prime objective is to consider the nature of the relationship between military spending and growth in Africa and to see how it compares it to the rest of the world. This is done by estimating and appraising the full sample and stratifying based upon a range of potentially relevant factors – income, conflict experience, natural resources abundance, aid and openness. This is done both for the group of African countries and non-African countries to consider spatial group heterogeneity. The results suggested that there is a clear significant negative effect of military burden on growth for the overall sample and for both groups, but one which is stronger for African countries. When the robustness of the results was investigated some heterogeneity was discovered, but the only groupings for which both the long and short run military burden effects were insignificant were middle income African countries, African countries with no experience of conflict, non-African countries with natural resource abundance and non-African countries with relatively closed economies. It is striking that across all of the groups investigated here there was no evidence of any significant positive effects of military burden on growth.

Rasaki Stephen Dauda and Jesse Meshach Aziakpono, A panel data analysis of fertility and mortality effects on economic growth and development in West Africa Abstract: In recent times, there seems to be resurgence in researches investigating effects of population dynamics on economic outcomes in different regions of the world. This has further been inspired by the performances of some Asian economies where demographic transition (declining fertility and mortality) has been observed to play prominent role. Theoretical and empirical evidences support positive correlation between demographic transition and economic prosperity. Currently, in most developing economies, particularly in African countries there appears to be decline in fertility and mortality trends than what obtained in the 50s and 60s. It is expected that these changes in demographic variables will have positive influence on economic outcomes in the continent. However, available growth statistics, do not suggest unequivocally that the type of economic transformations experienced in some Asian and developed countries, which have undergone similar transition exist in most African countries. It is against this backdrop that this study aims at determining the impact of declining fertility and mortality on economic growth and development in West Africa covering the period 1970 to 2010. To achieve this, the paper intends to employ panel data econometric analysis with data sourced from the World Bank (2013) World Development Indicators (WDI) and the United Nations (2012) World Population Prospect. Based on the findings of the study, relevant policy recommendations shall be proposed.

Session I3
Public finance

Mbako Mbo and Charles Adjasi, Drivers of Organizational Performance: A State-Owned Enterprise Perspective Abstract: This paper investigates the core drivers of performance of State Owned Enterprises (SOEs). A mixed picture of historical and current SOE performance in Africa has often sparked debates on their relevance or otherwise, often influencing a policy shift (Nellis, 2005). Theories explaining organizational performance have yielded inconclusive and sometimes mixed results. For instance various theories; Agency theory (Jensen & Meckling, 1976, Eisenhardt, 1989), Public Choice Theory (Niskanen, 1971; Tullock, 1976; Krueger 1990), Stewardship theory (Donaldson ,1990; Barney,1990), the Stakeholder theory (Freeman, 1994) and the Resource based theory (Hamel & Prahalad, 1994) used to predict and explain the behaviour of organizations pose inconclusive results particularly in the case of SOEs. Despite the mixed picture of SOE performance in Africa, SOEs have an importance in provision of social and economic infrastructure in African economies. Given their importance, chequered history of poor performance and their unique organizational structure it is important to understand the drivers of performance of SOEs. A critical question that is arises is: what drives SOE performance? Are there a unique combination of competing theories of organizational performance which best explains SOE performance in Africa? Unfortunately there is hardly any empirical research that has comprehensively tested organizational theories effectiveness in explaining SOE performance and with specific focus on SOEs in Africa. This paper examines empirical evidence on SOE performance drivers and thus contributes to understanding the literature behind SOE performance as well contributions to policy formulation on such organizations. Data from annual reports of 22 SOEs selected from Botswana, Namibia, South Africa, Kenya, Ghana, Ethiopia, Mauritius and Malawi constitute the sample for the paper. Case analysis and panel data regression methods are used to test various organizational theories that seek to explain and predict organizational behaviour and performance.

Henk Gnade, Basic infrastructure delivery and its welfare affect on rural and urban municipalities Abstract: Access to a comprehensive set of quality basic infrastructure services is essential in supporting the social development goals and ensuring equitable participation in a country’s economy. While the majority of South Africa’s citizens benefit from a relatively broad set of basic infrastructure services inequalities still persist on a spatial level. The South African Government also determined, through the New Growth Path, that many of the social inequalities within the country exhibit a spatial dynamic. Seeing that basic infrastructure delivery is essential to further economic growth and socio-economic advancement it follows that increasing basic infrastructure delivery would contribute to the economic and socio-economic goals of the national government. The question remains to what extent and whether basic infrastructure delivery has a significantly different impact on economic and socio-economic environment in rural compared to urban municipalities? The Principal Component Analysis (PCA) method was used to construct a basic infrastructure index from a balanced panel data set. The basic infrastructure index was regressed against predefined welfare indicators, using dummy variable regression, in order to determine if increased basic infrastructure delivery has a significant and different welfare effect on and between rural and urban municipalities. Overall it was found that increased basic infrastructure delivery has a significant effect on household income, employment, literacy and Gross Domestic Product per capita within the local municipalities of South Africa. It was also found that that the effect of increased infrastructure service delivery to be larger in rural municipalities when compared to urban municipalities.

Kabeya Clement Mulamba, Fiona Tregenna and Botha Ilse, Analysis of strategic interaction among South African municipalities Abstract: The objective of this study is to test empirically whether strategic interaction among South African municipalities exists. Strategic interaction among municipalities, which is one of the features of fiscal decentralisation, exists when the determination of expenditure levels in one municipality depends simultaneously on expenditure levels in its neighbouring municipalities, all other things being equal. Two categories of municipal expenditures, namely expenditure on community services and expenditure on public safety budgeted in the year 2009/10, are examined by specifying Spatial Autoregressive and Spatial Error Models. The Maximum Likelihood and the Generalised Methods of Moments are used to estimate these spatial models. In addition, three criteria are applied to determine neighbourliness between municipalities. Whereas the first criterion is based on the contiguity between municipalities, the second defines neighbouring municipalities as those that have more or less similar socio-economic characteristics and the third is based on the centroid distances between municipalities. In general, the results show the existence of strategic interaction amongst South African municipalities with regard to expenditure levels. Nevertheless, based on the centroid distances, the evidence of strategic interaction is not confirmed between municipalities in all cases.

Session I4
Economics and


Dev Tewari, Is matric math a good predictor of student performance in the first year university degree? A case study of faculty of management studies, UKZN Abstract: Ordinarily speaking the performance of students at the first year commerce degree is related to matric total score and other socio-demographic variables. This study asserts that, since mathematical proficiency is a special skill that is necessary for commerce degree, matric (National Senior Certificate, NSC) math score is the key variable which significantly determines the pass rates in the first year university modules. The study tests this hypothesis with the new set of data for the University of KwaZulu-Natal with the help of an econometric model (OLS) which uses a cross-sectional data set. Empirical results support the hypothesis and the study suggests some far-reaching policy implications for increasing pass rate and student retention in the commerce degree programs in South Africa.

Alicia Fourie, Determining the efficiency of the TUCE in South Africa, A NWU Potchefstroom Campus study Abstract: The efficiency of a one year introductory economic course is a statement that is debated worldwide. The Test of Understanding College Economics (TUCE) is a test that is developed in the United States according to their academic standards and is used as a pre and post-test, testing economic literacy and the efficiency of an introductory economic course. The results of the TUCE in the United States indicated that students struggled with the questions of the TUCE even though majority of High schools in the United States requires a one credit economics course. Economics as subject in high school in South Africa is not a required course and the amount of students choosing economics as subject is scares. Therefore, South African students enrolling for a degree, at a tertiary institution, knowledge of economics is limited. The 2013 cohort of introductory economic students at the North West University were tested with the TUCE prior to and after an introductory economics course to establish how these students performed in the TUCE and to establish whether or not the TUCE is an adequate measure of economic literacy. It was found that the TUCE is not a sufficient measure to test economic literacy for South African students due to their limited knowledge of economics and due to discrepancies in the level of academic standards.

Nico Keyser, Self-regulated learning and time perspective as predictors of academic performance in undergraduate Economics studies. Abstract: The low pass rate in all the Economics undergraduate courses, at the University of the Free State, has prompted the question of which cognitive and non-cognitive factors predict academic performance in Economics? Literature (Ransdell, 2001; Leeson et al., 2008; Furnham, 2003) indicates the importance of both cognitive ability and non-cognitive variables as indicators of academic achievement. Research has indicated that at higher levels of formal education non-cognitive factors seem to be become more relevant in predicting academic achievement (Furnham et al., 2009). This study intends to focus on the effect of self-regulated learning (SRL)( Puustinen and Pulkkinen, 2001; Boekaerts,1999; Pintrich, 1999; Winne ,1996; Zimmerman, 1999) and time perspective (Leondari, 2007; De Volder and Lens, 1982; Mckenzie and Schweitzer, 2001) as predictors of academic performance in under-graduate Economics studies. Self-regulated learning (SRL) is concerned with how students generate and regulate their own learning. The theory of self- regulated learning (Zimmerman and Martinez-Pons: 1990; Zimmerman and Martinez- Pons: 1986) describes students who use self- regulated learning as motivationally, cognitively, meta-cognitively and actively regulating their own learning to reach their academic goals. Students which employ SRL will also be inclined to plan for the future, work towards set goals, striving for future accomplishments; this characteristic is also known as having a future time perspective. The design will be a quantitative, non-experimental survey-type design.

Lorraine Greyling and Nadia de Villiers, Analysing the impact of interventions on the performance of Economics 1 students Abstract: In most Bachelor of Commerce degrees in South Africa, Economics 1 is a compulsory module. It is also a known fact that the success rate of Economics 1 students is low. The challenge is to increase the retention rate of students and to improve the throughput rate without dropping the standard of a module. A retention formula developed by Seidman (2005) summarizes the available retention theories and will be used as the theoretical base for this paper: RET = EID + (E + I + C) IV………………………………………………………………………(1) Retention = Early Identification + (Early + Intensive + Continuous) Intervention This paper follows on a study by Van Zyl and Blaauw (2012), where they tested for the impact of early identification (EID) and early intervention (E).Their findings indicate that the throughput rates of students who attended the orientation sessions were consistently higher than those of students who did not make use of the opportunity to attend the sessions. The main aim of this paper is to report on a systematic and stepwise introduction of intensive (I) and continuous (C) interventions in Economics 1 from the period 2008 till 2012. The different interventions introduced in Economics 1A and 1B, such as continuous assessment opportunities, tutorial classes and active learning and the introduction of digital technology through assignments and weekly assignments with MyEconlab will be analysed. The research question is: Do intensive and continuous interventions improve the success rate of Economics 1 students? Panel data analysis will be done and feedback on the performance after the interventions will be provided. The impact on the success rate of Microeconomics and Macroeconomics will be compared. The results of the students in 2012 with all the interventions, will be compared with another control group who also receiving all the interventions, but with a higher Mathematics entrance requirement.

Session I5


Simon Ssekabira Ntege, Paid/salaried- verses self- employment choice and mobility, amidst equal opportunity laws in South Africa Abstract: This paper analyses individual workers’ choices and movements between salaried- and self-employment in South Africa, at a time when equal opportunity laws are in force. It hypothesizes that entrepreneurial/innate quality predictably differs between workers that choose to be self-employed from the word go, from those that acquire some experience in the public sector before switching to self-employment, those that opt for employment in the private sector, those that perpetually remain under-salaried employment in the public sector, and those that become self-employment from unemployment. The study utilises Statistics South Africa’s 2nd Labour Force Survey Panel. To determine what influences sectoral employment choice, a multinomial logit model with unobserved abilities is run using maximum simulated likelihood. While analysis of mobility from paid- to self-employment is conducted using a Markov model.

Margaret Chitiga-mabugu, Maisonnave Helene, Ramos Mabugu and Veronique Robichaud, Analysing Job Creation Effects of Scaling Up Infrastructure Spending in South Africa Abstract: In a first for South Africa, we draw on literature on infrastructure productivity to model dynamic economy-wide employment impacts of infrastructure investment funded with different fiscal tools. According to the South African investment plan, the policy will affect the stock of infrastructure as well as the stock of capital of some private and public sectors. The literature on the causes of economic growth presents evidence that infrastructure and capital formation are important determinants of economic growth and rising per capita incomes over time as in Asian economies. The question of whether there are economic gains from the provision of higher levels of public spending on capital is fundamental. This paper reflects on South African infrastructure investment policy, focusing on government infrastructure spending and how alternative financing arrangements will affect employment, in the short and longer-term. A recursive dynamic computable general equilibrium (CGE) model with elaborate labour market disaggregation, government budget constraints and alternative funding options for infrastructure scale up is used. The simulated investment programme is split into three components (a) investment in government sectors that increase the stock of capital of public sectors, (b) investment in infrastructure that does not increase the stock of capital of any sectors in particular and can be considered a public good and (c) investment in productive sectors that increase the capital stock of a given sector. Four different ways of financing these policies are proposed. First, government totally finances the increase. In the next three finance options, government’s deficit is kept constant, and the increased spending is financed through increasing direct taxes on households, increasing firms’ direct taxes, and indirect taxes. Results will show the impact of infrastructure investment and the effects of various financing options.

Cobus Burger, Using discrete choice dynamic programming to model job search and reservation wages in South Africa Abstract: There exists a large literature of Mincerian earnings function estimates that attempt to estimate the causal effect of education and experience on earnings for African countries. Apart from suffering from well-documented endogeneity problems, these models are only very loosely based on economic theory. This paper attempts to contribute to this literature in two ways. Firstly, it models the earnings and employment outcomes as being generated in a labour market populated by heterogeneous but forward-looking expected discounted lifetime utility-maximisers who operate in an environment of uncertainty. Secondly, the individual’s choice set is extended to also include whether or not to look for work and which wage offers to accept. This is, to our knowledge, the first paper that attempts to estimate a theory-consistent job search model for an African country. The paper uses discrete choice dynamic programing techniques to estimate the model parameters for working aged African males using the Labour Force panel dataset for South Africa. Beyond providing earnings function estimates that can be transparently interpreted in an explicit theoretical framework, the model also produces explicit estimates of reservation wage and job search costs faced by the typical South African worker. While the estimated reservation wage compares favourably to that of self-reported reservation wages, the estimated returns to actual experience in our model is far higher than was suggested in the Mincerian earnings function.

Session I6


Darrol Stanley, Levan Efremidze, Michael Kinsman and Jannie Rossouw, Market Timing of the FTSE/JSE Top 40 Index Utilizing Entropy Analytics Abstract: This paper examines the effectiveness of Entropy Analytics on market timing of the FTSE/JSE Top 40 Index. This index is part of the FTSE/JSE Africa Series. In 2002, the FTSE and JSE entered into a partnership to create multiple indices. The series brought about a change in calculating indices and classifying sectors for South Africa. This centred on calculating indices based on free float adjusted capitalization indices. This substantially altered the usefulness of the indices for both benchmarking and ultimately active trading of the underlying indices. These financial capabilities substantially altered the investment portfolio risk-reward options for South African stock investment. This paper focuses on the Top 40 index for many of the reasons noted above. This index has been subjected to numerous market timing trading methods. The index has not been subjected to an analysis utilizing Entropy. Entropy is a relatively un-tested financial methodology. It is part of the rapidly expanding field of EconPhysics. The concept of entropy was first applied in the study of thermodynamics. Subsequently, the definition has been expanded to the measurement of randomness and disorder. The concept has further been expanded to the financial markets (Pincus, 2008; Maasouni, 2002; Molgedey, 2000). No research has been done on Entropy and the Top 40 Index. This paper will test the index for both Approximate Entropy (ApEn) and Sample Entropy (SaEn). The test period will be from inception through June 30, 2013. The Entropy tests undertaken will be used against four data sets: price, volume, on-balance volume, and on-balance volume value. The objective behind the study is to facilitate a new market timing technique by introducing a relatively un-tested investment methodology that could be pragmatically utilized in investment management of South African portfolios.

Sean van der Merwe, Darren Steven and Martinette Pretorius, Bayesian Extreme Value Analysis of Stock Exchange Data Abstract: We consider the problem of accurately modelling extreme losses. The focus is on the fitting of the Generalized Pareto Distribution beyond a threshold. We show how Objective Bayes methods can improve parameter estimation and the calculation of risk measures. Lastly we consider the choice of threshold. All aspects are illustrated using share losses.

Gillian van Heerden, IPO Under-pricing on the JSE Abstract: The under-pricing of initial public offerings (IPOs) represents one of the anomalies observed in primary markets worldwide, however, the depth and breadth of it varies from country to country, and sector to sector. This study is an empirical analysis of short run performance of IPOs in the Johannesburg Stock Exchange (JSE). Using data for 138 South African IPOs that were listed on the JSE from 2006 to 2010, we found significant short run under-pricing. A sector wise analysis of three broad sectors indicated that the financial sector had the largest IPO under-pricing, particularly evident in 2007. The year-wise analysis is also documented.

Friday12:50 - 14:00
EBW Building