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PROGRAMME: ESSA 2011 BIENNIAL CONFERENCE

MONDAY 5 SEPT TO WEDNESDAY 7 SEPT 2011, STELLENBOSCH UNIVERSITY

(Last updated 2013-07-18 03:22:19)

Monday08:30 - 10:00
V V H Neelsie
Registration
Monday10:00 - 10:30
VdSterr 1039
Welcoming / Opening
Monday10:30 - 11:30
VdSterr 1039
Keynote Address: Rethinking incomplete contracts by Oliver Hart (Harvard University)
Monday11:40 - 12:40Parallel Sessions A
Session A1
Economic growth
Schumann 104

Nimrod Lidovho, The Impact of Money Laundering on Economic Growth Abstract: Money laundering is the process of concealing the illicit origin of proceeds of crimes. This process is carried out mainly through the country’s financial system and institutions. Most countries have been urged to entrench costly measures to eradicate the scourge of money laundering. Some have questioned whether addressing money laundering should be a priority in view of pressing macro-economic objectives such as job creation and economic growth. Credible multilateral organisations (e.g, IMF, World Bank, FATF, BIS) have warned of dire economic consequences for not complying with anti-money laundering (AML)recommendations, implying that the prioritised objective of economic growth will be negatively affected or compromised by the phenomenon of money laundering if appropriate action is not taken. Money laundering, by eroding confidence in the financial markets and institutions poses a considerable risk to the stability and soundness of financial systems. In addition, empirical analysis such as one done by Quirk (1996) concluded that money laundering has a negative impact on economic growth. Notwithstanding these consequences, there is a lack of rigorous work on the extent and magnitude of money laundering in emerging market, let alone its impact on growth. This paper seeks to determine the nature and extent of money laundering on emerging-market economies, with special reference to South Africa. It further analyzes quantitatively the impact of money laundering on economic growth in emerging market economies. In this regard the paper expands on the model developed by Unger, B et al (2006) in which money laundering is an explanatory variable in the growth regression model. Conclusion and policy implications are derived from the results obtained. Our preliminary hypothesis is that money laundering by its distortionary effect on economic data and thus on economic analysis and policy, is likely to have a negative impact on economic growth.

Vsevolod Gorlach and Pierre le Roux, The Impact of Economic Freedom on Economic Growth Abstract: The SADC is attempting to achieve development and economic growth. By improving economic freedom, a country can experience sustained economic growth without increasing fundamental inputs i.e. labour and capital. This study tests the effects of population growth, openness and economic freedom on economic growth as well as the causality between economic freedom and economic growth. An error correction model using panel data is used due to the lack of data for individual SADC countries. Results reveal that population growth negatively affects economic growth but openness and freedom are positively related to economic growth. Granger causality test confirms the direction of causality, economic freedom precedes economic growth. Other findings reveal economic freedom is associated with, higher per capita income, less poverty and is key to overall wellbeing.

Manoel Bittencourt, Monaheng Seleteng and Renee van Eyden, Inflation and Economic Growth in the Southern African Development Community Abstract: The central objective of macroeconomic policy is a high and sustained growth of output coupled with low inflation rate. Following the literature, it is expected that a negative relationship between inflation and economic growth exists. Furthermore, the magnitude of this inverse relationship is envisaged to be different between industrialised countries and developing countries. Therefore, this paper employs panel data techniques to examine the inflation-growth relationship in the Southern African Development Community (SADC) region based on annual data ranging from 1960 to 2008. To avoid business cycle problems, the same analysis is also conducted using five-year averages spanning the same period. The paper uses Fixed Effects, DIF-GMM and SYS-GMM estimation in examining the relationship between inflation and economic growth. Overall, the results depict a significant inverse relationship between inflation and economic growth in the SADC region.

Session A2
Public
economics

Schumann 107

Reyno Seymore, Margaret Mabugu and Jan Horn van Heerden, The welfare effects of Reversed Border Tax Adjustments as a remedy under unilateral environmental taxation: A South African case study Abstract: Border Tax Adjustments (BTAs) resurfaced recently in national policy debates as a possible measure to counter the anti-competitiveness effect of unilateral environmental taxes. There seems to be no consensus in the literature on the effectiveness of BTAs under environmental taxes. This paper aims firstly to provide a theoretical Heckscher-Ohlin analysis that not only challenges the effectiveness of BTAs, but also proposes an alternative approach to mitigate the welfare effects of environmental taxes. Secondly, the paper evaluate the effectiveness of the alternative approach, to negate the economic impact on competitiveness of an electricity generation tax, without sacrificing the environmental benefits of the tax, in the case of South Africa. Using conventional Heckscher-Ohlin methodology, in a small country, we show that policy makers should, instead of implementing BTAs, consider the opposite of BTAs to mitigate the welfare effects of environmental taxes. We show that gains from trade, due to a reduction in import tariffs, could, under certain assumptions, offset the initial tax induced welfare loss. The paper then applies the Global Trade Analysis Project (GTAP) model to evaluate the impact of an electricity generation tax on the South African economy and explores the possibility to reduce the economic impact of the electricity generation tax through traditional border tax adjustments. However, traditional BTAs are unable to address these negative impacts. The paper then test the proposed reversed BTA approach where gains from trade are utilised to negate the negative impacts of an electricity generation tax, while retaining the environmental benefits associated with the electricity generation tax. This is achieved through a reduction in import tariffs. The reduction in import tariffs not only negates the negative GDP impact of the electricity generation tax, but most the CO2 abatement from the electricity generation tax is retained.

Nara Monkam, Analysis of the Productive Efficiency of Municipalities and Its Determinants in South Africa Abstract: It has been argued in the literature that fiscal decentralization would improve accountability and good governance of local governments, as citizens could articulate their needs in a more focused and direct manner, due to shorter communication channel between the citizens and local government officials(Schoeman 2006). Fiscal decentralization would also allow for higher efficiency levels of service delivery as municipalities would provide goods and services to their constituents that best suite their needs and as resources are utilized in the most efficient manner possible (Dickovick 2005; Bahl 2005). However, in South Africa the process of fiscal decentralization has yet to produce the expected results (Evans and Manning 2004; Ndegwa 2002; Brosio 2000). Specifically, in the recent years, South Africa has been swept by a wave of growing dissatisfaction with service delivery at the local level. Local municipalities in South Africa are plagued by significant service delivery and backlog challenges, poor financial management, corruption, and poor capacity due to lack of skills. This situation has resulted in a great number of local municipalities in financial distress and a loss of confidence and trust in local governments (Schoeman 2006; COTGA 2009). The problems and challenges faced by local municipalities in South Africa are so crucial and alarming that questions have been raised concerning their capability to efficiently deliver on expected outcomes on a sustainable basis. Therefore, the necessity to envisage a reverse tendency toward centralization (“second generation theory”) has been proposed as a possible panacea (Oates 2005; Schoeman 2006). In that context, the research proposal seeks to analyse the efficiency in the provision of public services provided by municipalities in South Africa. The analysis relies on a sample of South African municipalities and exploits the nonparametric, Data Envelopment Analysis, technique to study spending inefficiency and its main determinants.

Jugal Mahabir, Assessing the Impacts of Population Density, Migration and the Existence of Economies of Scale in the Provision of Municipal Services Abstract: One of the most apparent post-1994 characteristics of South African society is the large scale urbanisation. The fall of the Apartheid system removed stringent barriers that prohibited free population movements and constrained certain groups of people in seeking economic opportunities in the more developed areas of the country. As a result, the large cities and other urban municipalities in the country are facing increased fiscal and expenditure pressures driven by these population movements. Increased migration can have policy and planning implications for urban municipalities especially around the planning in the urban built environment and the continued provision of quality services to communities. Furthermore, South African cities are characterised with a spatial pattern inherited from the old Apartheid system. Metropolitan municipalities and secondary cities operate within a spatial design characterised by large communities facing difficulties in accessing economic opportunities while recent community planning has resulted in developments on the outskirts of cities. These characteristics have led to the consideration of policies geared towards denser planning of settlements and compact city developments. This paper quantifies the impacts of migration on the ability of South African municipalities to deliver services. The research also assesses the existence of economies of scales in the provision of municipal services. The debate around smart cities spatial development, which encourages high density settlements, is extended to the South African local arena by quantifying the impacts of dense settlements on municipal expenditures and service delivery. A fully specified cross-sectional expenditure function will be used to assess these impacts using data from the 2007/08 municipal financial year for 237 local municipalities.

Session A3
International
finance

Schumann 101

Nombulelo Gumata and Mercy Teu, The intertemporal approach to the South African current account and inflation Abstract: The current account dynamics have been at the centre of policy debates particularly given the historical perspectives of the last decades showing that large deficits are often followed by crisis and severe economic downturns. Research has since then been pre-occupied by the estimation of the optimal and sustainable size of the current account deficit. Also, testing whether the intertemporal approach helps in capturing important dynamics in the data and that the deficit having deviated substantially from the optimal level a currency crisis followed therefore implying that the intertemporal approach has some predictive power. The paper will investigate what the optimal and sustainable size of the current account deficit for the South African economy is using the intertemporal approach by Bergin and Sheffin (2000) models within the structural vector auto regressive (SVAR) model. This model is more realistic for the South African economy in that it captures the volatility of real interest rates and expectations relating to the exchange. The research will also test for the solvency condition i.e. whether a country that is running persistently large current account deficits is solvent at any given point in time. Finally, the paper will try to establish the sustainability of current account deficits following the Edwards (2001) dynamic model of current account sustainability and whether there is supportive evidence of the costs of running very large deficits. The paper also to considers Saksonovos’ (2006) assumption that current account deviations from optimal levels predicted by the intertemporal model could serve as a signal of the unsustainability of deficits.

Andreas Freytag and Stan du Plessis, The adjustment of current account (im-)balances in Africa Abstract: Large current account imbalances are perceived as a risk, particularly in times of crisis. Consequently a reversal (especially of a deficit) is often regarded as good in itself, and frequently pursued as policy objective or as part of reform programme. This perception is somewhat surprising in light of the intertemporal approach to the balance of payments, where international borrowing and lending is driven by economic decisions with a time dimension. We take an empirical approach to analyse whether current account reversals are indeed beneficial for developing countries in Africa. To that end we identify periods of current account reversal (both deficits and surpluses) and observe the associated development of GDP growth, REER, inflation, investment and aid inflows during the period of reversal and a few years prior to the reversal. We use three criteria to identify episodes of reversal, the first is size: the extent of the reversal given the country-specific volatility of the CA:GDP ratio. The second criterion is speed: the reversal must occur over a relatively short period. We require the reversal to occur cumulatively over 4 years. Persistence is the third criterion: the reversal must be maintained over a specified horizon. We observe modest changes to the variables in our sample not supportive of the view that large current account imbalances posed significant risks to these economies. We use a control group with all countries not experiencing a CA reversal in the time period of the reversal. The difference to the reversal countries is mostly small. This is a puzzle which we so far have not explained. The intertemporal approach to the balance of payments would just predict that. In a concluding section, we discus likely causes of the little macroeconomic effects reversals of CA imbalances have.

Robert Stuart and Motshidisi Mokoena, The Feasibility of the Proposed SADC Monetary Union Abstract: In conformity with a goal of the African Union to build a monetary union for the entire continent, one of the goals of the Southern African Development Community (SADC) is the formation of a monetary union with a single central bank. Towards this end certain macroeconomic convergence criteria, which are closely aligned with those used by the European Union (EU), have been set. While empirical research on whether or not SADC would benefit from the formation of a currency union has been focused on the optimum currency area criteria, no reference to these criteria is made in the SADC programme. Doubts regarding the continuing stability of the EU have recently been raised as a result of debt crises in certain member states, implicitly raising questions about the adequacy of the convergence criteria that were adopted. The paper accordingly considers the feasibility of establishing a currency union in the SADC region. The convergence criteria proposed are assessed against the theory of optimum currency areas as well as in terms of their adequacy in the light of recent EU experience.

Session A4
Labour
economics

Schumann 204

Phumzile Ncube, The gender wage gap along the wage distribution in South Africa, 2001-2010: A quantile regression analysis Abstract: This study seeks to estimate the gender wage gap along the wage distribution between 2001 and 2010 using quantile regression analysis. This assessment aims not only to provide a measurement of the gender wage gap but also aims to shed light on the extent of inequality. Although there have been a few studies that have assessed the gender wage gap specifically in South Africa (Hinks, 2002; Grün, 2004; Casale and Posel, 2009), fewer still have sought to measure the extent of inequality (Ntuli, 2007; Goga, 2008; Shepherd, 2008). Whereas the purpose of Ntuli’s (2007) study and Shepherd’s (2008) study was the assessment of post-apartheid trends in the gender wage gap among the Black population, this study seeks to assess the trends in the gender wage gap among all races. Methodologically, this study aims to take Ntuli’s (2007) and Shepherd’s (2008) studies forward by using Labour Force Survey and Quarterly Labour Force Survey data from 2001 to 2010. Once the wage gaps have been measured they will be decomposed using the Oaxaca decomposition method that will determine whether the gender wage gap is due to differences in human capital characteristics or if in fact there is discrimination.

Dieter von Fintel, Hendrik van Broekhuizen and Gideon du Rand, Numeric competence, confidence and school quality in the South African wage function: towards understanding pre-labour market discrimination Abstract: Highly convex average returns to education found in South Africa are usually rationalised as the result of a surplus (shortage) of unskilled (skilled) workers. However, due to the absence of appropriate micro level data in the past, unbiased estimation of these returns has been difficult. This paper investigates potential sources of estimation bias using the NIDS 2008 survey, one of the first to contain concurrent information on individual labour market outcomes, numeric proficiency and quality of education received (which is highly diverse and unequal across the population). We compare naïve estimates in all relevant sub-samples with estimates that attempt to correct for the sample selection on numeracy (as the test was voluntary), as well as selection into employment. We also exploit information on the choice of test difficulty given to respondents, an option which was not intended in the design stage of the survey. This feature allows rough estimates of the influence of respondents’ confidence in their abilities on wages. More importantly, the sample selection adjustments allow us to control for numeracy and school quality. We estimate the bias in returns to education as well as the extent of racial "labour market discrimination" that can actually be accounted for by schooling outputs. Convex returns to education remain strongly present in the African population despite accounting for inequalities in schooling outputs. Bias in these returns is unreliably estimated for whites and Asians, but is highest for the more educated at a peak of 4.55 and 5.84 percentage points for the African and coloured populations respectively. School outputs (measured in numeracy test scores and historical school performance) constitute a sizable part of discrimination estimates, accounting for between 18% and 36% of unexplained racial wage premia.

Verena Tandrayen-ragoobur and Anisha Ayrga, Gender Wage Gap in the Mauritian EPZ Sector Abstract: With the dismantling of the Multi Fibre Agreement in 2005, many textile factories have closed down and women have been the most affected. Women represent the largest pool of unskilled labour within the EPZ sector since its formation in 1975. Hitherto, those women who are presently working in the EPZ sector are further discriminated in terms of earnings. Gender wage gap in the EPZ sector has long existed in Mauritius and has been accentuated with the globalization process and fierce competition faced by firms. This study uses household survey data from 2006 to 2008, to estimate gender wage differentials in the Mauritian EPZ sector. The Mincerian regression model is applied to estimate and decompose the observed gender earnings gaps into the portion that can be explained by differences between women and men in their productive endowments (in factors such as education) and the portion that is unexplained, owing to differences in returns to these productive factors and due to other unknown effects. Our findings reveal that after controlling for differences in age, educational background, occupation and geographic location, there is an estimated gender wage gap of 21 per cent. The results also make clear that increased education and higher occupation level have an important role to play in lowering the gender wage gap in the Mauritian EPZ sector.

Session A5
Exchange rates
Schumann 205

Chris van Heerden and Andrè Heymans, Enhancing the future spot exchange rate estimation Abstract: When market participants exercise decisions regarding future exchange rate changes they often use the current forward exchange rate as quoted in the market. The current forward exchange rate is however not solely determined by the interaction of demand and supply, but is more of a mechanistic estimation based on the current spot exchange rate and the carry cost of the transaction. Calculating the future spot exchange rate in this manner proves to be ineffective since the current forward rate differs substantially from the realized future spot exchange rate (Chiang & Yang, 2007; Diamandis et al., 2008; Korajczyk, 1985). This phenomenon is known as the exchange rate puzzle, and proves to be a pseudo rather than an econometric problem. The problem is based on the generally excepted fallacy that current non-stationary, level time series data cannot be used to model exchange rate theories, because of the incorrect assumption that all the available econometric methods yield statistically insignificant results due to spurious regressions. However, empirical evidence conclusively shows that using non-stationary, level time series data of current economic fundamentals can statistically significantly explain the realised future spot exchange rate and, therefore, that the exchange rate puzzle can be solved. In order to solve this puzzle we derived an exchange rate model by incorporating the impact of the interaction of two international financial markets into the model.

Duncan Hodge, The exchange rate, Dutch disease and manufacturing in South Africa: what do the data say? Abstract: The Dutch disease argument suggests that “overvaluation” of the exchange rate due to large sustained increases in commodity prices harms manufacturing, even though domestic growth as a whole benefits led by the booming natural resources sector of the economy. The relationship between the real exchange and manufacturing is studied here with regard to South Africa as a commodity export-led economy. Rather than try to determine whether the exchange rate is “overvalued” or “undervalued” against some theoretical benchmark or criteria, this study uses an Engel-Granger cointegration approach to “let the data speak”. Using annual data for the sample period 1980–2010 the main findings are: changes in the real exchange rate have no significant effect on manufacturing in South Africa; world growth drives the exchange rate, the commodity cycle and domestic manufacturing strongly in the same direction; there is no evidence of a Dutch disease effect, on the contrary upswings in commodity prices are associated with increases in domestic manufacturing; the large increases in unit labour costs since the early 1980s have dragged down manufacturing in South Africa over the long run.

Shakill Hassan and Sean Smith, The Rand as a Carry Trade Target Abstract: Targeting the rand through forward currency speculation produces returns which are as volatile, but with higher mean, and smaller probability of rare but large losses, than a buy-and-hold investment in the stock market - which is stochastically dominated in the second-order sense by the rand-targeting trade; and generates a larger return-to-volatility ratio than the Australian and New Zealand dollars - the two most common carry targets. Capital flows driven by the carry trade cause an exchange rate process characterized by gradual appreciations punctuated by infrequent but large rapid depreciations. The consequent level of currency instability depends on whether inflows cause overheating, and how the central bank responds to the associated inflationary pressure.

Session A6
Applied
microeconomics

Schumann 208

Brendan Meehan, Correlates of Sexual Concurrency: Findings from a survey of the student population at the University of Cape Town Abstract: In HIV/AIDS research the role of sexual concurrency is increasingly recognized as being important. In South Africa, sexual concurrency is prevalent with the link to HIV transmission proven. To highlight its effect on the HIV/AIDS epidemic, research suggests that in South Africa almost 80% of HIV transmissions in 2010 will have occurred in extra-partner sexual relationships. Although some research addresses sexual concurrency, it is incomplete. The data used is often the victim of misrepresentations in the form of social desirability bias, and has been gathered by using inappropriate techniques. Data used in this paper has been gathered by using an impersonal online survey specifically designed to avoid this bias. Interestingly, we find that once the risk appetite of the agent is taken into account, men and women are equally likely to engage in concurrency. This contradicts previous literature, which failed to account for differences in risk aversion. However, we find that the behaviour of men and women toward concurrency responds differently to a set of controls in the model. This accords well with theories of concurrency from evolutionary biology and psychology. Bifurcated gender estimations reveal that sexual desire is an important correlate of concurrency for men more than women, and that one’s partner’s concurrency is strongly linked to one’s own concurrency. This indicates the existence of a tit-for-tat strategy being used by respondents. Overwhelmingly however, we find that all models are significantly responsive to relationship specific factors, such as relationship satisfaction, relationship length and partner concurrency. The results therefore strongly suggest that the decision to engage in concurrency depends partly on the agent himself, but also on the relationship he finds himself in.

Sean Muller, Causal complexes and randomised trials: the example of class size and educational outcomes Abstract: Accompanying the increasing use of randomised, or quasi-randomised, experiments in applied microeconometrics, there has been an increase in debates regarding the merits and limitations of the associated methodologies. The focus has tended to be on three types of concerns: 1. Whether all questions of interest can be answered by randomised trials; 2. Whether methodologies based on randomised variation achieve what they claim; 3. The extent to which economic decision processes affect the interpretation of such results. One component of these debates relates to philosophical questions regarding causality. These have been raised in particular by Cartwright (2007,2010), but also by Pearl(2000) and an increasing number of authors working on economic methodology. Our objective is to analyse one particular philosophical issue relating to causality and its relevance to econometric methods of analysing treatment effects. The first section develops the philosophical problem, which relates to Mackie (1974)’s work on causal complexes, and proceeds to illustrate how it may be translated into econometric form. The basic proposal is that there are fundamental reasons to think that valid extrapolation of the results from randomised trials is likely to be difficult. In this sense, our analysis falls into the second category of concerns listed above. Nevertheless, it remains to provide some evidence in support of the assertion that the causal issues have real implications for applied work. To this end, the second part of the paper is empirical. The example used is the effect of class size on educational output (such as test scores). For various reasons we suggest this example is particularly well-suited to addressing the issues raised. We replicate the results of a widely-cited empirical paper and then examine the extent to which those results are vulnerable to the issues identified in the preceding analysis.

Lisa Higginson and Richard Simson, The repeated prisoner's dilemma: experimental results once again Abstract: This paper describes the process of playing the repeated Prisoner’s Dilemma game in the classroom context, with students at the University of KwaZulu-Natal. Studies on the applications of Game Theory have become popular of late. The use of games to demonstrate the fundamentals of economics and more complex interactions has also become a widely used technique in teaching methods. Experimental games have been used extensively in the formation and testing of behavioural assumptions used in micro-economic modelling. A game, like the Prisoner’s Dilemma, has become the central experimental framework for arguments revolving around the assumption of rationality in economic agents. These results, based on experiments with ethical clearance, are an attempt to encourage replication of these types of experiments at other tertiary institutions. The analysis is broadly divided into two phases; the first reports the results of the game with human subjects while the second attempts to test the results obtained using a simulation programme. The results suggest that players generally behave according to findings of recent studies where repeated play of the Prisoner’s Dilemma game leads to more obvious displays of strategic decision making. Overall, the Tant pour Tant and Grim strategies perform well both in the initial phase of the experiment and in the simulation. We find that, in the main, our participants engage in co-operative yet sophisticated strategies, already the subject of much analysis in the game theory literature.

Session A7
Public
economics and
heatlh

Schumann 207B

Laurie Binge, Ronelle Burger, Dawie van Lill and Servaas van der Berg, Estimating the demand for health care in South Africa Abstract: Building on the work of Havemann and Van der Berg (2003) the authors pursue an updated and improved model of health care demand in South Africa using district level information from the National Income Dynamics Survey 2008 and the District Health Information System to supplement information on how individuals respond to acute bouts of illness as reported in the General Household Surveys 2002 – 2009. While the model therefore focuses on one stream of health care this is a very prominent and interesting segment of the demand for health care because of the larger degree of individual responsiveness (vis-à-vis demand for preventative and chronic care). The work is done in part to better understand the underperformance and low utilisations of the public health system. Due to the multi-faceted nature of health services and the lack of a reliable information system, it is difficult to obtain an objective and clear grasp on the quality of service delivery and the efficiency of the system. However, there appears to be reasons for concern: more than half of the users of public sector clinics and hospitals cite complaints (compared to 23% for private sector clients) including long waiting times (41%), drugs being out of stock (14%) and rude staff (11%). Also, amongst the poorest fifth of households, we find that 18% chose to pay to consult a private sector doctor or nurse for their last visit, even though they had the option of free care at the public clinic.

Craig Lemboe and Philip Black, Cigarette taxes and Smuggling in South Africa: Causes and consequences Abstract: Over the past decade and a half, South Africa has taken major steps to align its tobacco control policies with those considered to be “best practice”. The main instrument within the broader framework of tobacco control has been the more aggressive use of tobacco taxes. The primary goal of these policies was to reduce cigarette consumption and the attendant negative externality. However, little attention is given to the illegal cigarette market which in South Africa has long been either ignored or considered to be only a small fraction of total cigarette consumption. Evidence presented in this paper suggests that the level of cigarette smuggling in South Africa is in fact significant. Our basic hypothesis is therefore threefold: (1) the possible existence of a sizable unrecorded market segment suggesting that the externality may in fact be higher than is generally assumed; (2) a possible tax-induced substitution effect, with consumers switching from consuming legal cigarettes to consuming illegal cigarettes following a tax-related price increase in cigarettes within the recorded market; and (3) a strong possibility that the smuggled cigarettes are of inferior quality compared to cigarettes in the recorded market. We use consumption estimates to measure the extent of cigarette smuggling in South Africa, where legal tobacco sales are compared to cigarette consumption as measured by the All Media Purpose Survey (AMPS), with any discrepancy between the two being assumed to indicate the level of smuggling. Using this method it was found that the illegal cigarette market between 2000 and 2008 constituted approximately 40 to 50% of total cigarette consumption. These findings confirm our first hypothesis, that the actual externality is larger than currently estimated. Furthermore, the well-established informal sector in South Africa implies that there is a greater ability and likelihood of consumers switching from consuming legal cigarettes to consuming illegal cigarettes following a tax-induced price increase. There is also significant evidence that illegal cigarettes are of inferior quality which could have the perverse effect of creating an externality larger than that which would have prevailed in the absence of tax hikes.

Marine Erasmus, The South African burden of disease: Implications for resource allocation under the proposed NHI Abstract: The health sector in South Africa is characterised by a comparatively high burden of disease. This has implications for resource allocation decisions, especially in the face of the proposed National Health Insurance system. Using Disability-Adjusted Life Years (DALYs) and cause of death data as measurements, the paper analyses the South African burden of disease. It is shown that South Africa has a unique quadruple burden of disease which is also more severe than many other countries’, both developed and developing. The paper then considers the implication of this finding for human and physical resource allocation in the South African health system. Specifically, the paper aims to contribute to the current debate around the planning and implementation of the proposed National Health Insurance scheme in South Africa.

Monday12:40 - 13:40
V V H Neelsie
Lunch
Monday13:40 - 15:00Parallel Sessions B
Session B1
Unemployment in
South Africa

Schumann 104

Frederick CvN Fourie, The Unemployment debate in South Africa: Three discourses, three worlds? Abstract: This paper reports the findings of a critical survey and meta-analysis of the South African academic and research literature on unemployment. Noting that much research has been published by macroeconomists, labour economists and poverty/development analysts, it asks whether the research has produced a coherent analytical picture of the issue – as the presumed basis for coherent and consistent policy. Are there integrated, cross-informed debates – or separate worlds? What must policy-makers make of this? The work of the three groups constitute three quite different discourses (with some sub-discourses) signified by distinctive topics, approaches, vocabulary, models and data, inter alia. Seminal contributions are characterised, grouped, and their relation to adjacent clusters of analysis determined. A first outcome is a comprehensive three-discourse diagram, showing a mapping of themes and approaches in a ‘discourse landscape’ – a ‘google-earth’ view of the major features of this ‘landscape’. A second objective is to highlight cross-cutting themes and findings – but also gaps. Seminal contributions are analysed, distilling essential frameworks and findings relating to unemployment. While a number of cross-cutting themes can be identified, there are substantive differences, even divides, between the findings of the discourses. These can be traced to the different subdisciplines but also to epistemology, method, technique, institutional factors as well as the influence of ideology. The paper concludes by identifying significant gaps in the overall debate and areas for potentially fruitful, and urgent, exploration – also with regard to policy. In this way it explores the outlines of a conversation towards an integrated understanding of the macroeconomic, labour market and developmental dimensions of unemployment in South Africa. Such an understanding, it is argued, is essential to inform consistent and coherent – and perhaps more successful? – policy regarding unemployment, poverty and inequality in South Africa (and perhaps other developing countries).

Discussants: Ben Smit and Murray Leibbrandt
Session B2
Environment
Schumann 107

David Roche-kelly, Can Emission Trading Schemes and Emission Taxes be harmonized? Abstract: The Kyoto Protocol is due to expire at the end of 2012. The 17th Conference of Parties (COP17) to the United National Framework Convention on Climate Change (UNFCCC), which will be held in Durban in December this year, is considered by many to be the last opportunity to reach agreement on a replacement for the Kyoto Protocol. There are a variety of different economic policies which link into international efforts to mitigate climate change. However the economic policy most central to current efforts, remains the emission trading scheme. The logic being that once emission trading schemes establish an international carbon price, the cost of carbon emissions will become hardcoded into the everyday business. To date the EU’s Emissions Trading Scheme (EU-ETS) remains the world’s only large emissions trading scheme for carbon. A depressing but likely outcome of the COP17 conference in Durban is that no new agreement will be reached. What will the EU do once it observes that the rest of the world is reluctant to follow its virtuous example? Will it abandon or keep its ETS? If the EU chooses to keep its ETS, it is likely to attempt to defend its industries from competition from “non-green” products and services by imposing “border adjustments”, another name for trade tariffs. How would a country like South Africa, which is likely to develop emissions taxes, cope with green border adjustments to the EU? On a more theoretical level how would a country or grouping of countries harmonize, and thus live with, two different types of regulatory approaches? The paper will be of a conceptual and theoretical nature but will have an emphasis on institutional analysis and focus on the lessons that can be learnt from the experience of other emission trading and emission tax schemes.

Marcel Kohler, CO2 Emissions, Energy Consumption, Income and Trade Openness: A South African Perspective Abstract: The effect of trade liberalisation on environmental conditions has yielded a great deal of debate in the current energy economics literature. Although research on the relationship between energy consumption, emissions and economic growth is not new in South Africa, no study specifically addresses the role that South Africa’s foreign trade plays in this context. This paper undertakes to investigate the interplay between these variables employing recent South African trade and energy data and modern econometric techniques. The main finding of interest in this paper is that previous CO2 emissions and the income variables are insignificant factors in explaining current changes in CO2 ¬emissions. Contemporaneous energy usage is significant and positive as theory predicts. Interestingly the trade openness variable is also significant but negative. This suggests that an increase in SA’s openness to trade will in fact serve to decrease CO2 emissions. Thus in this respect SA behaves as a developed nation contrary to the predictions of the PHH. The paper outlines both policy recommendations and ideas for future research, specifically regarding the factors that account for the relationship between increased trade and environmental degradation in South Africa.

Jacques Joubert, Economic viability of wind turbines for Western Cape farms, using Germany’s example Abstract: With a surge in Eskom’s electricity prices and their unreliable service delivery, it could be more economically feasible for farmers in the Western Cape to rely on small wind turbines as their source of electricity. This paper seeks to establish whether this is actually the case over a period of 20 years, using Germany’s renewable energy model as an example of its implementation process. The results prove that it is more economically feasible for framers to draw electricity from small wind turbines as opposed to drawing it from Eskom’s grid system.

Session B3
Geography and
economics

Schumann 101

Leann Cloete, Mario du Preez and Deborah Lee, Valuing people’s preferences for the removal of a local disamenity: A contingent valuation study Abstract: A manganese ore dump and an oil tank farm have been located in the Port Elizabeth harbour for many years. However, the location of these facilities in the harbour has become problematic because of negative environmental externalities. These include water pollution as a result of an oil leak, and air pollution due to manganese ore dust. This paper examines the Nelson Mandela Bay public’s willingness to pay (WTP) for the immediate removal of these facilities from the Port Elizabeth harbour by applying the contingent valuation method (CVM). Estimated households’ WTP for the removal project ranges from R47.09 (a lower bound non-parametric estimate) to R93.21 (a mean parametric estimate). The results indicate that the WTP value is strongly associated with the populations’ awareness of the existence of the facility, their age, their education and their ability to pay. This study provides insights into Nelson Mandela Bay households’ preferences for the removal of the manganese ore dump and the oil tank farm, and will assist policy-makers in resolving the conflict between existing harbour services and environmental degradation.

Kotie Viljoen and Rinie Schenck, The socio-economic role of buy-back centres in the waste recycling chain in Pretoria and Bloemfontein (South Africa): a comparitive study Abstract: Buy-back centres fulfil an important role in the waste recycling chain in South Africa. They are the link between recycling companies as well as landfill and street waste collectors. As such, they provide an income and livelihood for many individuals and families that depend on waste collecting as a way of survival. Current research in South Africa focuses on people who reclaim dump sites and landfill sites with little research on the “street waste collectors”. The role and socio-economic contribution of buy-back centres in this chain has been neglected in literature and no previous research has been done on this topic. The purpose of this paper is to explore the social and economic contribution of buy-back centres, in terms of their linkage with the bottom end of the waste recycling chain namely the individual street waste collectors. The case study covers two cities in South Africa, with different geographic locations, namely Pretoria and Bloemfontein. A combined quantitative and qualitative research approach was followed. The geographic differences between these two areas are reflected in the results. The results of this study emphasises the need for an in-depth exploration of this topic.

Dieter von Fintel, Waldo Krugell and Adri Wolhuter, Labour markets and agglomeration: The urban rat race in South Africa Abstract: This paper examines the possible existence of an urban rat race in South Africa by investigating the relationship between agglomeration and hours worked. We follow the work of Rosenthal and Strange (2002), who find evidence that industrious professionals are drawn to agglomerated areas and that agglomeration increases the number of hours worked, thus supporting Akerlof’s (1976) theory of an urban rat race. Using cross-sectional data from the September 2007 Quarterly Labour Force Survey, OLS regressions were run using the log of hours worked as dependent variable and different worker attributes, dummy variables and agglomeration variables as predictors in order to determine the relationship between agglomeration and hours worked in the urban areas of South Africa. Findings from the empirical analysis yield atypical results concerning the relationship between worker characteristics, agglomeration and hours worked in South Africa. Overall, results indicate that a work-spreading effect occurs amongst professional workers, whilst non-professional workers appear to work the longest hours in South Africa.

Ivan Turok, Spatial Economic Disparities in South Africa: Towards a New Research Agenda Abstract: It is well-known that South Africa is marked by extreme spatial economic disparities, both between and within regions. It is generally believed that these disparities are inequitable. However, views are much mixed on whether they are economically efficient or inefficient. This is of vital importance for the formulation of policies towards urban, rural and regional development. The overt thrust of several current policies, such as the New Growth Path, is towards rural development. Other policies focus on industrial development zones in coastal regions, again with an uncertain rationale. The theme of spatial inequalities has generally been neglected by SA economists in favour of social and sectoral analysis. It is of course also a highly sensitive subject for national politicians and policy-makers. Consequently, the policy tensions and trade-offs are generally not well understood. There is tendency among many policy-makers to focus on socio-economic ‘need’ and to ignore ‘impact’ or ‘potential’. There are highly polarised views among many academics – either pro-urban or pro-rural. The paper outlines some of the conceptual issues that need to be addressed in analysing spatial economic patterns and processes. It considers the importance of agglomeration economies and other externalities that influence the location of economic activity. It also discusses the effectiveness of migration and commuting as adjustment mechanisms to spatial inequalities. It presents some striking new data on spatial economic disparities, and proposes a set of research questions and methods to strengthen an emerging research agenda on the spatial economy.

Session B4
Business cycles
Schumann 204

Siobhan Redford, The cyclicality of mark-ups in South Africa Abstract: The purpose of this paper is to calculate an aggregate mark-up measure and establish the nature of the cyclicality of the aggregate mark-up for South Africa in order to better understand price setting behaviour. The mark-up is calculated more than once, relaxing different assumptions to examine the effect of these assumptions on the cyclicality of the mark-up. The results suggest that the mark-up is quite high with an average above 70 per cent for the period 1960 – 2010, although this is significantly lower once the share of the mark-up allocated to covering intermediate materials is taken into account. The form of the production function does affect the cyclicality of the mark-up, with a Cobb-Douglas specification resulting in a procyclical mark-up and a constant elasticity of scale specification resulting in a countercyclical mark-up.

Albert Touna Mama and Nicola Viegi, Business Cycle Accounting for South Africa Abstract: Quantitative DSGE Models are an increasingly important tool for policy analysis and evaluation in South Africa. The basic framework of these models is a monetary real business cycle model with a series of market imperfections (monopolistic competition, price and wage rigidities and credit market imperfections) introduced to mimic the time series properties of the data. This paper wants to evaluate the importance of each imperfection in explaining the business cycle in South Africa. To do so we apply the business cycle accounting methodology proposed by Chari, Kehoe and McGrattan. The analysis starts showing that many models are equivalent to a prototype growth model with time varying wedges looking like productivity, labour taxes, investment taxes and government expenditure. We then identify these wedges for the period 1970-2010 and we describe the contribution of each wedges in explaining the 2008-2010 cycle. In particular we show that the labour wedge seems particularly important in explaining the severity of labour market response experienced in the period. The results is robust to different parametrizations of the model and different treatments of the data. We conclude by suggesting a possible modelling framework which would help explaining the preponderance of the labour wedge in the South African business cycle.

Harri Kemp, Estimating Potential Output for South Africa: A Production Function Approach Abstract: Measuring potential output accurately is important. Judgements about the stance of the economy, medium term growth prospects and policy analysis depend on it. The aim of the paper is to review some of the methods employed in estimating potential output and to obtain a new estimate of potential output for the South African economy. Estimation of potential output is based on a structural production function. The reliability of the end sample estimates, the transparency and relative simplicity of the method, as well as the ability to examine the underlying determinants of potential output, provide the motivation for using the production function approach as the preferred methodology. A Cobb-Douglas production function is estimated for the period 1973 to 2010 and potential output calculated by substituting for potential levels of the factors in the estimated production function. Results indicate that a rigid labour market, characterised by consistently high levels of unemployment, a severe lack of skills, large numbers of discouraged and unemployable workers and strong labour unions, has restricted potential output growth. The estimates suggest that the potential sustainable growth rate (i.e. that level of output growth consistent with stable wage inflation) for South Africa is about 3.5%. This is substantially lower than the 7% target set by government. It appears as if the South African economy has hit capacity constraints, with potential growth far below official targets. Any policy aimed at increasing economic growth, while neglecting to address the various structural problems (specifically in the labour market) in the economy, will prove to be unsustainable.

Ewa Karwowski, Maturity and Stagnation in the South African Economy Abstract: The paper applies Steindl’s theory of the firm [1976] and understanding of the business/ growth cycle to an emerging market setting in general and South Africa in particular. Steindl’s analysis is exceptionally insightful as it establishes the connection between capital investment and the process of accumulation, articulating a coherent theory of the firm integrated into business cycle and growth theory. This approach goes far beyond stochastic or New Keynesian models claiming to introduce microeconomic fundamentals, while essentially describing the firm as a producing household. To understand operations of modern-day non-financial firms the concept of over-capitalisation [Toporowski 1986] is introduced and applied to South Africa. Over-capitalisation emerges when non-financial firms have abundant funds available (e.g. because of oligopolistic profits), choosing financial over productive investment. Steindl’s as well as Toporowski’s theories were developed in an advanced country framework. The paper is highly original extending analysis to emerging markets. Examining the South African economy it emerges that the country is a mature economy in Steindl’s sense with firms characterised by over-capitalisation. Maturity refers to an economic set-up where stagnant industries with the tendency to reap supernormal profits from oligopolistic competition dominate progressive sectors where profit margins only increase temporarily as consequence of innovation. Maturity results in growth cycles characterised by inflationary pressures during upswings and stagnation alongside with increasing unemployment during downswings. One reason for South Africa’s maturity is the dominance of its mining sector. Yet, maturity can only emerge when oligopolistic industries dominate the economy as a whole. Since mining contributes 5-6% to South African GDP it would not suffice to induce overall stagnation. The paper is using industry-level data to show that net profit margins have been increasing in highly concentrated sectors over the past 20 years, while profit has been falling in competitive sectors. The data is available by SIC level. The author also assessed balance sheet level data showing that large firms in highly concentrated industries tend to hold an increasing amount of funds in financial assets.

Session B5
Monetary
Economics

Schumann 205

Robert Stuart and Nondumiso Gumede, The Bank Lending and Balance Sheet Channels of Monetary Policy: A Theoretical Analysis Abstract: The paper presents a theory-based critique of the bank lending and balance sheet channels that are subsumed under the credit channel of monetary policy transmission. Internationally, extensive empirical work has been done on the credit channel, much of which has been directed at which of the bank lending channel or the balance sheet channel are supported by the data. Results have been mixed, with support for the bank lending channel being found in the United States but not in the Euro area. The lack of consensus in the empirical literature is mirrored by research done in South Africa where mixed views on the existence and relative importance of the two channels have emerged. More recently, it has been argued that the mechanisms underlying the bank lending and balance sheet channels are broadly the same and hence that the data provides support for either or both of these channels. Given the inconclusive empirical results it is argued that the matter should be addressed from a theoretical perspective, taking into account both the mechanisms that underlie the provision of credit by the banking sector and the operation of monetary policy through changes in interest rates.

Laban Chesang and Ruthira Naraidoo, Determinacy, Asymmetric Preferences and Optimal Monetary Policy Abstract: The paper analyzes optimal monetary policy within the New Keynesian framework by incorporating asymmetric preferences of the Central Bank with regard to output gap. In particular, we consider the implications of the behavior of output and inflation under quadratic and non quadratic preferences for the Central Bank and investigate the possibilities of an economy being stuck at bad equilibria – recent economic events point to such direction. In our approach, monetary policy is modelled as the discretionary outcome of an inter-temporal optimization problem in which the Central Bank minimizes its loss function subject to the constraints provided by the structure of the economy, which is described by the IS and the Phillips curve. We allow for LINEX preferences where deviations of output (relative to target) from below are weighted more severely than deviations from above. We derive the central bank’s nonlinear optimal policy rule and analyze wherther under what conditions the resulting rational expectations equilibrium is unique (see Evans and Honkapohja, 2003). We show that by incorporating asymmetric preferences, interest rate response to output contractions are larger than response to output expansions of the same magnitude to the extent of inducing inflation bias. Secondly, we find that asymmetric output preferences can cause nominal interest rates to be ‘too low’ – for monetary policy to be too passive – and can cause the economy to possess a continuum of equilibria. All of these equilibria are equally consistent with rational expectations, but generally have higher variance, possibly much higher variance, than the unique equilibrium associated with the more aggressive policy. We conclude that monetary policy need to be appropriately aggressive in reacting to economic developments so as to keep expectations well anchored, and therefore avoiding the possibility that the economy could be stuck at the bad equilibria.

Rudi Steinbach, Riaan Ehlers and Vafa Anvari, Estimating the effect of South Africa's banking sector fragility during the global financial crisis Abstract: Assuming that interest rates charged by commercial banks on private sector loans are maintained at fairly stable spreads relative to the policy rate, the level of the Repo rate is generally seen to reflect monetary conditions. However, during the global financial crisis spreads between loan rates and the policy rate increased significantly as banks engaged in the process of deleveraging their balance sheets, effectively tightening monetary conditions while the SARB was lowering the Repo rate. The appropriate reaction of monetary policy to widening credit spreads is a contentious issue. McCulley and Toloui (2008) suggest a Taylor rule specification that yields a one-for-one reduction in the policy rate in response to increases in particular credit spreads, while Curdia and Woodford (2008) find that such a response would lead to a larger-than-optimal interest rate reduction. The purpose of this paper is to extend the small open-economy DSGE framework by incorporating a banking sector and hence, deposit and loan rates. Furthermore, the setting of these rates by banks would be tied to the overall economic conditions, as they will depend on the value of the collateral offered by households and firms. The suggestions of McCulley and Toloui (2008) and Curdia and Woodford (2008), i.e. that the central bank should respond to changes in credit spreads, are then analysed in a South African context by comparing the loss function of the SARB if it were to react to credit spreads as opposed to it merely following a standard Taylor rule.

Guangling (dave) Liu, Will the SARB always succeed in fighting inflation with contractionary policy? Abstract: The conventional view is that monetary policy shock has both supply side and demand side effects, at least, in the short run. Barth and Ramey (2001) argue that the cost channel effect of monetary policy may have a larger effect than the demand side effect. We argue that it is crucial for monetary authorities to understand whether the increase in expected inflation is due to supply shocks or demand shocks before applying contractionary policy to forestall inflation. Using a standard New Keynesian dynamic stochastic general equilibrium model with cost channel of monetary transmission, we show that if the increase in expected inflation is mainly due to supply shocks, South African Reserve Bank should not apply contractionary policy to forestall inflation. Otherwise, the bank would face a continuously persistent increase in inflation and a bigger lost in output.

Session B6
Microeconomics
Schumann 208

Zuzana Brixiova, Modeling Productive Entrepreneurhsip in Developing Countries Abstract: Productive entrepreneurship and vibrant private sector remain limited in most of Africa, the pre-crisis growth notwithstanding. This paper develops a model of costly entrepreneurial start ups and skill lbaor market entry in an economy with inefficiencies in the product and labor markets and a large informal sector, which characterize institutional landscapes in many African countries. It then examines several mitigating policies (e.g. subsidizing etnrepreneurial search, wage subsidies)that could improve the suboptimal outcomes emerging in such framework. The main findings are that subsidies to entrepreneurial search would be more effective in encouraging firm start ups than wage subsidies, although fewer entrepreneurs may choose to operate in the formal sector than under the latter. To be effective,both types of subsidies should have a time limit and be phased out with reforms of the business environment and labor markets.

Tamaryn Roberts, An analysis of the additional support needs of households eligible for the Child Support Grant Abstract: The Child Support Grant (CSG) was introduced in South Africa in 1998 to ensure the primary care givers of children (of all races) in poverty can access funds to supplement household income. This financial assistance was aimed at contributing to the costs of caring for the child’s needs, particularly their food requirements (CASE, 2008). Child welfare grants have regularly received negative publicity about the possible unintended consequences of increasing teenage pregnancies. Numerous authors have dismissed this claim and suggested further research on situations facing young mothers in poverty (Sawhill, 2000; Goldblatt, 2003,2005 and Makiwane, 2010). The aim of this paper is to investigate the characteristics of households receiving the CSG as well as those who are eligible, but do not. The focus falls on identifying underlying problems within these households and the role additional welfare support can play in breaking the cycle of poverty.

Lori Curtis, Does Social Assistance Participation lead to lower Self-Reported Health? Abstract: Recent evidence indicates that the ‘well-known’ cross-sectional association between unemployment and health may be a result of individuals with poorer health being selected into unemployment rather than unemployment lowering health. This study examines whether this may be the case for the strong negative relationship between health and social assistance (SA) found in cross-sectional studies. The study uses The Canadian Survey of Labour and Income Dynamics and a Markov Model to examine transitions between health states controlling for available recognized ‘determinants of health’. Health transition probabilities for women who never experience SA participation in the study period are compared to women who move on and off of SA and those who remain on SA for the entire study period. Results indicate that women who receive SA the entire period are, on average, substantially less healthy than those who move on and off of SA and they are in turn less healthy than women who never receive SA. For the vast majority of original health states, health status is most likely to remain unchanged in the next period for all SA status. The patterns in the transition probabilities are similar across SA states. The similarity in patterns across SA participation types is an indication that SA participation is not driving health status. The particularly high probabilities of poor health in period t and t+1 in women who are always on SA offers some evidence that, like the unemployment-health relationship, women in poorer health may be being selected in SA. Finally, the high likelihood of moving from SA/poor health in period t to No SA/poor health in period t+1 in 8 SA/health state multinomial models is a strong indication that SA is not driving poor health.

Jean-pierre Geldenhuys, The Effect of the Child Support Grant on Fertility Abstract: Does the child support grant (CSG) affect South African fertility? This paper aims to determine if the CSG affects fertility by considering whether mothers, with a child that is a beneficiary and that is nearing the cut-off age for eligibility, give birth to another child to avoid losing this potentially important source of household income. Furthermore, the paper also considers whether women whose eldest child is a CSG beneficiary are more likely to have more children than women whose eldest child is not a beneficiary. The data used in this study are the 2002 and 2009 rounds of the South African General Household Survey (GHS). Between these two rounds of the GHS, the cut-off age for CSG eligibility increased substantially: in 2002 the cut-off age was six years; by 2009, the cut-off had gradually increased to fourteen years. This marked increase in the eligible age for CSG receipt is used to identify if CSG receipt affects the propensity of higher-order births. In estimation, allowance is made for the probable endogeneity of some explanatory variables (notably female employment) by specifying a behavioural model in which both female employment status and birth outcomes are modelled jointly. Since both dependent variables are dichotomous, and to account for the joint determination of birth outcomes and female labour supply, bivariate probit regressions will be run. The results from these bivariate probit regressions will then be used to ascertain whether or not the imminent loss of CSG income is associated with the presence of a young child in the household or a(reported) pregnancy at the time of observation. Furthermore, the results will indicate whether mothers whose eldest child is a CSG beneficiary are more likely to record higher order births than mothers whose eldest child is not a beneficiary.

Session B7
Public
economics

Schumann 207B

Gavin Keeton and Gregory White, The economic implications of nationalising the South African mining industry Abstract: The ANC Youth league has repeatedly called for the nationalisation of the South African mining industry. Although nationalisation is not the policy of the South African government, a decision was made to research the issue further at the ruling party’s policy conference in September 2010. This paper puts the issue of nationalisation into an historical context and attempts to calculate the cost of nationalising the mines should compensation be paid to current owners in line with the SA Constitution. These costs are firstly financial, the cost of debt incurred being sufficient to more than double government debt in South Africa. Moreover, nationalisation would trigger large foreign capital outflows as many of the current shareholders in South African mining companies are foreigners. The paper suggests that should the Constitution be changed to avoid paying current shareholders the economic consequences would be even worse. South Africa will still be required to compensate foreign shareholders in terms of foreign investment treaties with a large number of countries. Moreover, such an action would trigger the widespread selloff of South African equities currently owned by foreigners. The purchase of these shares has financed a large part of South Africa’s persistent current account deficits since 1994. Not only would such outflows cause a massive decline in the rand exchange rate, the absence of future inflows would condemn SA to a level of growth constrained by its meagre level of domestic savings. Finally, the paper suggests that state-owned mines in a natural resource dependent country will inevitably underperform mines that are privately owned. This is because mines in times of low commodity prices require capital injections from their shareholders. These requirements occur at precisely the time when governments of resource-dependent countries are least able to afford them.

Estian Calitz, Sally Wallace and Le Roux Burrows, The impact of tax incentives to stimulate investment in South Africa Abstract: Most economists dispute the usefulness of tax incentives (eg Zee, Stotsky and Ley, 2002). Such incentives nonetheless continue to characterise tax policy in developed countries (OECD, 2010) and developing countries such as in Sub-Saharan Africa (Keen and Mansour, 2010) South Africa has a long record of the use of tax incentives (Heyns, 1984), which were reduced during the 1990s, creating scope for corporate tax rate reductions (Katz Commission, 1994). Subsequently tax incentives regained popularity commensurate with the government’s notion of a developmental state. National Treasury (2011: 179) estimated total tax expenditure in 2008/09 to be R 78 billion (12.5 % of total tax revenue). R12 billion was in respect of the motor industry development programme alone, equivalent to almost 2 percentage points of corporate tax revenue. Empirical evidence of the impact of tax incentives in developing countries is scant, but increasing (eg Keen and Mansour (2010) and Klemm and Van Parys (2010) for Latin America, the Caribbean and Africa). Occasional assessments are available of the nature and effect of individual tax subsidies in SA (eg Flatters and Stern, 2008). Little if any systematic analysis exists of the impact of corporate investment tax incentives. Internationally, empirical analysis is mostly econometricand the calculation of marginal effective tax rates. An apparently little used method is input-output analysis, which this paper intends applying. The hypothesis is that tax incentives to promote investment in South Africa are expensive in terms of the results that could be achieved through a revenue neutral corporate tax reduction.

Jacques Kibambe Ngoie and Niek Schoeman, Efficiency of optimal taxation in a dynamic stochastic environment: Case of South Africa Abstract: This study investigates the optimality hypothesis of taxation in South Africa when using appropriate tax rates within a dynamic stochastic environment. We discuss different Markov perfect equilibria and assess the growth returns on the 3 major types of taxes namely (1) personal income tax, (2) corporate profit tax, and (3) value added tax as a portfolio. Also, the volatility of optimal tax rates is assessed in this study. Using a Marshallian macroeconomic model disaggregated by sectors (MMM-DA) we analyse several features of the South African economy that may contribute to optimal taxation. This study has twofold implications. It highlights the impact of efficient optimal taxation on both overall economic growth and fiscal policy in the country.

Philip Hornsby and Sean Muller, The Eskom Power Alert Initiative: A Public Goods Game Abstract: This paper analyses the impact and effectiveness of the Eskom Power Alert Initiative on the consumption of electricity in South Africa from 2006 to 2011. We frame individuals’ decision to reduce their electricity consumption as a decision to contribute to a public good. In the basic public goods game non-contribution is individually rational. In that case, Power Alerts should have no effect. However, many studies have now shown that in different situations, and across societies, individuals do make contributions. The nature of the Power Alerts is such that – we suggest – they serve as a natural experiment, which can be used to econometrically assess the effect of the initiative. The only similar analysis of such an electricity conservation initiative is that of Rand & White (2008), but this lacks detailed data and did not involve a quasi-experimental approach. Our data is in 5-minute intervals and consequently we conduct a time-series analysis in which the effect of a Power Alert is assessed by changes in the trend of electricity usage in the period after the alert. Preliminary results show that the initiative was able to produce a sizeable and significant reduction in consumption of electricity, showing that consumers do not act as one might predict based on a simplistic rational agent model. This suggests that such request-based initiatives may be useful policy tools. In addition to this core result, we examine variation in the effect due to variation in the type of Alert. Finally, we look to examine the possibility that the effect of the Alerts may have changed over time. We conclude with a discussion of prospects for extending the research.

Monday15:00 - 15:30
V V H Neelsie
Tea
Monday15:30 - 17:00Parallel Sessions C
Session C1
Empirical
Finance

Schumann 104

Jan Adriaan van Greunen and André Heymans, The stationarity of financial time series Abstract: The concept of stationarity has always been central to econometric time series analysis. As such it has become common practice to transform non-stationary financial time series to stationary series by either differencing the data to the order of I(1) or using the log-normal returns of the data. However, this process often leaves the data void of its descriptive value, and therefore ineffective in forecasting models. This paper aims to challenge the common practice of differencing by presenting an overview of what has been established through other methods of achieving stationarity. These methods include, but are not limited to, achieving stationarity through fractional differencing and de-trending. The result of the study will be a critical overview of the different forms of stationarity that may be achieved in financial time series analysis by means of an extensive literature review on the stationarity of financial time series.

Evan Gilbert and Grant Smith, Are Momentum Strategies Profitable for Large Asset Managers on the JSE Securities Exchange? Abstract: This study tests for the existence of the momentum effect on the JSE Securities Exchange using the methodology of Jegadeesh and Titman (1993). A new, long term, survivorship bias corrected dataset for the period 1976 – 2009 is used. We extend this approach by using the liquidity cap approach introduced by Bailey and Gilbert (2007) to control for liquidity constraints relevant for large, South African (SA) domestic investors. Sadka (2003) showed that the momentum effect on the New York Stock Exchange is most concentrated in the least liquid shares. Controlling for liquidity is thus vital to establish the economic validity of the momentum effect for large investment managers operating in a very concentrated market such as the JSE. The positive results and the size of the observed effects are consistent with some of the previous studies in both South African and other countries, but the study provides two key additional insights: firstly, the size of the momentum effect is very sensitive to the treatment of the returns to delisted firms; and secondly, these profits are shown to increase as the more illiquid shares are excluded from the analysis, contrary to Sadka’s (2003) findings. This analysis suggests that while the momentum effect may well be source of sustainable abnormal investment returns, practitioners should be aware of challenges relating to the implementation of investment strategies based on this effect.

Rangan Gupta and Mampho Modise, Macroeconomic Variables and South African Stock Return Predictability Abstract: We examine both in-sample and out-of-sample predictability of South African stock return using macroeconomic variables. We base our analysis on a predictive regression framework, using monthly data covering the in-sample period between 1990:01 and 1996:12, and the out-of sample period commencing from 1997:01 to 2010:06. For the in-sample test, we use the t-statistic corresponding to the slope coefficient of the predictive regression model, and for the out-of-sample tests we employ the MSE-F and the ENC-NEW test statistics. When using multiple variables in a predictive regression model, the results become susceptible to data mining. To guard against this, we employ a bootstrap procedure to construct critical values that account for data mining. Further, we use a procedure that combines the in-sample general-to-specific model selection with tests of out-of-sample forecasting ability to examine the significance of each macro variable in explaining the stock returns behaviour. For the in-sample tests, our results show that different interest rate variables, world oil production growth, as well as, money supply have some predictive power at certain short-horizons. For the out-of-sample forecasts, only interest rates and money supply show short-horizon predictability. Further, the inflation rate shows very strong out-of-sample predictive power from 6-months-ahead horizons. When accounting for data mining, both the in-sample and the out-of-sample test statistics become insignificant at all horizons. The general-to-specific model confirms the importance of different interest rate variables in explaining the behaviour of stock returns, despite their inability to predict stock returns, when accounting for data mining.

Johan Coetzee, H van Zyl and M Tait, Bank selection criteria in the South African retail banking sector Abstract: The findings of this study reveal that the bank selection criteria most important for clients are related to service quality, the image of the bank, and the reputation of the bank. The reputation and image of the bank is seen to play an important role in the perception of service quality prior to starting a relationship with a bank. A further finding is that the relationship-based criteria are regarded as more important by the contact-personnel than the clients. In other words, bank contact-personnel perceive the bank-client relationship to be more important to clients when choosing a bank than what it actually is for clients. Indeed, as a construct on its own, relationship criteria for respondents in this study is not considered important at all for clients when choosing a bank for the first time. This study is novel in that it is the first of its type to be done in South Africa to focus on the criteria clients use to choose a bank for the first time.

Session C2
Post-Great
Recession
Economics

Schumann 107

Cees Bruggemans, Excellence in Economics Abstract: In an overall systemic sense, established economic theory has proven itself and works quite well in ‘non-crisis’ periods. Rationality and standard utility theory do a good job of describing daily behaviour under reasonably certain conditions (‘stability’). One problem remaining concerns crisis conditions, in particular the behaviour of economic agents in times of profound uncertainty. This is best characterized as wholesale recoiling to shock events followed by flight to safety, panicky asset fire sales and destructive, defensive, universal economic withdrawal. In order to achieve better economic performance, we need societal trust, non-intrusive government, excellent public services and private initiative to drive innovative renewal and asset accumulation, with the state ensuring a bearable distribution of income, wealth and opportunity.

Andrea Saayman, Macroeconomics after Four Decades of Rational Expectations Abstract: In 1982, Bennett McCallum took a critical view of Rational Expectations in his paper “Macroeconomics after a decade of rational expectations” and he subsequently followed it up in 1993 with “Macroeconomics after two decades of rational expectations”. This paper follows a similar strategy and aims to present a critical review of rational expectations and its influence on macroeconomics theory and application after four decades. The paper shows that while theory has developed substantially, the practical application thereof has lagged behind and that the influence of rational expectations is still very much alive in practical macroeconomics. According to McCallum (1982), the Rational Expectations revolution started with the publication of Robert Lucas’ work in 1972 on Expectations and the Neutrality of Money (see Lucas, 1972a) and the Econometric Testing of the Natural Rate hypothesis (see Lucas, 1972b). However, Mankiw (1990) notes that notion of rational expectations was already introduced by Muth in 1961, but that on its own, it had no empirical implication. This changed with the work of Lucas, as well as that of Sargent and Wallace (1975), which familiarized economists with the application and implication of rational expectations – most notably, the irrelevance of systematic monetary policy – while Taylor’s (1979) macroeconomic model with rational expectations provided the framework for future policy analysis. Within this expansion of the rational expectations revolution, Kantor (1979) concluded that it has forever changed the way in which macroeconomic phenomena are analysed. However, rational expectations did not escape criticism. The influence of divergent expectations instead of convergent expectations (see Torr, 1984), sticky prices in labour and product markets and imperfect competition present some reaction against the revolution. However, rational expectations remained one of the tools in economic practitioners’ toolbox, as Mankiw (2006:44) writes that new developments in macroeconomic research “had little impact on practical macroeconomists who are charged with the messy task of conducting actual monetary and fiscal policy”.

Stan du Plessis, How the crisis can help us to rethink monetary models Abstract: Monetary economics had reached a remarkable consensus prior to the international financial crisis. This consensus was both theoretical and practical and built around a consensus New-Keynesian model of the macroeconomy, which was used to construct the dynamic stochastic general equilibrium models that became dominant in policy circles during the first decade of this century. Despite its rapid rise and sophistication this consensus model was not free from criticism, especially the shallow treatment of asset markets, the weak basis for its claim to micro-foundations, the conflict between the standard versions of the model and the failure to incorporate some of the theoretical advances made in monetary theory during the last twenty years. The international financial crisis has given impetus to an important revision of the consensus model. The pressure for revision is felt not only amongst theorists but especially keenly in policy circles where financial stability as a policy goals has risen in importance and with it the need for models to analyse the financial stability consequences of policy action. This paper draws the lessons for the consensus model and explore those rival models which are promising departure points towards a new consensus. The paper identifies a number of promising revisions to the consensus model and argues for an evolution instead of an revolution in monetary theory and practice.

Peet Strydom, Economics for a New Era Abstract: Market interdependence has been an explicit feature of macroeconomics because it facilitates an inquiry into spillovers and intermarket pressures. This interdependence is a particular feature of the real world and macroeconomics attempted to study this with general equilibrium analysis. One could distinguish various types of general equilibrium analyses that are methodologically different and in a particular sense competing analytical frameworks. We demonstrate that the different general equilibrium frameworks are dependent on certain crucial assumptions regarding markets. The Edgeworthian system is dependent on recontracting while the Walrasian system is dependent on the basic principles of a spot market. The Marshallian approach allows for interconnected macroeconomic segments with spillover effects where adjustments are dependent on trading activities while information is interpreted by market participants. It is shown that mainstream macroeconomics is primarily driven by the Walrasian general economic framework where markets adjust instantaneously in terms of the information disseminated by the Walrasian auctioneer. This analysis does not allow for uncertainty and, as a rule, accommodates neutral money. It relies on rational expectations that subscribes to converging expectations. It appears that these features of Walrasian general equilibrium economics render it an inappropriate analytical framework to support a macroeconomic analysis of the real world. If one introduces a more sophisticated view of markets that allows for uncertainty while taking cognizance of learning processes by market participants within a real world calendar or Bergsonian time framework the Walrasian framework does not appear to be helpful in understanding the real world. In this respect the Marshallian general equilibrium analysis appears to be more promising although it is mathematically less sophisticated. The development of macroeconomics in this direction as opposed to Walrasian analysis appears to be a more promising route in circumventing some of the criticisms raised in this paper.

Discussant: Philippe Burger
Session C3
Contemporary
applications in
regional and
sectoral
modelling

Schumann 101

Heinrich Bohlmann, Reducing Illegal Immigration to South Africa: A Dynamic CGE Analysis Abstract: South African authorities are attempting to limit inflows of illegal immigrants. This paper evaluates the economic consequences of a policy-induced cut to employment of low-skilled illegal immigrants in South Africa using a MONASH-style dynamic computable general equilibrium (CGE) model. The policy is simulated as a reduction in the preferences of foreign-born workers with illegal status for moving to and earning money in South Africa, effectively reducing the labour supply of illegal immigrants. Evidence for the United States presented in Dixon et al (2011) suggests that such a reduction in employment of illegal immigrants would harm the welfare of legal residents. I use a similar labour market mechanism that explicitly accounts for all relevant migration flows, but take into consideration a number of well-known facts about the local economy. With high unemployment rates among lower-skilled workers and a legal minimum wage in place, I find a net gain in employment and welfare for legal residents in South Africa when reducing the inflow of illegal immigrants. These results suggest that the South African government is correct in limiting low-skilled immigration under current labour market conditions and that enforcing policies to further restrict the inflow of illegal immigrants are well-advised.

Requier Wait, Mega events, big impacts: an economic analysis of Neil Diamond's South African Tour Abstract: Mega events, such as music concerts, are expected to have substantial economic impacts for host regions. Potential host regions have an incentive to attract such events. However, there is lack of research on the economic impact of music concerts, especially in South Africa. Both public and private sector stakeholders need accurate information in terms of concerts’ economic impacts to enable effective decision-making for resource allocation towards the funding of such events. Without proper data, host regions risk either under-allocating or over-allocating subsidies towards concerts. This paper evaluates the regional economic impact of music concerts by using Neil Diamond’s 2011 South African tour. The tour consisted of four concerts hosted in Johannesburg, Cape Town, Durban and Port Elizabeth. The economic impact of concerts stem from two sources, namely: expenditure by concert attendees (the demand-side) and the expenditure by concert organizers (the supply-side). Hosting the Neil Diamond concerts caused a short-term injection of new expenditure into the local economy. Past studies have shown that economic impacts resulting from income stimuli of this nature can be modelled by means of input-output analysis. This injection of new expenditure can be viewed as an increase in demand in the host economies, producing ‘flow-on’ effects, namely the indirect and induced impacts. The scale of these impacts is influenced by the extent of the inter-industry linkages in a specific economy and the extent of leakage associated with concert expenditures. Provincial Social Accounting Matrices where used to estimate the regional economic impact for each of the provinces which hosted the tour. The two multiplier measures used were: the addition to gross output and Gross Value Added (GVA).

Carel van Aardt, Interrelationships between macro-economic changes and changes in household balance sheets: A CGE and micro-economic modelling approach Abstract: An important question in economics is the nature of macro-micro linkages in the economy, i.e. to what level does GDP growth, job creation, changes in repo rates, changes in exchange rates, international trade, changes in prices, etc at a macro-level give rise to micro-level changes (i.e. at a household and firm level). It is also important to determine to what level household and firm dynamics impact on the macro-economy. This is especially important in the light of the New Growth Framework and the Dti Industrial policy action plan (IPAP) which proposes that investments be made in specific key industries with the view that such investments will have both macro effects (i.e. higher levels of economic growth and job creation) as well as micro effects (i.e. higher levels of income equality and asset accumulation by households, and lower levels of poverty and unemployment at a household level). In the proposed paper such interactions will be investigated by means of a national Social Accounting Matrix (SAM) as well as a micro-economic model focussing on the linkages between household income on the one hand and household saving, asset accumulation and liabilities on the other hand. The aim of this paper will be to arrive at an in-depth understanding of the interrelationship between national and household accounts. Such an understanding will be of great value in informing economic policy formulation in South Africa.

Session C4
Business cycles
Schumann 204

Willem H. Boshoff, Band-pass filters and business cycle analysis: High frequency and medium-term deviation cycles in South Africa and what these measure Abstract: Many analysts use band-pass filters to remove so-called permanent components from output and then study the remainder, which is then termed the “business cycle”. Building on the critique of these deviation cycles by Harding and Pagan and on the recent work on the medium-term persistence of business cycles by Comin and Gertler, we study the extent of information loss accompanying this practice. Specifically, we compare the properties of deviation cycles obtained when allowing and disallowing medium-run information to be included with the permanent component and show the dramatic differences in stylized facts. The paper then considers the economic context of high-frequency and medium-term deviation cycles. The results suggest that the high-frequency deviation cycle is not an appropriate measure of demand shocks, which are equally approximated by the medium-term deviation cycle – even though the two cycles differ significantly in terms of persistence, volatility and co-movement with cycles in the US, UK, Europe and Australia. The medium-term deviation cycle appears to capture the cumulated demand and supply shocks to the economy, which is relevant for medium-run analysis but is not useful for business cycle research. The study focuses on four sample periods, one longer and one shorter sample period as well as one including and one excluding the recent financial crisis period, and the results therefore also shed light on whether and how the financial crisis and structural change in South Africa may alter conclusions.

Adel Bosch and Franz Ruch, An Alternative Business Cycle Dating Procedure for South Africa Abstract: This paper applies a Markov switching (MS) model to the South African economy in order to provide an alternative classification of the business cycle (BC) as well as present the statistical properties associated with expansion and contraction phases over the sample period (1982 to 2009). It differs from the available literature threefold. Firstly, unlike most of the literature that focuses on model estimation of the business cycle in quarterly terms (Moolman, 2004; du Plessis, 2006; Altug and Bildirici, 2010, Yadavalli, 2010), we use monthly data to ensure comparability with the current method adopted by the SARB. Secondly, we argue that GDP is not a sufficient measure of the business cycle and attempt to provide further information regarding the state of the economy. To this end we employ principal components analysis (PCA) on the SARB’s composite coincident business cycle indicator as well as the 123 variables of the 186 used in the official dating of the business cycle, which allows for the uncovering of the correlation structure determining the aggregate business cycle. Thirdly, most model based literature assumes a priori that the SARB business cycle dates are correct (for example Moolman, 2003) and attempts to apply a model that predicts this dating using an indicator such as yield spreads, GDP, etc. The MS model uses a latent variable to model the regime shift and date the BC. For comparison the Bry-Boschan method is also applied to the relevant variables and the BBQ method used by du Plessis (2006) is updated. This paper reveals that within the MS framework, the mean and variance of each variable are sufficient estimators to determine accurate turning points in the South African economy and no durational dependence or other dependent variables are necessarily required in the dating process.

Gavin Keeton and Richard Clay, The South African yield curve as a predictor of economic downturns: an update Abstract: Changes in the term structure of interest rates – also known as the yield curve - have been shown historically to be an accurate predictor of economic downturns in a number of countries, including South Africa. In more recent times, however, the predictive power of the yield curve appears to have diminished. In South Africa, for example, the yield curve in 2002/03 falsely predicted an economic downturn which never occurred. This study re-examines the yield curve’s forecasting abilities in South Africa and its ability to predict the economic downturn which occurred in 2008/09. The simple and modified probit models are used to examine the yield curve’s forecasting abilities, which are also compared to the forecasting abilities of the JSE All Share Index, the SA Reserve Bank’s leading economic indicator and the money supply. The yield spread was successfully able to predict the latest downturn two quarters ahead and was better at predicting all the downturns since 1980 than any of the other variables. This indicates that the yield spread is still a powerful forecasting tool for predicting economic downturns in SA. A number of reasons for the false prediction of a downturn in 2002/03 are suggested.

Jessica Ray Kramer and Greg Farrell, The reliability of South African real-time output gap estimates Abstract: For inflation-targeting countries, the real-time output gap estimate is an important measure for policy-makers. It provides an indication of how well the economy is operating relative to its potential as well as signalling whether inflation is likely to increase or decrease in the future. However, the use of real-time data is problematic for several reasons. For example, real-time data points can be subsequently revised a number of times as information becomes available. Thus, understanding the reliability of the real-time output gap is extremely important, and has become a key topic in monetary policy literature. The first study of its kind in South Africa that we are aware of, this paper investigates the reliability of estimates of the South African real-time output gap. The methodology largely follows the approach used by Orphanides and van Norden (2002). A real-time database for gross domestic product (GDP) is constructed from which output gaps are estimated using a range of univariate methods. From these estimates, the study shows how the real-time estimates are revised over time. In line with similar work conducted in the US and Canada, it is found that the real-time estimates are in fact quite unreliable and are significantly revised over time. Furthermore, the source of these revisions is largely attributed to new data points becoming available (indicating the unreliability of end-of-sample estimates), rather than data or parameter revisions. Finally, the paper also considers whether real-time output gaps are useful for forecasting subsequent inflation. The pseudo out-of-sample forecast performance of real-time output gaps is examined using both tests of equal forecast accuracy (of the mean square forecast error of candidate forecasts relative to those of simple autoregressive benchmarks) and forecast encompassing tests.

Session C5
Monetary
Economics

Schumann 205

Leroi Raputsoane and Ruthira Naraidoo, Time varying parameters, financial market conditions and the optimal monetary policy reaction function with asymmetric and zone targeting preferences for South Africa Abstract: Purpose - This paper estimates a monetary policy reaction function for South Africa allowing for time variation in parameters to evaluate the evolution of monetary authorities’ response to the deviation of inflation, output and financial conditions from their desired values during the inflation targeting era. Background - The traditional constant parameter monetary policy reaction function may not fully reflect the actual evolution of monetary policy conduct to the ever changing economic conditions. This is because the conduct of monetary policy is characterised by conflicting objectives and shifting preferences by the monetary authorities overtime consistent with the changing economic conditions. The analysis in this paper is motivated by Kim and Nelson (2006) who analysed the Federal Reserve’s monetary policy rule, Trecocci and Vassalli (2010) who analysed monetary policies followed by the United States, United kingdom, Germany, France and Italy using a time varying parameter framework. Boivin (2001, 2006), Primiceri (2005) as well as Cogley and Sergent (2002, 2005) as well as Darvas (2009) have also shown evidence supporting significant time variation of monetary policy to economic stabilisation overtime in the United States and the Euro area. Methodology - The empirical model is an extended version of Svensson’s (1999), Yun (1996) and Woodford (2003) models of inflation targeting which is an adaptation of the New Keynesian framework that is modelled as an intertemporal optimisation problem. This model combines elements from Orphanides and Wieland (2000) and Boinet and Martin (2008) that allow central bank’s policy preferences to be zone like and asymmetric such that the monetary authorities react differently to deviations in the target variables when they over/undershoot their desired values. The analysis is augmented with a comprehensive index comprising various financial asset variables describing the conditions in the financial market to address the recent concern over the asset price bubbles and the maintenance of financial stability by central banks.

Mamello Nchake, Price setting behaviour and inflation dynamics in Lesotho Abstract: This paper uses a unique data set on monthly product prices at the retail level to analyse price setting behaviour within Lesotho since 2000. The results reveal substantial heterogeneity in the frequency, duration and size of price changes across retail outlets, region (rural vs. urban) and disaggregated product categories. Further, the paper reveals a close association between the frequency of price changes and aggregate inflation. Finally, product price changes at the retail level within South Africa have an important bearing on price setting behaviour within Lesotho. This paper therefore makes a number of contributions to the literature. Firstly, it contributes towards establishing the stylized facts on price setting behaviour within developing countries. Secondly, the results have implications for the validity of macroeconomic theory regarding price adjustments and the influence of monetary policy on inflation. Finally, the results provide insight into the extent of product market integration between SA and Lesotho.

Annari de Waal and Reneé van Eyden, The monetary transmission mechanism in South Africa: A VECX* model Abstract: Since adopting an inflation-targeting monetary policy approach in 2000, South Africa has remained committed to inflation targeting to ensure long-run price stability. It therefore remains important for policy makers in South Africa to understand fully how a change in the official interest rate affects demand, output and ultimately inflation, both in terms of the timing and extent of the impact, to ensure appropriate policy actions. One of the factors that influence the lag between changes in the official interest rate and changes in inflation is significant occurrences in the world economy (Bain & Howells, 2003). Casteleijn (2001) adds that the time lags depend on the country involved, essentially due to variations in financial markets and structures. Policy makers should consequently also consider the effect of global financial shocks, such as the financial market crisis that escalated in October 2008, on the transmission of monetary policy when making policy decisions in the aftermath of financial crises. To investigate the monetary transmission mechanism in South Africa, we develop a structural cointegrated vector autoregressive (VAR) model with weakly exogenous foreign variables suitable for a small open economy. This type of model is known as a VECX* model. The inclusion of the foreign element enables analysis of the impact of an international financial shock on the transmission of monetary policy in South Africa. The study applies the methodology utilised by Assenmacher-Wesche and Pesaran (2008, 2009) in their development of a VECX* model for the Swiss economy based on the Garratt, Lee, Pesaran and Shin (2003, 2006) approach. Switzerland and South Africa are both small open economies. However, South Africa is an emerging market economy and therefore we consult previous VECM and VECX* studies of South Africa and other developing economies (Affandi, 2007; Akusuwan, 2005; De Wet, Van Eyden & Gupta, 2009).

Brian Kantor and Graham Barr, Money and economic activity in South Africa: the relationships updated to 2010 Abstract: This paper updates earlier work on the relationship between money, economic activity and prices. As before equations (of the St Louis Reduced Form type) relating the growth rate in nominal GDP, nominal GDE and household consumption expenditure and inflation to the growth rates in various monetary definitions using quarterly data was estimated over the full period 1966-2011 as well as over various sub-periods including 2000-2010. The results are presented in a table where it may be seen that the results are very similar to those of the earlier published work. It is demonstrated that the growth in Money and Bank Credit since 2000 has remained as highly variable and pro-cyclical as it was before 2000. There is however one exception. That is between 2000 and 2010 the broader definition of money M3 give superior fits with economic activity than equations using the narrow definitions of money as explanatory variables. The paper shows that growth rates in narrow and broad money diverged significantly after 2002. This divergence is attributed to a decline in the demand for cash by the commercial banking system following a policy decision to no longer allow Reserve Bank notes held by the banks to qualify as meeting Cash Reserve Requirements. A model of the money supply process allowing for required, free, excess and borrowed cash reserves is developed to show how a decline in the demand for notes by the banks would lead to an increase in the money multiplier. The implication for monetary policy in SA drawn by the paper is that the operating procedures of the Reserve Bank are to this day incapable of effectively moderating, in an effective counter cyclical way, the money and credit cycles.

Session C6
International
economics

Schumann 208

Tasha Naughtin, Lawrence Edwards and Neil Rankin, No Chinese Jackets Required: Clothing Quotas, Consumer Prices and Import Quality in South Africa Abstract: On the 1st January 2007, in an attempt to reduce Chinese imports and job losses in this sector, South Africa imposed quantitative restrictions (quotas) on selected clothing and textile imports from China. Trade theory predicts that binding quotas should drive up domestic prices by limiting quantity from lower cost international producers. There may also be composition issues as importers shift to more expensive varieties whose relative price has increased by less. Empirical studies on other countries have shown that the direct consequences of quantitative restrictions include price increases in restricted categories, quality shifts, higher profits and lower domestic welfare. This paper investigates what the impact of the imposition and later removal of these quotas were on domestic prices, volume and per-unit prices of imports, and the origin of imports. The paper is novel in that it uses two sources of data. The first is a dataset of prices that consumers actually pay. The second is disaggregated trade data of volumes, values, per-unit prices and the origin of imports. We use a difference-in-differences methodology to compare changes among restricted goods against other similar goods. Our findings indicate no significant differences in prices that consumers pay between restricted and non-restricted goods. We investigate three possible explanations for this. First, that retailers used the quota as an opportunity to increase prices across all similar products. Second, that South African producers were able to increase production to replace Chinese products. Third, that importers shifted to other low-cost producers and that imported Chinese goods increased in quality. We find evidence of substitution by other low cost producers, increase in quality upgrading in imported Chinese goods and quality downgrading for goods imported from SADC, Vietnam and Indonesia.

Andreas Freytag, Rabah Arezki and Marc Quintyn, Gold Price Volatility and the South African Rand Abstract: We examine the relationship between the South African rand and the gold price volatility using monthly data for the period 1980-2010 empirically using a a VECM model. Our main findings are that prior to capital account liberalization the causality runs from the South African rand to gold price volatility but the causality runs the other way around for the post-liberalization period. We also provide evidence that following capital account liberalization in South Africa, capital flow composition has been tilted toward portfolio investment. Those findings are consistent with the view that global investors seeking exposure to the gold price have invested short-run in South Africa, in turn leading to increased exchange rate volatility with potentially harmful impact on investment and growth.

Andreas Freytag, Co-pierre Georg and Sebastian Voll, Savings, Institutions and the Balance of Payments Dynamics Abstract: This paper analyzes the sustainability of current account deficits and develops a model for the dynamics of the balance of payments. The model is constructed in two steps. First, we use a fixed effect panel data model to analyze the impact of institutions on private savings, defined as the residual of gross national savings minus general government savings, using the World Bank database and the IMF Government Finance statistics. As institutional measures we use the Economic Freedom of the World Indices. Focusing on low income and transitional economies, we find that good access to sound money, high freedom to trade, and low business, credit and labor market regulation are associated with higher savings. Turning to the impact of a change in institutions on a change of the private savings to GDP ratio, the indicators for a sound monetary regime and business, labor and credit market regulation are significant in three out of four models we analyzed. The empirical results lead us to the conclusion that institutions indeed impact on private savings. We model this impact by making a households' time preference dependent on a microeconomic variable capturing the institutional environment the household is living in. We then extend the classical debt cycle model by incorporating the new time preference rate and show that good institutions can enable a country to enter a beneficial debt cycle. Finally, we apply our findings to the case of South Africa and argue that the South African current account deficit can indeed be sustainable.

Leon Charl du Toit and Stan du Plessis, The Exchange Rate Regime and Large Current Account Adjustments Abstract: Potentially disruptive current account reversals have troubled policy makers for many years, in the wake of a number of crises during the 1990s where the reversal of capital flows played a central role and larger deficits and surpluses in the years since. Factors that might reduce the risk of large current account reversals as well as those that would ensure more benign adjustments for the external accounts have, consequently, remained high on the policy agenda. A long-standing consensus holds that exchange rate flexibility is one such factor. Recently this claim has been challenged though and this paper considers the evidence in a thorough investigation of the role played by the exchange rate regime in large current account reversals. We confirm earlier results that identified two patterns of reversal, a more benign adjustment associated with real exchange rate adjustment and less disruption to real economic growth and a less benign adjustment where the real exchange rate adjusts less and real growth is disrupted more extensively. These results confirm the consensus. But, we also find, in agreement with the recent challenge to the consensus that the nominal exchange rate regime is unrelated to the pattern of current account reversal. This apparent paradox is resolved by the evidence presented here that greater nominal exchange rate adjustments have been associated with more benign current account reversals, and these nominal adjustments have occurred across the spectrum of exchange rate regimes.

Session C7
Environment
Schumann 207B

Madubula Nomonde, Dewald van Niekerk, Visser Riaan and Koos van Zyl, Alternative financing mechanisms for disaster risk management in South Africa Abstract: South Africa is prone to climate related hazards in the form of floods, fires, gales force winds and snowfalls. Municipalities in South Africa, specifically districts municipalities, are experiencing difficulties to implement the provisions of the Disaster Management Act( 2002) and the guidelines provided in the National Disaster Management Framework (2005). One of the main reasons given for this situation is a lack of funding (or a lack of understanding of funds allocation) from the national and provincial government as well as funds provided for in their own municipal budgets. In some cases municipalities also alleged that the national government had provided them with an unfunded mandate. The reality is that instead of ensuring that disaster risk reduction is improved within the local sphere of government, the lack of policy implementation can lead to higher levels of vulnerability and increase the likelihood of hazardous occurrences leading to disasters. These challenges pose a number of questions such as: • What are the problems associated with current disaster risk management funding mechanism? • What are the feasible alternative funding mechanisms for disaster risk reduction in South Africa? • Are the institutional, policy and legislative frameworks for funding disaster risk management and possible disasters adequate and effective in South Africa? • Is there a space for risk sharing and public-private partnership? Therefore, the purpose of this study is to provide answers to these and other related questions. Qualitative research approach for this research project has been used. Literature review conducted utilised international literature and best prctices on the topic. Purposive sampling were used to conduct semi-structured interviews with selected knowledgeable individuals in the disaster risk management and public financial management domains. The research developed a new model for disaster risk management funding in South Africa which included both disaster reduction and disaster response and recovery components.

Kyle Cruickshank and Geoffrey Antrobus, The Cost of Wind Power in South Africa Abstract: The Cost of Wind Energy in South Africa Kyle Cruickshank and Geoff Antrobus JEL: Q42 South Africa is planning to expand its renewable power sector, a large portion of which will come from wind. The Department of Energy drafted an Integrated Resource Plan (IRP) for South Africa based on cost estimates generated by the (American) Electric Power Research Institute (EPRI), adapted to South African conditions. The present project did not aim to quantify the extent of inaccuracy in the cost estimates, but instead to expose the limitations inherent in the assumptions based on US Gulf Coast power facilities and thus the reliability of the data and hence validity in a South African context. Assumptions were made about the availability of skilled labour, the prices of conventional energy sources and the mining and operation of coal plants. Firstly, the assumption about the use of skilled labour was found to be reasonable. As South Africa currently has a skills shortage in the renewable sector, much of the expertise would have to be imported from foreign countries. Secondly, for fuel prices, which form a significant percentage of overall costs of power plants, are non-existent for renewable energy while a static discount rate was applied to fuel based power plants. Thirdly, assumptions about the mining and operation of coal plants were in line with current South African practices, and were considered accurate. It was concluded that since wind power is variable and therefore unreliable for a stable grid, coal power is still the cheaper alternative, even when expensive pollution abatement technology is employed. It is proposed that for fuel based plants, a variable discount rate be employed, to account for fluctuations in fuel price, resulting in higher LCOE’s. Given that the IRP ignored externalities and wind power is expected to become less costly over time, the LCOEs may well favour wind power.

Peter Baur, Alternative energy: modelling conflict within a risk environment 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 of these challenges facing the country 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 countries strained water supplies. Furthermore, the growing demand for electricity argues in the favour of new traditional coal burning power stations which emitting vast amounts of pollutants into the atmosphere negatively affecting the environment. This leads to a degree of conflict between stakeholders such as the energy produces, government bodies, and environmentalists. In response to this, this paper looks at the issue of ‘clean’ energy, produced on an industrial scale, as an alternative to the electrical power produced through the traditional coal burning power stations. The approach of this paper is to examine the growing energy demand both from the microeconomic and macroeconomic perspective and with the use of the resource model of conflict and the risks theory associated with the conflict between the scarce environmental resources. This will then support an argument that it is in South Africa’s best interest to support a viable, large scale, alternative energy generator.

Annabel Horn, The Potential for using Cost Benefit Analysis in Developing Optimal Water Management Strategies for Project Development on the Berg River Abstract: The concern with financial cost benefit analysis (CBA) is that this process does not take into account the degradation of natural resources within the geographic area or impact on society in which a project is situated. The question is raised as to whether even an environmental CBA is the appropriate way of making a decision as to a project which further impacts the sewerage systems, where the agricultural export market is sensitive to suggestion that polluted water might be used for irrigation. The methodology of what these hidden costs might be that need to be added as the external costs, in the particular example of a unidirectional river, where pollution affects downstream users, draws on research done on the Berg River, Western Cape, South Africa. Assessment of costs has involved in depth analysis of current and pending wastewater treatment works, and purification treatment works, based on the bulk infrastructure spend and operation expenditure within the budget developed by the municipality of Drakenstein.

Monday17:30 - 
Schumann 207B
ESSA Academic Committee Meeting
Tuesday08:15 - 09:20Parallel Sessions D
Session D1
Labour
economics

Schumann 104

Gerhardus van Zyl, Informal employee contribution to labour productivity: The Tswane metropolitan tyre-fitting industry as a case study Abstract: Orientation: The paper dealt with the application of a suitable estimation model to measure the labour productivity spillover effects of informal employment. Research purpose: The aim of the study was to estimate the sign and magnitude of labour productivity spillover effects of informal employment when employee characteristics, firm characteristics and external factors were taken into consideration. The Tshwane Metropolitan tyre-fitting service industry was used as a case study. Motivation for the study: The empirical research was deemed necessary given the perceived notion that due to general low labour productivity levels in the South African workplace (especially against the background of restrictive labour legislation) firms are resorting to higher levels of informal employment in order to generate positive productivity spillover effects that would enhance their level of competitiveness. International studies have been conducted on this particular topic but no empirical research has been published regarding the South African situation. Main findings: The informal employee segment created greater positive labour productivity spillover effects when compared to the formal employee segment. This was especially true for older informal employees with a longer tenure record and a lower level of absenteeism. Excess levels of informal employment do eventually result in a decrease of positive labour productivity spillover effects. External factors such as variation in market demand enhanced the positive spillover effects generated by informal employees. Practical/managerial implications: It is recommended that firms might reconsider the composition of their workforce if the informal employee segment consistently generates higher positive labour productivity spillover effects in the sense that it would enhance their level of competitiveness.

Neil Rankin, Gareth Roberts and Volker Schöer, Labour brokers, public placement or training? What works for getting people into (permanent) jobs? Abstract: Proposed amendments to the Labour Relations Act aim to ban temporary employment services (TES), more commonly known as labour brokers. These TES place a large number of, relatively young, South Africans in jobs. In place of these the government would play a more active role in the matching process in the labour market. Despite these proposals very little is actually known about the importance of TES and government placement and training programmes as paths into employment. In this paper we use a survey of approximately 1,000 individuals to assess the success of three paths for getting people into employment in general and permanent employment specifically. Econometric analysis is used to evaluate three paths: TES; a government placement programme of young people; and a government funded training programme for young people. In order to do this we evaluate labour markets outcomes two to three years after placement or training, through comparing individuals with similar characteristics that have taken different paths. Our results indicate that in many cases different paths can lead to similar outcomes. What really matters in terms of earnings is the ability to transition into permanent employment.

Carlos da Maia, Education and Labour Market Outcomes in Mozambique Abstract: Labour regression studies that use Mozambican household data are nonexistent, perhaps because only recently labour market data became reasonably well captured in such surveys. This study uses data from the most recent income and expenditure household survey (IOF2009) in a first attempt to measure private returns to education in Mozambique. Using Ordinary Least Squares (OLS) earnings regressions it follows Mincer’s (1974) human capital model in which schooling and post-schooling investments are the main determinants of personal income distribution. Heckman selection models are employed to test and correct for potential sample selection bias. Independently of its specification in the regressions, educational attainment was found to impact positively on personal earnings. Controlling for other factors determining earnings, the earnings premium received by workers with an additional year of primary, secondary and tertiary education is estimated to be 5%, 11% and 14%, respectively. On the additional results post-schooling investment proxied by age has a concave relationship with earnings, with adults better paid than young-adults and the elderly. Females and rural individuals tend to get lower earnings than their male and urban counterparts. Individuals in managerial occupations are relatively well paid while those in agricultural, sales, domestic and unskilled manual occupations are the worst off.

Session D2
Economic theory
Schumann 107

George Roderick Etheredge and Don Ross, Procrastination, uncertainty and optimisation Abstract: In economic terms, procrastination is often viewed as a preference for immediate but smaller payoffs over larger, long-term payoffs. Most authors recognise that the discounting which occurs over time must describe this phenomenon to some extent. This paper calls into question this simple formulation of procrastination by suggesting that the payoffs resulting from effort and leisure are, for various reasons, not comparable unit for unit and at the vast majority of decision points faced by the agent, they are not mutually exclusive. From the above intuitions and Ainslie’s work, the paper builds an alternative model of procrastination where the agent is modelled as maximising utility by means of a mixture between procrastination and effort. This model is loosely based on auction models (see for example Milgrom, 1989) where the time the agent allocates to effort represents the bid. When considered over multiple periods, the agent follows a simple learning rule in order to refine this bid and this allows the final model to predict a motivation to bundle rewards.

Nico Katzke, Instability bred within an efficient financial system: Using a principal-agent approach to understand the changed incentive structures of financial intermediaries Abstract: The recent subprime mortgage turmoil has unearthed a worrying feature of developed financial systems in that it could breed great instability, while spreading its contagion throughout the global financial system. Considering its causes and what drove such mass investor hubris, requires a deeper discussion than the mere contributing factors proposed by most in their post crisis exhumations of a deeply indebted, highly speculative global financial system. In particular, it requires the consideration of the changed incentive structures of financial intermediaries in an efficient financial system. The oft cited and oft contested idea of market efficiency, as proposed under the efficient-market hypothesis (EMH), asserts that as an economy develops its financial markets become highly efficient at processing information and acting upon it. Investors are assumed to become efficient at arbitraging out any price discrepancies, implying there are limited (or even zero in the case of strong efficiency) opportunities available to earn excess market returns in this framework. Many financial anomalies and behavioural postulates of investors have subsequently been proposed, which contests the idea of markets becoming highly efficient. This requires a remedial approach to thinking about financial markets in the context of efficiency, and specifically what it implies to the ongoing stability of global financial systems. This paper attempts to show, using a simplified framework where principal holders of excess capital could choose to either require the skills of a financial intermediary (the agent) or invest in a passive fund earning the market return, that efficiency could breed instability endogenously. This is driven by the adversely changing incentive structures of intermediary agents under an efficient system, where attaining excess market returns becomes a highly elusive and chance phenomenon. It could then set in motion a collective move towards higher leverage and greater speculation in order to secure their economic survival.

Alexander Zimper, Rationalizable information equilibria Abstract: According to Radner's (1979) definition of a rational expectations equilibrium (=REE) the agents maximize their expected utility with respect to their private information augmented with the information revealed through a common forecast function that becomes the equilibrium price function. This paper introduces the alternative general equilibrium concept of a rationalizable information equilibrium (=RIE) according to which agents infer information from the values of market variables under the assumption that the agents' respective expected utility maximization problems are common knowledge between them. We prove that the RIE concept is a strict refinement of the REE concept that may exclude implausible REE.

Session D3
Business
history

Schumann 101

Frank Liebenberg and Robert Vivian, A history of the claims made wording of the liability policy Abstract: The insurance industry experienced is most turbulent period during the 1980s. By March 1986 American insurers were forced to stop writing insurance threatening the existence of many US companies. US companies turned to the UK market for insurance and a few years later Lloyd’s of London, the world’s most famous market experienced the most serious problems in its history, since its formation over 300 years earlier. Part of the problem was long tail liability claims, claims which could be traced decades backwards but resulting in insurers being liable decades afterwards. In order to deal with this problem insurers evoked the claims made working. Because of the association of the claims made wording with the insurance crisis of the 1980’s there is a belief that the claims made wording originated from the crisis. This paper will track the history of the claims made wording and finds, surprising to many, that it was in use long before the 1980s.

Kristen van Lelyveld, The Battle of the British: a historical analysis of the key individuals in the early formation and activities of the South African National Life Assurance Company, 1918-1939 Abstract: In the context where there is growing literature on Empire and Accounting (Poullaos and Sian, Routledge 2010), attention is drawn to the professional organisations leading up to and including incorporation from the 1850’s in the UK and their relationship with similar organisations in the Empire, colonies and later dominions, which attempted to protect professional interests in the UK by means of qualifications, designations and admission policies. These developments were met by colonial or later dominion resistance against UK exclusivity and professional closure strategies. These tensions impacted on the access of local professionals into the ‘societies of privilege’. Whereas professions attempted to institute ‘self-control’, an inability to find agreement amongst different accounting organisations, led to state intervention. This had a limiting impact on the profession. This paper explores the personalities of the people who were instrumental in the establishment of the Transvaal Society of Accountants, incorporated in Transvaal Colony. One leading individual was Howard Pim. He and fellow British men played an important role to establish independent accounting societies in the colonies and to terminate Imperial intervention in the profession. The identity of the leading individuals left a distinct impact on the nature of professional organisation and closure in South Africa.

Simone Halleen, The establishment and foundation of the South African National Life Assurance Company, 1918-1939 Abstract: Sanlam has traditionally been perceived as an Afrikaans-orientated company, a perception that stems from its role in the economic empowerment of Afrikaners in the middle part of the 20th century. This paper however explores Sanlam’s establishment and foundation as a truly national institution at a time when the life insurance industry and the economy as a whole was largely in British hands. Its founders believed that the establishment of another local life insurance company would contribute towards the overall development of the country by creating employment for young South Africans and investing funds locally. During this period Sanlam’s investments were largely confined to government securities and its investment in Afrikaner enterprises was a later development. During its foundation years Sanlam asserted its national identity by operating as a mutual company which distributed its profits amongst its policyholders. Sanlam played an active role in social upliftment through its donations to various welfare organisations and through the establishment of a pension fund for its staff during this period. It increased its accessibility by establishing branches and agencies across the country, operating as a bilingual company, including black and female agents amongst its field staff and making industrial insurance and group insurance schemes available to blacks and working classes.

Session D4
Growth and
investment

Schumann 204

Kevin Kotze and Stan du Plessis, Measuring Core Inflation with Wavelets Abstract: Measures of core (underlying) inflation convey critical information about an economy and are essential for forecasting and modeling exercises. It also has a direct effect on the policy-making process, particularly in inflation targeting countries. In South Africa, the construction of price indices has been subject methodological inconsistencies , and more recently, an important change to the constituent basket of goods. This paper seeks to identify a consistent measure of core inflation using various wavelets decompositions. The first approach considers the reconstruction of inflation, by reweighting the individual components according to their time varying volatility. The second approach makes use of wavelets to identify the underlying signal (or trend) in the aggregate measure of inflation. These measures are then compared against other measures of core inflation, including those that are provided by various asymmetric trimmed-means estimates. The results suggest that wavelets provide a useful measure of this critical variable.

Siobhan Redford and Eliphas Ndou, Relative price volatility: which categories in the CPI contribute its volatility? Abstract: This paper follows work by Choi et al (2010), but deviates from their analysis by looking at the relative price variability of selected components of the CPI. The purpose of this work is to analyse which components are more variable. A semi-parametric methodology will be used, and the relative price variability of components pre-inflation targeting and during the inflation targeting era will be considered to see if the behaviour of the components produces similar results to those presented for aggregate headline CPI for South Africa in Choi et al (2010).

Jannie Rossouw and Adèle Breytenbach, Methodology for compiling an inflation rate for the Southern African Development Community (SADC) Abstract: This paper considers methodologies used by the European Economic Area (EEA) and the Eastern Caribbean Currency Union (ECCU) for compiling their regional inflation rates and uses similar methodology to compile a regional inflation rate for the Southern African Development Community (SADC). The analysis shows that different methodologies can be used to calculate regional rates of inflation. The EEA calculates three regional rates of inflation (for three different groups of countries) on the basis of household final monetary consumption expenditure (or private final consumption expenditure). This approach is also used by the West African Economic and Monetary Union (or UEMOA from its name in French, Union économique et monétaire ouest-africaine). In the case of ECCU the regional rate of inflation is calculated on the basis of the size of the relative GDP of each member country. A similar approach is used the Economic and Monetary Community of Central Africa (or CEMAC, from its name in French, Communauté Économique et Monétaire de l’Afrique Centrale). The analysis in this paper shows that differences in the relative sizes of participating economies or in consumption patterns do not prohibit the calculation of regional inflation rates. In the calculation of a regional rate of inflation for SADC, either the approach of the EEA or that of ECCU could be used. The choice of methodology in the case of SADC is, however, determined by the availability of data. The analysis also shows that harmonisation of measurement of consumer price data among SADC countries is necessary to ensure full compatibility of inflation rates; that rationalisation of regional structures is required in Africa in general and in SADC in particular; and that reasonable time frames should be set for the achievement of SADC’s targets, goals and objectives.

Session D5
International
trade

Schumann 205

Niall Condon, The effectiveness of AGOA in increasing trade from African LDCs Abstract: This paper aims to answer the following research questions; How effective has the African Growth Opportunity Act (AGOA) been at increasing trade from Least Developed Countries (LDCs)? What is the expected impact of extending full Duty-Free Quota-Free (DFQF) access to the US market to all LDCs? Systematic review procedures and techniques were used to answer these questions. A systematic review is an exhaustive literature review focused on a research question that tries to identify, appraise, select and synthesize all high quality research evidence relevant to that question. Such reviews have traditionally been used in health, education and social policy. Systematic reviews are however increasingly seen as a useful tool to inform economic and broader public policy as they allow policy makers and practitioners to rapidly understand a body of evidence and use this as a foundation on which to base policy and practice decisions. This review is part of a UK Department for International Development (DFID) sponsored initiative to promote evidence-informed decision making in international development policy. The systematic review uncovered 178 reports and after a process of appraisal and elimination, evidence from 21 reports was used in the final in-depth review of AGOA. The key finding of the systematic review is that AGOA has had a positive impact on apparel exports from a small number of Sub-Saharan African countries, primarily Lesotho. Outside of apparel little or no evidence of AGOA induced exports in any other sector was found.

Lawrence Edwards and Robert Lawrence, AGOA Rules: The intended and unintended consequences of Special Fabric Provisions Abstract: Lesotho and other least developed African countries responded impressively to the preferences they were granted under the African Growth and Opportunities Act with a rapid increase in their clothing exports to the US. But this performance has not been accompanied by some of the more dynamic growth benefits that might have been hoped for. In this study we develop the theory and present empirical evidence to demonstrate that these outcomes are the predictable consequences of the manner in which the specific preferences might be expected to work. The MFA (Multi-fiber Arrangement) quotas on US imports of textiles created a favorable environment for low value-added, fabric-intensive clothing production in countries with unused quotas by inducing constrained countries to move into higher quality products. By allowing the least developed African countries to use third country fabrics in their clothing exports to the US, AGOA provided additional implicit effective subsidies to clothing that were multiples of the US tariffs on clothing imports. Taken together, these policies help account for the program’s success and demonstrate the importance of other rules of origin in preventing poor countries from taking advantage of other preference programs. But the disappointments can also be attributed to the preferences because they discouraged additional value-addition in assembly and stimulated the use of expensive fabrics that were unlikely to be produced locally. When the MFA was removed, constrained countries such as China moved strongly into precisely the markets in which AGOA countries had specialized. Although AGOA helped the least developed countries withstand this shock, they were nonetheless adversely affected. Preference erosion due to MFN reductions in US clothing tariffs could similarly have particularly severe adverse effects on these countries.

Henri Bezuidenhout and Joanne Wrobleski, South African trade hegemony, is the Trade, Development and Cooperation Agreement heading for a BRIC wall? Abstract: South African dominance of trade in Africa was entrenched by the Trade, Development and Cooperation Agreement with the EU in 1998. This strategic partnership helped to establish South African hegemony on trade in the Southern African region, as well as its position as a regional hegemon globally. Recently South Africa attended the 3rd BRIC summit and South African trade policy has shifted towards developing trade and political ties with the BRIC countries. China has also become South Africa’s largest single country trading partner, however the EU is still South Africa’s largest trade partner. The question arises on whether this new found loyalty makes sense in terms of South Africa’s regional position and its trade prospects. Against the background of more intra-industry trade with the EU the new and growing inter-industry trade with the BRIC economies South Africa’s trade share of African Trade has been on relative decline. BRIC initiatives in Africa could lead to substantial erosion of South African trade hegemony in the region. This study uses an international political economy framework to analyse South African trade hegemony based on the TDCA and the possible effects of a shift towards BRIC for hegemony, is in the best interest of South Africa. The conclusion is that although the shift towards BRIC can politically be justified, economically it should not be at the expense of the benefits of the more advantageous relationship with the EU.

Session D6
Development
Schumann 208

Andrew Kerr, A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market Abstract: Self-employment is very common in urban Tanzania but, unlike South Africa, survey data show that there are large overlaps in the distribution of earnings in private wage employment and self-employment. This suggests that self-employment represents a viable alternative to wage employment in small, low productivity firms for the majority of urban Tanzanians. Inspired by these observations, in this paper I build an equilibrium search model of the urban Tanzanian labour market to explain the choice of wage and self-employment and the variation in earnings across and within these sectors.

S. N.-a. Mensah, Dwindling opportunities for external migration: impact on household income in rural Lesotho Abstract: Many scholars have inveighed against the evils of the Southern African migrant labour system. But, from the point of view of households in rural Lesotho, it had been an important source of income for men for many decades. At its peak in the early 1970s, it employed some 200,000 men when Lesotho’s population was under two million. From the early 1990s, however, the number of Basotho men in the South African mines had been declining: from over 120,000 in 1981 to just over 45,000 in 2009. Drawing on the marginal productivity theory of employment, the paper demonstrates that the declining numbers of Basotho migrant mine workers may be an indication of the demise of the migrant labour system. Also, by comparing sources and levels of income in three household types in rural Lesotho – former migrant, current migrant and non-migrant households – the paper estimates the impact of dwindling opportunities for external migration on household income and suggests possibilities for generating employment within the domestic economy for returning and prospective migrants. Both primary and secondary data are used in this paper. Primary data were generated from a survey of households conducted during December 2006 and January 2007 (Mensah, 2010). Though 208 households were interviewed in the rural areas of the four western lowland districts and one mountain district, complete information was available for the 150 households reported in this paper. Because of the focus on three groups of households, a combination of stratified and systematic sampling with a random start would have been ideal for the study. However, because of the nonexistence of a sampling frame, the research design employed was a combination of purposive sampling, cluster sampling and systematic sampling with a random start (Babbie, 2004: 205-206; Burton 2000: 310). The analysis draws mainly from the quantitative paradigms, though insights of a qualitative nature are also given.

Lebohang A Mafa, Profiling socio-economic inequality in the Free State: Focus at the district level Abstract: The study unravels the level and degree of inequalities in the Free State province, one of the nine provinces in South African. Previous studies like PROVIDE found that inequality was on the rise in 2005. The study uses Theil-L, Gini-coefficient measures and General entropy to decompose both inequality district and by race in the Free State province. Preliminary findings suggest that inequality is still customary within blacks and coloureds and signs of high inequality across districts with Mangaung in favoured and Xhariep least favoured. For some policy recommendation, paper borrow extensively from Bourne (2008), made five policy recommendations, however, paper just takes out three relevant ones. Including the “equalising capital-income distribution” across the districts. Provision of education and training opportunity Public sector employment (Expanded public works program) The national government should intervene, by allocating more funds to these municipalities, moreover, have policies that small business friendly.

Session D7
Macroeconomics
Schumann 207B

Twala Jacob, Consumption and house prices in South Africa Abstract: Many countries such as Australia, Ireland, Netherlands, United Kingdom (UK), Spain, United States of America (USA) and South Africa (SA) among others have experienced an increase in housing prices, since the late 1990s. In SA, the abrupt increase in residential property prices, particularly during the period 1999 to 2007, resulted in an improvement in the level of households’ net wealth position. Empirical investigations, mainly from developed countries, provide evidence indicating that a house price increase has a significant impact on the households’ wealth, and thus house price gains increase housing collateral for homeowners which make it possible for them to take out equity in the form of refinancing or selling of the house to finance consumption. With the above in mind, this study investigates the relationship between aggregate expenditure on consumption by households and residential house prices in South Africa. Following the permanent-income/lifecycle hypothesis (PI-LCH), this study applies the vector error model (VECM) into the 1980:Q1 to 2007:Q4 quarterly data sample. The overall finding of the study indicates there is indeed a long-run positive relationship between housing prices and consumption in South Africa.

Deodat E Adenutsi, Meshach J Aziakpono and Matthew K. Ocran, The changing impact of macroeconomic environment on remittance inflows in Sub-Saharan Africa Abstract: This paper identifies the core macroeconomic factors responsible for explaining the changing levels in international remittances received by SSA countries. A set of annual panel data on 36 SSA countries, covering 1980-2009, was used in a system Generalised Method of Moments following Blundell and Bond (1998) dynamic panel-data estimation technique. In order to provide a more detailed insight into the possible dynamics of varying impact of macroeconomic variables that explain remittances received in SSA, decade-based (1980-89, 1990-99, and 2000-09), as well as an overall study period, 1980-2009, estimations were carried out. It was found that both migrant home-country and host-country macroeconomic environment impact on remittance inflows in SSA with a varying impact overtime. In absolute terms, generally, whilst the impact of real exchange rate, migrant income, and institutional quality has been increasing on remittances overtime, the effects of family income and the rate of inflation has be decreasing overtime.

Deodat E. Adenutsi, Meshach J Aziakpono and Mathew K Ocran, Financial liberalisation and international remittances in Sub-Saharan Africa Abstract: Besides high illiteracy rate and illegal status of many migrants from the developing world of which SSA is a part, a good number of migrants from developing countries may not be motivated to use the formal money transfer channels when remitting their families in their native countries. This might be due to the high charges on funds transferred by the few formal financial institutions that operate in these low-income countries. Thus, as SSA countries generally have less liberalised and, hence, uncompetitive and underdeveloped financial markets which are not strongly integrated into the global financial system, there is a high tendency of their citizens abroad remitting home through unofficial routes . This paper, therefore, attempts to verify the validity of the McKinnon-Shaw hypothesis by determining the causal relations between financial liberalisation and international remittance inflows in SSA. In effect, this paper attempts to provide an answer to a central question: To what extent does financial liberalisation cause international remittance inflows? And should financial liberalisation significantly cause international remittance inflows, is the sequencing of the liberalisation process important? In a panel setting of large T small N on 14 SSA countries for which data on financial liberalisation index constructed by Abiad et al. (2010) are available covering 1980-2005, we intend to analyse a set of models within PSVAR/PSVECM framework. A bivariate panel causality test comprising financial liberalisation and international remittances will be examined when the optimal lag of the system is determined. The findings of this paper will provide useful information in formulating appropriate policies on attracting remittances through the formal financial channels as well as the sequencing of implementing policies under financial liberalisation programmes in SSA.

Tuesday09:30 - 10:30Parallel Sessions E
Session E1
Labour
economics

Schumann 104

Martin Wittenberg, Industrialisation and surplus labour: A general equilibrium model of sleep, work and leisure Abstract: We present a general equilibrium model in which agents allocate their time to sleep, work, eating or a variety of ``leisure'' activities. We assume that the manufacturing sector which produces the leisure commodities is characterised by increasing returns to scale and monopolistic competition. We show that under certain conditions the economy can be characterised by multiple equilibria. One equilibrium is a high leisure, high work, low sleep equilibrium (the ``developed country'' equilibrium) while the other is a low leisure, low work, high sleep equilibrium (the ``peasant economy'' equilibrium). The low development equilibrium is characterised by ``surplus labour'' in the sense that the same agricultural output can be produced in the high equilibrium with fewer workers. The reason is that the supply of additional varieties of leisure commodities elicits increased work effort by everyone. The low development trap is similar to that in the Murphy, Shleifer and Vishny ``big push'' model, except that the externalities work through the consumption side. We consider whether state intervention might be able to move society from the ``peasant'' economy state to the industrialised one. This requires more than simple coordination of investment (the ``big push''), since there is deficient supply of industrial workers. A ``poll tax'' of the sort imposed by British colonial governments can be effective in supporting the emergence of an industrialised sector. It is, however, likely to lead to a dualistic and distorted economy in which the agricultural population is exploited at the expense of the urban sector.

Volker Schöer and Neil Rankin, Job advertising and screening behaviour of firms in a slack labour market: Evidence from a South African firm survey Abstract: The allocation of jobs among job seekers is affected by the job matching process in the labour market, i.e., the equilibrium outcome of the job seekers’ search behaviour and firms’ recruitment behaviour. Due to the availability of regularly collected labour force data, the search behaviour of job seekers is well documented in South Africa. However, little is known about the recruitment behaviour of South African firms and how their recruitment choices affect job allocation. This paper attempts to shed some light on the recruitment behaviour of firms in a labour market that is characterised by mass unemployment. Following Pellizzari’s hiring model (2005, 2010), we establish determinants of the hiring decision of a firm at the extensive (advertising) and intensive (screening) margin of recruitment. It follows that at the extensive margin, firms need to ensure that the pool of applicants includes at least one applicant with the required characteristics, while the intensive margin allows firms to ensure that the quality of the match is sufficient to yield the desired productivity level of the hire. To illustrate the predictions of the model, we use data from a recent firm level survey of around 150 South African firms. Preliminary findings show that firms are less likely to invest in the recruitment process at the extensive and the intensive margin for jobs with lower skill requirements. Specifically, firms are reluctant to publically announce the availability of unskilled jobs and either use word-of-mouth advertisements only or do not advertise at all. This is not surprising given the high applicant arrival rate that these firms face through applicants that apply directly at the gate of the company combined with the relatively low match quality that is required for these jobs.

Rulof Burger, A discrete choice dynamic programming model of the South African schooling-earnings nexus Abstract: Many recent descriptive studies find convex schooling-earnings profiles in African countries. Apart from the potential endogeneity issues that may confound such estimates, it also is not clear whether a convex earnings profile can be reconciled with the fact that most individuals choose to obtain intermediate schooling outcomes rather than opting for corner solutions. This paper aims to contribute to the current debate regarding the shape of the schooling-earnings profile by using dynamic programming techniques to investigate schooling decisions and labour market outcomes for South Africa. Our theoretical model allows high and persistent unemployment to be play an important role in the decisions made by students. We investigate the schooling decisions of the rational, dynamically optimising agents in our model in order to better understand what motivates the behaviour of South African students. Our results suggest that the schooling-earnings profile is convex, although the degree of convexity is less than suggested by previous studies that use OLS to estimate this relationship. Furthermore, the marginal cost of schooling is required to be a steeply increasing function of schooling years if schooling decisions are to be reconciled with convex earnings profile without resorting to assumptions of irrational expectations, imperfect information or schooling restrictions. Our analysis indicates that the main benefit of completing early schooling years is that it allows individuals access to more advanced schooling years for which the benefits are much higher. The pattern of unobserved abilities is more complex than the usual notion of high ability individuals who earn more, get more schooling and are more likely to be employed, although this trend can be observed for the bulk of individuals who have neither very low nor very high academic abilities.

Session E2
Finance
Schumann 107

Robert Vivian and Auret Christo, Are script dividends, dividends? Abstract: Recently the Old Mutual plc announced it was prepared to ‘pay’ dividends in script not cash, the so-called script dividends. Old Mutual plc is now a UK based company trading on the London Stock Exchange (LSE) and is thus governed by rules of the LSE. It is thus not surprising to note that script dividends are well known in the UK. The issue of script is usually associated with the raising of capital. The flow of cash with the issue of script is from shareholder to company. In the case of dividends the flow of cash is the other way round, from company to shareholder. This suggests that the nature of script dividends should be examined. This paper will analyse the general nature of dividends, the nature of script dividends and arrive at a conclusion answering the question, are script dividends in fact dividends.

Ewa Karwowski, Bringing Islamic Banking into the Mainstream is not an Alternative to Conventional Finance Abstract: This article argues that Islamic finance is not a stable alternative to mainstream finance, since Islamic banking in particular and Islamic finance in general do not differ significantly from conventional banking and finance. In the following the reasons for the alleged superiority of Islamic finance will be explored, namely its developmental character, the inherent stability, and the importance it assigns to individuals’ morality. Islamic scholars and increasingly Western economists have been arguing that Islamic finance and banking is more developmental and stable than conventional finance [Chapra 2000, Siddiqi 2000, Dar et al. 1999]. These claims are mainly based on Islamic banking's interest prohibition and its focus on productive investment as opposed to consumption. To support these claims Western economic theory is often used including Keynes's zero employment elasticity of finance [1936] and Minsky's views on interest hikes turning business cycles at their peaks [1986]. Methodologically, the analysis uses bank lending data for Malaysia, one of the largest Islamic financial markets in the world [World Bank, 2006], to illustrate that lending purposes of Islamic banks do not differ from conventional ones. The majority of lending fuels consumption rather than investment as claimed by Islamic scholars. Furthermore, the article compares the industry composition of the Dow Jones and the Dow Jones Islamic to establish whether the former is potentially less volatile. Simple correlation analysis suggests that both indices are highly and positively correlated. Finally, the paper analyses interbank money market lending between Islamic entities showing that there was a steep drop-off during the financial crisis. This contradicts claims of increased stability in the Islamic financial sector based on shared values and trust.

Session E3
Economic
history

Schumann 101

Sophia du Plessis and Servaas van der Berg, Poverty amongst South Africa’s ‘Coloured’ population: A quantitative historical perspective Abstract: The coloured population now comprises almost 10 percent of the South African population, earning only a slightly smaller proportion of national income. They are on average not much different from the South African average, but average incomes of this group hide startlingly large disparities in living standards. The Gini coefficient of this group has been rising, and depending on the data source one uses, appears to be close to or even above 0.60. Poverty levels are high; roughly one-quarter to one-third of all coloured people can be classified as poor, depending on the poverty line chosen and the dataset used (RDP 1994/ World Bank 2009). Of concern in this paper is how the economic position of ‘coloured’ people has changed over time and whether the poverty trap into which many of this group seem to have fallen, can be traced back to conditions that were captured in censuses at the end of the 19th century. The purpose of this paper is to provide a statistical overview of the economic position of the ‘coloured’ population of South Africa, starting in 1865, when the first official census was conducted in the Cape Colony. Using a number of early censuses, a descriptive overview will be provided of the relative economic position of members of this group, highlighting economic and demographic aspects such as income, education, health and occupation wherever early censuses allow. This is followed by an examination of censuses and surveys dating from 1970 onwards, using micro datasets. This allows an analysis of evolving trends for this population. Education and the returns to education will be highlighted and compared with other groups, where possible and appropriate, because of their importance in intergenerational social mobility. An overview like this will provide some pointers as to why poverty has remained such a problem within this group.

Tinashe Nyamunda and Patience Mukwambo, From a fixed currency dependence to decimalization. Towards the creation of an “independent” floating currency system in Rhodesia, 1965-1970. Abstract: In 1890, Southern Rhodesia became part of the British Empire financial network following colonization through the British South Africa Company. The colonial economic system that consequently developed was tied to that of the mother country. The currency imposed was British and South African currency until the 1932 Southern Rhodesia Currency Act established a local currency. In 1938, an Amendment Act provided for the creation of a Southern Rhodesia Currency Board to oversee specie issuance. By 1956, this board, now incorporated into the Central African Currency Board was replaced by the Central African Central Bank, the forerunner of the Rhodesia Reserve Bank which was created in 1964. Throughout this period, the Southern Rhodesia colonial currency arrangements were 100 per cent tied to the sterling network controlled by the British financial system. This had very important implications and, in short, meant that the economic fortunes of the colony were subject to the desires of the colonizer. It was this link that was severed by the dissolution of the Central African Federation followed by the declaration of unilateral independence by the Rhodesian Front government, giving way to a new set of dynamics that would influence the future financial developments of Rhodesia. This work examines the establishment of an independent floating currency following the expulsion of Rhodesia from the Sterling area after UDI to 1970 when the currency was decimalized hence severing the remaining links with the sterling. The paper is part of a broader study on the conception of an “independent” currency until it was replaced by the multi-currency system dominated by the U.S dollar in early 2009.

Andrie Schoombee, Access to formal banking services in SADC (2000-2009) Abstract: The Southern African Development Community (SADC), with nearly 50 per cent of its member countries classified as low-income economies, views the alleviation of poverty as its leading priority in the economic integration process. Poverty is multidimensional and designing a policy framework to tackle it needs to take cognisance of this fact. One possible means to achieve a better life for the poor is ensuring access to basic financial services and is today widely backed by empirical research. This approach is apparently also encouraged in SADC where currently more than 50 per cent of its members claim to have a strategy document for the advancement of financial access. This paper aims to review the developments regarding access to formal banking services in SADC during the previous decade focusing on identifying the barriers to access, the changes in the level of access and specifically government policies to achieve greater access for the unbanked. It is anticipated that it would be possible to draw conclusions as to those policy interventions that had the greatest impact on access.

Session E4
Inflation
credibility

Schumann 204

Vishnu Padayachee, Jannie Rossouw and Joubert Fanie, An international comparison of inflation credibility surveys Abstract: A review of available literature shows that central banks in countries targeting inflation focus considerable attention on inflation expectations. These central banks use combinations of inflation expectation surveys and financial market indicators for this purpose. In contrast, very little attention is focused on the credibility of inflation figures in countries targeting inflation. The credibility of inflation figures are surveyed officially only in New Zealand in Sweden, and by means of private initiative in South Africa. As far as the authors could determine, the other 21 countries using inflation targeting as an anchor for monetary policy do not sample, at all, the credibility of historic inflation figures. This paper compares the approaches followed in respect of sampling the credibility of historic inflation figures in South Africa, New Zealand and Sweden, and highlights lessons to be learned from such comparison. The general conclusion is that other countries targeting inflation have much to gain from adopting similar surveys.

Vishnu Padayachee, Jannie Rossouw and Adél Bosch, A comparison of the results of domestic inflation credibility surveys and inflation expectation surveys Abstract: Inflation expectation surveys among South African individuals have been undertaken on a quarterly basis since 2000. Domestic inflation credibility surveys among a similar sample have commenced in 2006 and have since been undertaken on a bi-ennial basis, with the last survey undertaken in the fourth quarter of 2010. By comparing the results of domestic inflation expectations surveys and inflation credibility surveys (undertaken since 2006), this paper tests for a possible feed-through effect between inflation credibility and inflation expectations. It supplements earlier research that focused only on the 2006 and 2008 survey results. With the completion of the third bi-ennial inflation credibility survey, more data sets are available for purposes of comparison. The questions on inflation credibility were also expanded in the third survey. Although this provides for a broader basis of analysis between inflation credibility surveys and inflation expectations surveys, further periodic inflation credibility survey data will be required before final conclusions on the possibility of feed-through effects can be drawn. A related problem is the persistent a large percentage of respondents indicating that they “don’t know” whether the historic rate of inflation is an accurate indication of price increases, despite the use of two differently stated questions in the survey. It is necessary to analyse the structures of the inflation credibility surveys and the inflation expectations surveys in more detail to ascertain why a similar incidence of “don’t know” responses is reported by the inflation expectation surveys.

Vishnu Padayachee and Jannie Rossouw, Representative inflation credibility surveys since 2006: what do the results tell us? Abstract: This paper provides an overview of inflation credibility surveys undertaken in South Africa since 2006. Sampling surveys are used for the purpose of this research, and to ensure a representative sample of views of South Africans, Ipsos-Markinor is used for the field work. The surveys cover the responses of 3 500 South Africans over the age of 16, and is a representative sample of the South African population. The surveys have shown that an overwhelming majority of the respondents do not know whether they think the most-recent inflation rate is a true reflection of price increases in South Africa. In addition, the majority of those with a view on the accuracy of the rate of inflation do not believe the inflation figures. However, the initial surveys were not designed to allow for probing follow-up questions, e.g. to ask why respondents did not accept as accurate the historic rate of inflation. In an attempt to gain a better understanding of perceptions about the credibility of inflation figures, the most-recent survey was split to provide for two sub-samples. This approach did not quite deliver the desired results, in that a large number of respondents still indicated that they had no view on the accuracy of inflation figures. However, this approach does allow for an analysis of the views of respondents who indicate that they do not believe the inflation figures.

Session E5
FDI
Schumann 205

Nicholas Spearman and Neil Rankin, Governance and FDI: toward an OLI approach Abstract: There is a general lack of consensus on a theoretical framework to guide empirical studies examining the role of political and institutional factors of governance as determinants of FDI. This incongruity is argued to be a contributing factor behind the conflicting results found in the empirical literature. Dunning’s OLI (ownership-location-internalisation) approach has been hailed as the beginnings of a general theory of FDI and this paper offers an attempt at moving towards understanding the relationship between FDI and governance in terms of the OLI approach. The OLI approach emphasises incorporating microeconomic factors into the analysis of FDI determinants. Taking into account firm level motivations for FDI decisions and using the World Bank Governance Indicators and a panel data set of 155 countries over a 13 year period, evidence is found that the effect of “good governance” is likely to vary across different types of FDI. It is also found that there may be a threshold level of governance, above which, improvements to governance no longer act as a significant determinant of FDI. The results provide insight into understanding the inconsistent findings of previous studies.

Marie M Stack and Geetha Ravishankar, Efficiency of Foreign Direct Investment: A Stochastic Frontier Analysis of Potential Direct Investment Abstract: The opening up process of the central and eastern European (CEE) countries marked new beginnings in terms of greater trade and investment integration with Western Europe. Quantifying the volumes of foreign direct investment (FDI) that are likely to prevail in an East–West direction has received less attention than is dedicated to estimating East–West trade volumes mainly because of data related issues. Whereas trade data tend to follow a smooth upward trend and are typically available on a continuous basis, FDI flow data are characterised by missing, zero and even negative (disinvestment) values. Furthermore, as investment projects often require a large initial outlay of capital and incur smaller expenditures thereafter, FDI data are inclined to be ‘lumpy’ in nature, implying very uneven patterns of FDI. Using a panel data set of bilateral FDI stocks from 15 West European countries to 10 central and eastern European (CEE) countries over the 1994-2009 period, the maximum level of potential FDI in an East–West direction is identified based on trade inefficiency scores. Specifically, the determinants of potential FDI is assessed via the Battese and Coelli (1995) stochastic frontier specification. The findings indicate that the less well-integrated countries have lower efficiency scores, implying the greatest potential for FDI growth.

Nicholas Spearman and Neil Rankin, Governance and FDI: disparities due to differences in methodologies Abstract: The new institutional literature recognises the importance of political and institutional factors of governance as determinants of FDI. Globerman & Shapiro (2003), Adeoye (2009) and others find evidence of a positive correlation between better governance and FDI. Asiedu (2002), Kolstad & Villanger (2008) and others, however, do not find evidence of this relationship. Chakrabarti (2001) argues the conflicting results are due to differences in the methodologies across the numerous studies. This study complements the analysis of Chakrabarti using the World Bank Governance Indicators and data compiled by the United Nations Centre for Trade and development and the World Bank to create a panel data sample set of 155 countries over a 13 year period. The results of three different regression techniques popular in the empirical studies are compared to ascertain the disparity caused by different analytical tools. Evidence is found that “good governance” is positively related to FDI inflow at the aggregate level, however, the effect of governance varies depending on both the choice of estimator and the choice of governance indicator used. These results suggest that the empirical evidence available needs to be treated with caution.

Session E6
Microeconomics
Schumann 208

Derek Yu, Some factors influencing the comparability and reliability of poverty and inequality estimates across households surveys Abstract: To evaluate the extent to which a country achieved the objectives of poverty and inequality reduction, up-to-date, reliable and comparable survey data is required. This paper critically reviews the issues which could affect the comparability of the datasets as well as the possible solutions, by investigating whether income or expenditure variable should be used for the analyses, whether the newly adopted diary approach in the Income and Expenditure Survey 2005/2006 is associated with more reliable capture of income and expenditure information compared with the conventional recall method, and if the respondents should be asked to declare the income and expenditure in exact amounts or the relevant intervals. With regard to the exact amount approach, further investigation is conducted to compare the single-estimation approach and the aggregation approach. In contrast, as far as the interval method is concerned, issues that could affect the reliability of this approach, such as the number and width of the intervals, the appropriate method used to approximate the income (expenditure) amount in each interval, as well as the possible methods to deal with households reporting zero or unspecified income (expenditure) are discussed. In addition, it is argued that the survey data should be validated against external sources such as national accounts data in order to improve the reliability of the former data for the subsequent poverty and inequality analyses. Furthermore, since the survey data are, strictly speaking, not cross-sectional data, it is argued that the data should be re-weighted by means of the cross entropy approach in order to be consistent with demographic and geographic numbers presented by the Actuarial Association of South Africa (ASSA) model and Census data in order to improve the reliability of the poverty and inequality estimates and trends. These issues are also discussed.

Michael Heyink and Muller Sean, Conspicuous Consumption in South Africa: Race, Assets and Reference Groups Abstract: There is a great deal of anecdotal evidence for the existence of marked differences in consumption between race groups in South Africa, particularly in relation to the new Black Middle Class. Thorstein Veblen’s (1899) notion of conspicuous consumption has recently been used by Charles et al (2009) to account for the differences in visible consumption across race groups in the United States. One recent attempt to do this with South African data is Kaus (2010), which essentially replicates the analysis of Charles et al. The present paper begins by assessing the merits of these approaches, which seek to explain consumption differences in terms of status seeking. Secondly, it assesses the relevance of the asset deficit between race groups, which is a consequence of South Africa’s history. We begin by replicating Kaus’s results, using the Income and Expenditure Surveys of 1995, 2000 and 2005/6. Some potentially problematic elements of the econometric specification are discussed and an improvement is proposed and estimated. In that regard, the insights of Manski (1993) concerning the difficulties of assessing behavior in terms of reference groups are applied to the status-seeking model initially formulated by Charles et al (2009). The second part of the paper then considers work by Burger et al (2004), which attributes the major differences in expenditure between race groups in South Africa’s Middle Class to the asset deficit faced by many black families in comparison to white families of a similar income. We attempt to extend the earlier econometric specification in order to determine whether or not differences in visible consumption could be accounted for by the asset deficit theory.

Cobus Burger, Can Time Inconsistencies Reduce the Effect of HIV Treatment Programs? Abstract: In the last few years there have been drastic improvements in the antiretroviral treatment regimens that HIV patients can follow, which allows patients to live longer and healthier lives. Unfortunately many African countries are unable to benefit from these advances in the same way as developed countries. Most existing studies on HIV medication adherence investigates the question of how to improve medical objectives by considering the supply side (the allocation and pricing of medication), with little regard for demand side barriers that could prevent people from complying with prescribed dosages. In this paper we study demand side constraints from an economic perspective by formulating a model that explains adherence decision from the perspective of an agent who chooses the level of adherence in order to maximise her intertemporal utility function. Agents are heterogeneous in terms of the marginal costs and benefits of drug adherence, as well as in the extent of hyperbolic discounting that dictate their decisions. Our theoretical model predicts that full adherence could be a desired outcome for some agents, while others – particularly those who have hyperbolic time preferences – will find it suboptimal to do so. Whereas a commitment mechanism is unlikely to be appealing for the first group, it could very well help to improve long run adherence among the latter. Our empirical analysis tests whether the take up rates of commitment mechanism differ between these two groups using baseline data from World Bank survey, and finds evidence in favour of our hypothesis of hyperbolic discounting. Furthermore, the data suggests that the self-selection into adherence commitment programmes declines when monetary incentives are added to such programmes, which may be indicative of the trade-off between intrinsic and monetary payoffs. We conclude by recommending how future policies can be designed to take these behavioural features into consideration.

Session E7
Public
Economics

Schumann 207B

Noluntu Dyubhele, Ronald Mears and Pierre le Roux, The use of indigenous knowledge by rural women in the development of the Ngqushwa municipality Abstract: The aim of the paper is to obtain a better understanding of the role of women in reducing poverty in the Ngqushwa Municipality. The paper identifies the nature and types of indigenous knowledge used by rural women, and the extent of use. It recognizes women as an important element in rural development. This is mainly because they are internationally regarded as the main driving force for rural development. Despite decades of gender research and public action by civil society, policy makers continue to neglect the efforts of women in the rural areas. Economists and government agree that women’s returns to their efforts, play a critical role in reducing poverty in rural areas (Barker 2007:187-188). The importance of women in the development of society, cannot be overemphasized. The paper argues that the majority of rural women is illiterate and has vast knowledge of traditional medicine and childcare. They use indigenous knowledge in various domains such as food production and preservation of culture. The efforts by women have to be supported because they allow women to take advantage of opportunities generated. Greater importance has to be given to efforts by women in the design of policy. In fact, indigenous knowledge activities are critical to the development of households. These activities are also an important route through which they are able to reduce poverty. This is critical to the Millenium Development Goals (MDGs) of reducing poverty (Kabeer 2003:14).

Philippe Burger and Marina Marinkov, Regime-dependent fiscal reaction functions: do they tell us something about government behaviour in South Africa? Abstract: In 1998 and 2007 Bohn proposed the estimation of a fiscal reaction function to assess the sustainability of fiscal policy. A fiscal reaction function measures the extent to which the primary balance/GDP ratio reacts to changes in the public debt/GDP. Usually, when debt increases, one would a priori expect government to increase the primary surplus in an effort to arrest the increase in the debt/GDP ratio. However, the extent to which government reacts might be very much regime-dependent, where a ‘regime’ can be seen as a specific administration in power, or state of the economy faced by government. The latter is usually reflected in the relationship between the real interest rate (r) and the real growth rate (g): when r>g government needs to run a primary surplus to ensure fiscal sustainability, while the reverse means the debt/GDP ratio stabilises. This paper extends work done with GMM that controlled respectively for (1) the various administrations since 1948 and (2) the relationship between r and g, by also estimating Markov Switching (MS) models with two regimes. These models, among other, identified three periods (1980-2; 1992-4 and 2009-10) in which government did not react to its debt (these periods constitute regime 2 in the MS models). Particularly during the latter two periods did the public debt/GDP ratio increase significantly (from 37.6% to 49.7% in 1992-4 and from 23.9% to 33.4%). These were also times during which r>g, meaning government should have run primary surpluses to prevent its debt/GDP ratio from increasing.

Alex van der Merwe and Geoff Harris, The scope for mobilising public opinion against corruption: The attitudes of KwaZulu-Natal university students Abstract: The aim of this study is to ascertain perceptions of public sector corruption that university students, as potentially influential members of society, hold. Thus, how important is corruption? What is regarded as corrupt behaviour? How variable are corruption perceptions? These views have significant policy implications for controlling graft effectively. This case survey study is based on a purposive sample of 509 first and second-year Durban University of Technology and University of KwaZulu-Natal economics/ business studies students. Descriptive and non-parametric bivariate analysis suggests that university students overwhelmingly regard public sector corruption as an important issue. In addition, there appear to be remarkable degrees of consensus as to what actions are perceived as corrupt even if there is evidence of mismatches between students’ beliefs and likely actions. At least some of this dissonance may be explained by the finding that respondents' corruption perceptions are biased by gender and ethnicity. These are challenges that programmes aimed at inspiring mass public opinion to join the fight against corruption may have to address.

Tuesday10:30 - 11:00
V V H Neelsie
Tea
Tuesday11:00 - 12:25Parallel Sessions F
Session F1
Econex panel
discussion

Schumann 104

Nicola Theron, David Lewis, Simon Roberts and Robert Wilson, The use of Economics and the Institutional environment of Competition Policy – what lessons have we learnt in South Africa during the past decade? Abstract: This session, sponsored by Econex, will take the shape of a panel discussion. The participants are Dr. Nicola Theron (Director, Econex), Prof. David Lewis (GIBBS, former chairperson of the Competition Tribunal), Dr. Simon Roberts (Chief Economist, Competition Commission) and Robert Wilson (Director Webber Wentzel). The focus will fall on the interface between South African law and economics and developments in South African competition policy since the late 1990s, when the new Competition Act was implemented. In particular, the increased reliance on empirical evidence and economic theory will receive attention.

Session F2
Evidence based
policy

Schumann 107

Sean Muller, Behavioural public economics and the prevention of exploitation Abstract: The systematic departure of human decision-making from economic models of rational behaviour - as famously illustrated by Kahneman and Tversky (1979) - raises an obvious question: should governments, or indeed other social institutions, intervene to mitigate possible negative consequences of such behaviour? The normative nature of the question clearly locates it as an issue for welfare economics. It is nevertheless also an issue for public economics, since it concerns government policies and interventions in markets. The present paper has two parts. First, we provide an overview of the issues at stake. This includes an examination of fairly recent contributions by Thaler and Sunstein(2003) who coined the term 'libertarian paternalism', Bernheim and Rangel(2007, 2009) and Sugden(2008). There are significant differences between these approaches, both in method and in normative assumptions. Regarding the latter, there are strong disagreements regarding the merits of `external' intervention. The second part of the paper critiques one particular aspect of the extant literature. We suggest that normative/ideological positions have obscured an obvious issue, which arguably should precede consideration of interventions such as those proposed in a recent book by Thaler and Sunstein (2008). That issue is the prevention of exploitation. We argue that there is a stronger case for government intervention to prevent the exploitation of biases in individual decision-making, in as much as this is less 'paternalistic' than attempting to affect choices per se. The paper concludes with a discussion of possible policy implications.

Matthew Rose and Geoffrey Antrobus, The sustainability of highly quantitative tools of economics analysis in a developmental context Abstract: The purpose of the research was to determine the extent to which whether highly quantitative forms of economic analysis are suitable for measurement of impacts in a social context where distributive as well as net change is important. The research was conducted by means of a case study of three socioeconomic impact assessments (SEIA) using similar methods carried out over the space of five years on the same development, the Addo Elephant National Park which was said to reduce socioeconomic disparity in the region. The findings indicate that the economic impact method and application of multipliers is inadequate as a measure of the distributive effects of economic impact. While the final result effectively simplified the relationships in the economic causal chain into a single number, the sole use thereof without reference to other methods did not take into account how an increase in economic activity affects either the distribution of economic benefit or costs associated with development. In addition the choice of impact areas further called into question the integrity of the economic impact results. Moreover, as the number of factors for consideration in an impact assessment is expanded, the measurement of the full picture suffers resource constraints, which emphasizes the need for impact assessment oversight to recognize the deficiencies of the process. Asymmetries of and between power and expertise in the commissioning body and the assessors can lead to breakdowns of the assessment process in terms of accountability and integrity and in the case study resulted in a failure to properly define the scope of the study and measure the relevant indicators. It is recommended that the ‘standard’ economic impact analysis method be complemented by additional analysis when utilized in disparate social contexts where distribution of economic benefit is important.

Frikkie Booysen, Julia Littell, Terri Pigott and Chantell de Reuck, The Good, the Bad and research synthesis in Economics Abstract: Background: As the evidence-based policy movement continues to gain global momentum, quantitative research synthesis is attracting a growing following in the social sciences, including Economics. While an increase in completed and published syntheses are commendable, an equally important question is whether increased quantity has been matched by a corresponding improvement in quality. In fact, research syntheses are rarely equal in quality. Assessments of the nature and quality of research synthesis practice is crucial in guiding scientific practice by those conducting syntheses and in assisting users in interpreting findings of such syntheses. To our knowledge, no comprehensive assessment of research synthesis in the larger Economics literature has been conducted to date. This paper aims to describe the nature and quality of quantitative research synthesis as practiced in Economics. Method: A random sample of systematic reviews and meta-analysis published in Economics was drawn from a sampling frame constructed from 1980-2011 search results from the EconLit database and a focused search within other selected sources. Two reviewers independently extracted background information from each publication and independently assessed the standard of practice in each synthesis using an adapted version of the R-AMSTAR tool. Reviewers met to compare their coding and scoring sheets, resolving differences by agreeing on the final codes/scores. Inter-rater agreement on each item of R-AMSTAR was reported as kappa values. The resultant data were captured and analyzed using appropriate statistical methods, including bi/multivariate moderator analysis aimed at exploring patterns in and correlates of variation in standards of research synthesis practice in Economics.

Claire Vermaak, Marcel Kohler and Bruce Rhodes, Developing An Energy based Poverty Line for South Africa. Abstract: Energy provision and the role it plays in poverty alleviation is well documented. South Africa has an ambitious poverty alleviation program of halving 2004 poverty levels by 2014, which demands an increase in the provision of energy to both urban and rural impoverished areas. Yet the country has no energy poverty line to guide such policy. This paper attempts to fill that gap by developing reliable, theoretically rigorous energy based lines from extant data gathered in the 2005 South African household survey. An end-use and access-adjusted energy based poverty indicator compares favourably with other poverty variables using correlation analysis. We find that energy poverty lines based on these indicators are a useful supplement to conventional money metric poverty levels and thereby can help direct government policy in meeting the country’s poverty targets.

Session F3
Colonial
Economic
history

Schumann 101

Johan Fourie, The nature, growth and distribution of wealth in the Dutch Cape Colony: measurements from probate inventories Abstract: The aim of this paper is threefold: to document wealth accumulation and its growth in the Cape Colony during the long eighteenth century; to compare these levels and trends with other regions so as to evaluate relative standards of living; and, to investigate the its distributional aspects (i.e. to assess whether such accumulation was restricted to an elite or whether accumulation permeated Cape society). Probate inventories provide new answers.

Ada Jansen, Sophia du Plessis and Dieter von Fintel, Willingness to pay: Slave prices in the Cape Colony Abstract: Was slavery in the Cape Colony an economically viable endeavour? The question about productivity is a strongly debated issue in the USA, started with the seminal work by Engerman and Fogel (1974). Until then, it was generally accepted that slavery was not profitable. “Time on the Cross” not only changed this perception, but also sparked a flurry of publications debating the issue. In the Cape this debate already started with Chavonnes (the only member of the Council of Policy who opposed the use slave labour) who in 1717 remarked that slavery ‘is dead money’. This paper investigates this assertion. We estimate a hedonic price function for slaves bought from 1658-1731 using the Changing Hands database. The initial price paid for a slave is, by conjecture, constituted by current marginal productivity of slaves plus the expected net present value of slave characteristics (which by implication will yield productivity returns in the future). We net out characteristics from prices to obtain a pure price trend. We monitor whether slave prices change with the development of slave intensive industries at the Cape (such as viticulture). We furthermore investigate whether the gradual increase in slave prices was driven by overall price levels in the economy, by the importation of “better quality” slaves over time or by the policy induced change in demand for labour away from European wage labour to slave labour. Lastly, we investigate whether slave prices (after netting out anticipated lifetime returns to characteristics) matched the value of the value of marginal products (estimated from Opgaafrolle). The relationship is tight, suggesting that slavery was perhaps profitable. However, this does not take into account that slave owners had to continuously pay for living expenses, and not only the initial buying price. This paper therefore questions whether the use of slaves was profitable.

Pim de Zwart, Wages, Prices and Living Standards in South Africa: A Long Term Perspective, 1652-1912 Abstract: The uneven economic development of Europe’s former colonies is a prominent issue in economic history. Recent literature stresses the importance of differentiating between settler and non-settler colonies in order to explain the diverse growth trajectories. While Acemoglu, Johnson and Robinson (2002) claim that settler colonies enjoyed favourable institutions for economic growth, others (Austin 2008; Bowden, Chiripanhura and Mosley 2008) suggest that these societies were characterized by more persistent inequality and comparatively low living standards. The lack of consensus is to a large extent a result of the fragility of evidence on long-term living standards in the non-Western world. This paper examines the development of real wages in the Cape Colony – Africa’s prime settler colony – between 1652 and 1912. In addition to the data used by Du Plessis & Du Plessis (2009), wage and price data were compiled from archival sources in The Netherlands and Great Britain. Real wages were then calculated using Allen’s (2001) subsistence basket methodology, making them comparable internationally. Preliminary results suggest that living standards of Europeans at the Cape were relatively high, reaching levels almost similar to those in London and Amsterdam and consistently higher than those in Asia. At the same time, the results also hint at a high level of inequality, as well as a shortage of human capital (as indicated by a high skill premium), especially towards the end of the period under discussion. This paper attempts to contribute not only to the debate on the long-term blessings and curses of colonial rule, but also to our understanding of South African economic history, as it challenges the view of South Africa as a stagnant and poor-performing economy prior to the 1870s. Yet, it is important to note that this paper is a work in progress, and more data on the second half of the eighteenth and early decades of the nineteenth century needs to be assembled.

Lorraine Greyling, Estranelle Lubbe and Grietjie Verhoef, Savings and economic growth: a historical analysis of the savings behaviour and economic performance in the Colony of Natal, 1856 - 1909 Abstract: In the current discourse about a higher rate of economic growth for South Africa, various strategies are considered. One element of any growth strategy is available savings that is the trade-off between current consumption and future resources, as seen in the savings rate. 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 in the Colony of Natal and economic growth 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 Colony of Natal between 1856 and 1910. The investigation addresses the question in the following manner: • A brief outline of the economic development of the 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 • Comparisons with the finding for the Cape Colony

Session F4
Monetary policy
Schumann 204

Alain Kabundi and Nonhlanhla Ngwenya, Assessing monetary policy in South Africa in a data-rich environment Abstract: This paper examines the efficacy of monetary policy in the South African economy using a data-rich framework. We use the Factor Augmented Vector Autoregressive (FAVAR) methodology which contains 110 monthly variables for the period 1985:02 to 2007:11. The results, based on impulse response functions, provide no evidence of the price puzzle observed in traditional Structural Vector Autoregressive (SVAR) analysis. Monetary policy in South Africa is effective in stabilising prices. The FAVAR allows further analysis of myriad variables than those contained in small VAR. Variables from real and financial variables react negatively to a contractionary monetary policy shock. Finally, we find evidence of the importance of a confidence channel transmission following a monetary policy shock.

Ruthira Naraidoo, Asymmetric Preferences in A New Keynesian Model of Unemployment Abstract: Purpose/Research questions - The purpose of this paper is to analyze optimal monetary policy by incorporating asymmetric preferences (representing mounting fear of job losses) in the Blanchard Galí (2010) New Keynesian model with Unemployment. In particular, we ask the theoretical question of the behaviours for unemployment and inflation under asymmetric preferences for the central bank. Design/methodology/approach – The approach is to use the key deep structural equations related to the ‘Phillips curve’ relation between inflation and unemployment (see Blanchard and Galí (2010)). We derive the central bank’s linear and nonlinear optimal policy rules and analyze the results for a number of cases using dynamic optimization. First, we look at the outcomes for quadratic preferences for the solution of the two extreme policies of strict unemployment and strict inflation stabilization. Second, we investigate the case of asymmetric preferences for the solution of the two extreme policies of strict unemployment and strict inflation on stabilization. We then investigate optimal monetary policy under flexible inflation targeting for both quadratic and asymmetric preferences. Findings - Our results indicate that incorporation of asymmetric unemployment preferences, first, can cause the economy to possess multiple equilibria, all of these equilibria are equally consistent with rational expectations, but generally have higher variance, possibly much higher variance, than the unique equilibrium associated with the more aggressive policy; second, can lead to possibilities of instability, limit cycles and chaos for unemployment the more ‘sclerotic’ the labour market, and the more expansive the central bank; and last, the incorporation of asymmetric unemployment preferences results in non-certainty equivalent monetary policy which can cause interest rates to be ‘too low’ when the authority is faced with higher uncertainties to expected future unemployment, inflation and shock - for monetary policy to be too passive.

Franz Ruch, Alternative Policy Rules for South African Monetary Policy Abstract: This paper simulates alternate policy rules within the context of a two-country New Keynesian DSGE model as estimated by Steinbach et al (2009). A base scenario is established using Bayesian estimation representing the current monetary policy stance, ie. a flexible inflation targeting regime and then compared to a number of alternatives such as strict inflation targeting, domestic inflation targeting (a type of core measure), real exchange rate targeting, a foreign output augmented Taylor rule, as well as alternative weights for inflation within the current rule. This paper finds that generally no single policy rule outperforms any other and performance is dependent on the type of innovations (shocks) that hit the economy. The simulated model also suggests that monetary policy may be more effective, under certain conditions, if the weight on inflation in the Taylor rule specification is raised.

Mark Ellyne and Carl Veller, The Stability of Prices, and the Price of Stability: How Tough is the SARB's Inflation Targeting Policy Abstract: Since South Africa adopted inflation targeting (IT) in 2000, the regime has received a substantial amount of criticism, with the most persistent critic, the Congress of South African Trade Unions (COSATU), complaining that too strict a focus on price stability has come with the cost of higher unemployment, lower growth and an unstable exchange rate. Notwithstanding this criticism, the SARB has missed its inflation targets almost half of the time. In view of the COSATU criticisms, we examine whether the SARB place an overriding emphasis on meeting its inflation targets, or does it maintain other objectives as well? Has inflation been successfully stabilised in South Africa? And has inflation targeting more been successful in other countries? This paper addresses these questions by analysing the SARB's interest rate setting behaviour before and after the adoption of inflation targeting, by estimating Taylor-like rules to determine whether the SARB has considered inflation, the output gap, the real exchange rate, and asset price deviations in its monetary policy. The estimation procedure uses a dynamic formulation of the Taylor rule as well as a vector error correction model.E52 Broadly, our results suggest that the above criticisms are unfounded. Our approximation of a rule for the IT period revealed that the SARB has reacted to changes in inflation, the output gap and the real exchange rate under inflation targeting, and has exhibited little or no targeting of asset prices. The significance of the output gap and deviation in the real exchange rate in our regressions points to a large degree of flexibility exercised by the SARB (in contrast to COSATU's claims. In fact, we argue that the emphasis placed on inflation in this period has been too low, and has been conducive to raising the volatility in the inflation rate over the period.

Session F5
International
Trade:
Opportunities
and Challenges

Schumann 205

Andre Jordaan, Trade Facilitation among SADC Countries Abstract: Evidence over the last fifty years has shown that trade remains an engine for growth and development across the world. The role of continuous trade liberalisation attempts through multilateral rounds of negotiations as well as numerous trade agreements has contributed to the growing integration of the world economy. This integration process has led to the increase of living standards and development in various countries around the world. However, many African countries have not shared in this prosperity of trade integration. In an effort to address intra-regional trade restrictions, factors hampering trade need to be investigated. Trade facilitation constraints seem to place an inherent restriction on the expansion of intra-SADC trade. This prevents the achievement of otherwise attainable higher rates of economic growth. Improving regional trade facilitation could contribute to overcome the growth, development, and job creation problems of the region. This paper intends to investigate the impact of trade facilitation constraints that marginalise the Southern African Development Community (SADC) countries from reaping the benefits of streamlined integration. Mobility across borders and harmonised policies could spur faster economic growth, build credibility and provide greater opportunities to attract foreign investors. The empirical part of the study would apply panel data econometrics, a technique used to analyse a large number of objects through short time periods. Panel data econometrics uses both time series and cross-sectional data sets that have repeated observations over time for the same individual elements. This paper will estimate the impact of various trade facilitation variables on intra-SADC trade and suggest some policy recommendations.

Mihalis Chasomeris, Port Pricing in South Africa Abstract: The purpose of this paper is to examine the historical evolution of port pricing in South Africa. The paper reviews the literature and examines industry perspectives that contribute towards a better understanding of the historical evolution of port pricing in South Africa as well as examines contemporary pricing reforms. Improved pricing principles have included a transformation from value-based (ad valorem wharfage) pricing towards a more cost-based (and user pays) pricing approach while concurrently attempting to reduce the historical imbalances between port dues and cargo dues and the consequent intra-port cross subsidisation. Port pricing issues that still need to be addressed include: the lack of port competition; the inefficient pricing across all eight commercial ports – contributing towards intra and inter port cross-subsidisation; the gross skewness of port revenues compared with costs; several unresolved product and industry specific issues with an unclear and partly unjustified port pricing methodology; and insufficient information provided by the Port Authority to allow for a fair assessment of individual tariffs.

Marrianne Matthee and Waldo Krugell, Barriers to Internationalisation: Firm-Level Evidence from South Africa Abstract: Internationalisation is a strategic manner in which entrepreneurial firms can achieve growth, especially those firms whose business scope has been restrained geographically or is experiencing competition on both local and international front. Internationalisation provides opportunities for firms to expand their business activities, achieve economies of scale, generate more revenues and funds that could be reinvested for further growth and which could over time result in firms being more profitable. In South Africa, firms (and especially SMEs) have been found to contribute to national output, employment and exports. The internationalisation process of firms is, however, hindered by barriers that either deter export initiation or slow down the speed of expansion into foreign markets. Internationalisation barriers comprise of four categories namely knowledge, procedural, exogenous and resource barriers. This paper focuses on firms’ internal resource constraints which impact the decision to engage in international markets. These constraints are grouped into three categories. The first is productivity and size, the second financial constraints and the third labour market constraints. The aim of the paper is to analyse the impact of firm size, productivity, firm-specific capital and labour market constraints to South African firms' decision to internationalise. Using a unique panel constructed from the World Bank Enterprise Survey (for 2003 and 2007), a two-step Heckman selection model will be estimated.

Sonja Grater, Ermie Steenkamp and Wilma Viviers, Identification and Comparison of Export Opportunities for South African Products and Services Abstract: Export promotion agencies (EPAs) face a common problem of allocating scarce resources and capacity to ultimately achieve the goal of export market diversification and export growth in an effective manner. EPAs should therefore choose specific markets for export promotion and allocate limited resources among these markets. In order to assist EPAs with this market selection process, an export opportunities model (EOM) was developed for Belgium and Thailand. This model was refined and adapted for the South African circumstances. The model follows a sequential filtering process and identifies a list of product/country combinations that holds the most significant export opportunities for South Africa. However this model was only applied to products and does not take into account export potential for the services sector. The South African government recognises the need for well-considered research that identifies the export potential of key products and services sectors. Therefore there is a need to develop a model similar to the EOM for products, to identify export opportunities for South African services. In this paper a new methodology is developed for an EOM for services and the EOM for products is further refined for the South African circumstances. The paper explains the methodology behind both models and compares the results. The results indicate that the export opportunities for South African products and services are located in similar geographical regions. Eastern Asia and Western Europe hold the highest export potential for both South African products and services and China, Germany, the United Kingdom and Japan are in the top 10 countries for both products and services. The paper recommends that EPAs in South Africa use these EOM results in combination with market intelligence and industry information in their export promotion strategies in order to diversify the country’s exports of products and services.

Session F6
Economics of
Education

Schumann 208

Stephen Taylor, Modelling indicators of effective school management in the South African education production function Abstract: Education production functions model cognitive skills as a function of personal characteristics that influence the learning efficiency of individuals and of various school-level inputs that influence learning. South African production function studies have typically faced two data limitations. Firstly, most datasets only capture student achievement at a single point in time, making it impossible to account for earlier influences on learning or innate ability. Secondly, most datasets are weak at measuring the quality of school management and teacher practices, which are theoretically expected to have important impacts on learning. Understanding what constitutes effective management is crucial in the light of an important finding in the literature: The impact of additional resources on student achievement is conditional upon how they are managed by schools. The National School Effectiveness Study (NSES) provides an opportunity to go further in these two areas than was previously possible. This survey measured literacy and numeracy amongst a sample of South African learners in their third, fourth and fifth grade and collected information about management and teacher practice in astonishing detail by the standards of large sample surveys. Using education production function methods, this paper exploits these new data possibilities to identify specific indicators of effective school management and teacher practice that are associated with learning in South African schools. The paper also discusses how these findings might be translated into policies to improve school management.

Pierre de Villiers, Higher education and the poor in South Africa Abstract: In South Africa attendance of higher education has been dominated by students from more affluent communities for many decades. After 1994 specific attention was given to ensure that more students from poorer communities attend higher education. However, after 1994 government appropriations per full time equivalent student decreased in real term. To balance their books higher education institutions increased tuition fees by more than the inflation rate – making the already expensive higher education even more expensive. This made access to higher education for the poor more difficult as they could not afford these high fees. NSFAS was introduced as a tool to address this problem. Funds were made available to poor students after a means test was done. Race was used as a proxy for poverty as most of the poverty in South Africa is in the black communities. The value of NSFAS funds that individual higher education institutions received were to a large extent determined by the number of Black student attending those institutions. Poor students studying at previously ‘advantaged institutions’ with not so many ‘students of colour’ had a smaller change of getting NSFAS funds. In this paper the financing of higher education will be looked at and how it changed over the last 20 years. One aspect that complicates comparisons is the whole higher education playing field that changed in 2004 (with all the mergers). How these institutions responded to the change in state funding will also be highlighted. The history of NSFAS will be discussed to investigate what difference it made. (Currently busy with a bigger project on NSFAS with some of my colleagues and by the time of the conference some of our findings may already be available.)

Martin Gustafsson, More countries, similar results: A nonlinear programming approach to normalising test scores needed for growth regressions Abstract: Analysts such as Hanushek and Woessman have brought to the fore the deceptiveness of education enrolments in growth regressions and the need to consider educational quality, for which an increasing amount of data are becoming available. In this paper, a nonlinear programming solution is proposed as a way of normalising to a single scale country average test scores from various international testing programmes. This method, though less transparent and more dependent on certain subjective choices than the existing approach put forward by Hanushek and Woessman, allows for the inclusion of more countries, in particular more African and developing countries, into a growth regression. Test scores from 113 countries and six programmes, including the African SACMEQ and Latin American SERCE programmes, are used. The regression produces the results one would expect, namely a strong conditional correlation between growth and educational quality. The inclusion of more developing countries strengthens the simultaneous significance of educational quality and levels of enrolment. The utility of growth regressions with an educational quality variable for the education policymaker is discussed. A method for arriving at feasible annual improvements in educational quality and hence feasible country targets, using the full set of normalised country scores, is presented.

Nicholas Spaull, Equity and Efficiency in South African Primary Schools: A Preliminary Analysis of SACMEQ III Abstract: The many and varied links between student socio-economic status and educational outcomes have been well documented in the South African economics of education literature. The strong legacy of apartheid and the consequent correlation between education and wealth have meant that, generally speaking, poorer students perform worse academically. The present study uses the recent Southern and East African Consortium for Monitoring Educational Quality (SACMEQ III - 2007) dataset for South Africa to identify those factors that have a significant effect on student maths and reading performance in Grade 6. The research confirms previous findings that socio-economic status, and particularly school socioeconomic status, is important when understanding student success or failure. Other factors which contribute significantly to student performance are homework frequency, preschool education, and the availability of reading textbooks. In contrast, teacher-subject knowledge was found to have only a modest impact on Grade 6 student performance. Policy interventions are also highlighted. The study concludes that South Africa is still a tale of two schools: one which is wealthy, functional and able to educate students, while the other is poor, dysfunctional, and unable to equip students with the necessary numeracy and literacy skills they should be acquiring in primary school. Nevertheless, it suggests that there are some options available to policy-makers which are expected to have a positive effect on student performance.

Session F7
Public
Economics

Schumann 207B

Sabelo Mtantato, The impact of the current land use patterns in South Africa on public transport and human settlements Abstract: There is a link between the location of human settlements and transportation. This relationship is important given that the location of housing and that of important amenities including areas of work, schools and health facilities determine the travel patterns and the viability of public transport and costs incurred by households and by the government. Key to transport and housing is the land use patterns which relates to how land is utilised and where amenities and human settlements are located. Land use planning is important especially for major South African cities given the high level of urbanization and requires municipalities to adequately plan and position themselves for future growth. Questions that this paper attempts to answer include: • What is the impact of the current land use patterns in South Africa particularly on housing and public transport? • What are other major challenges within the intergovernmental framework affecting efficient land use and delivery of the built environment? • What are alternative delivery models to address these challenges? Objectives of the study include: • Examining the current policy and legislative framework on land use pertaining to public transport and housing; • evaluating the current land use patterns on public transport and transaction cost on the poor households; • evaluating challenges in the current urban housing delivery system; • reviewing the current funding and institutional arrangements The study uses a qualitative research method to achieve above-mentioned objectives including analysis of institutional arrangements, legislation and policy framework as well as funding arrangements with specific reference to the transport and human settlement sectors. The paper concludes with recommendations relating to the need for coordinated infrastructure investment plans, addressing gaps in the legislative framework, reviewing of funding for human settlements, devising strategies and incentives to promote densification and infill developments.

J Paul Dunne, Sam Perlo-freeman and Ron Smith, Determining Military Expenditures: Dynamics, Spill-Overs and Heterogeneity in Panel Data Abstract: This paper considers the determinants of military spending, building on an emerging literature that estimates military expenditure demand functions in cross-section and panel data, incorporating both economic and strategic effects. Using a panel of 80 countries over the period 1988-2008 and comparing results across different panel data estimation methods it finds marked differences, particularly between the within and between estimates. The cross-section dimension suggest that per-capita income has a positive effect on the share of military spending in GDP and population a negative effect, while the time series estimates give the reverse. Most of the results for the political/strategic variables are as one might expect, but spillover effects do not seem important. Heterogeneity across countries is important, particularly in the dynamic adjustment processes, illustrating the importance of recognising and modelling dynamic processes within panel data.

Ronney Ncwadi and Pierre le Roux, An evaluation of the economic impact of the local business service centres on small, medium and microenterprises during the period 2001 – 2005. Abstract: The small business sector is considered a panacea to the woes of the South African economy. In order to boost the small business sector specific types of institutions such as the local business service centres (LBSCs) were required to provide assistance to the small, medium and microenterprises (SMMEs). The LBSCs provide a variety of real and appropriate services to SMMEs and constitute the most important vehicle for small business support. The services provided by the LBSCs include business information, general business management advice and counseling, aftercare and networking to other service providers. Despite the efforts by the government to establish a support structure for the small business sector in South Africa, this effort had not been met with success. The failure of the SMMEs despite the LBSCs support provision had led to a widespread belief that the LBSCs had been ineffective during the period under review. To this end it has become important to assess the economic impact of LBSCs on the SMMEs. Using a cost benefit analysis and econometric modeling on a cross sectional data in a sample frame of 452 small businesses in the Eastern Cape, the findings in this research suggest that the LBSCs had improved the social welfare through job creation and relative increases in income during the period under review. However, the benefits derived from the public investment in SMMEs through the LBSCs were sub-optimal in that there were a number of factors which inhibited the small businesses during the period under review despite the LBSCs interventions. This paper recommends an integrated strategy in order to boost the small business sector in South Africa.

Tuesday12:25 - 13:40
V V H Neelsie
Lunch
Tuesday13:40 - 15:00Parallel Sessions G
Session G1
Competition
policy

Schumann 104

Richard Grimbeek, Sunel Grimbeek and Steven Koch, The Consistency of Merger Decisions in a Developing Country: The South African Competition Commission Abstract: Competition policy and merger control is very important in developing countries as mergers can reduce competition through increasing concentration levels in key economic sectors, leading to allocative inefficiencies. However, mergers and acquisitions can also potentially lead to efficiency gains due to economies of scale and scope, which may be beneficial for economic development and growth. In this study a total population of 2 368 merger decisions taken by the South African Competition Commission are empirically analysed in order to test which factors have historically influenced the Commission’s decision to prohibit, conditionally approve or unconditionally approve a proposed transaction. In order to increase the efficiency of the econometric analysis a simple stratified retrospective sampling technique was employed in order to draw a representative sample from the total population. A sample of 310 merger decisions taken by the Commission are transformed into a new database containing several key explanatory variables from the final merger reports produced in those cases. This new database is then used to perform an analysis of the Commission’s merger decisions using a weighted logistic regression method. The dependent variable is the type of decision that the Commission makes, whilst the explanatory variables are constructed taking into account the provisions of the Competition Act. The results show that public interest consideration; the existence of barriers to entry, import competition, post-merger countervailing power, market dynamics and coordinated effects; the level of post-merger market shares and the financial year in which the decision was taken has been significant factors in the Commission’s decision making process. Overall, the conclusion can be made that the Commission’s merger decision analysis appear to be consistent with the provisions in the South African Competition Act and are influenced by variables that, according to economic theory and the provisions of the Act, are related to the welfare effects of a merger.

Tapera Gilbert Muzata, Sunel Grimbeek and Raksha Darji, The impact of antitrust fines on firm valuation in South Africa: The case of Pioneer Foods, Tiger Brands and Sasol Chemical Industries Abstract: For competition authorities to achieve deterrence based on administrative penalties there is need to create a credible threat of administrative fines that sufficiently balance the expected benefits and costs of engaging in antitrust violations. The implications for deterrence extend beyond the companies engaged in a particular contravention to potential offenders of competition laws. It is therefore imperative that fines be set at levels that not only matter to current offenders, but extend to deterring potential offenders. In this paper we use event study techniques to assess whether antitrust fines have any impact on the value of the company involved in the contravention and if so to estimate extent of that impact on the firm’s stock market value. In this case we take the example of Pioneer Foods, Tiger Brands and Sasol Chemical Industries all of which are listed on the Johannesburg Stock Exchange (JSE) in South Africa. We then use the individual results and attempt to draw general conclusions which are limited to the three firms considered. The results of the empirical analysis may potentially provide the Commission with useful insights as to the impact and effectiveness of the deterrence effect of fines levied on firms found to be in contravention of the Competition Act.

James Fairburn, Theory, Evidence and Horizontal Merger Policy Abstract: This paper surveys the foundations and practice of policies towards horizontal mergers, i.e. mergers of competing firms. Following the US lead, policymakers have frequently adopted a system of guidelines. A merger is thus challenged if it would increase industry concentration by a specified amount, with the amount depending on the initial level of industry concentration. Consistently applied, a policy of this type offers benefits of predictability and deterrence. The current paper examines the theoretical basis of such a policy, in particular the relationship between guidelines and the Cournot oligopoly model. It then considers more empirically-oriented methods that have been proposed. Finally it considers whether the authorities should engage in efficiency tradeoffs, i.e. whether a possible reduction in costs should offset a probable increase in market power. In each of these areas reference is made to current policy enforcement, both in South Africa and abroad.

Willem H. Boshoff, Statistical inference in competition policy: how to improve market definition by thinking like a statistician Abstract: The delineation of the relevant product and geographic market is an important first step in competition inquiries in the EU, US and also developing countries such as South Africa. Market definition, however, is frequently criticized for being arbitrary and, more recently, for being less useful given the availability of econometric models capable of directly predicting competitive effects. Despite these criticisms, practical constraints (such as limited data for sophisticated modelling) and legal considerations (such as case law precedence and preferences for legal certainty) continue to support the formal definition of the relevant market. This paper aims to improve current practice by using statistical decision theory to explain the key features of a rational market definition decision. Specifically, the paper derives a Bayesian decision rule to show that, under uncertainty, an optimal market definition decision balances (1) the weight of case evidence in favour and against substitutability, (2) "prior probabilities" determined by previous cases and existing research, and (3) the loss function of the decision-maker. These features have implications for market definition practice: market definition should eschew an “in or out” approach in favour of a ranking approach, rely on the current scientific record where case evidence is inconclusive, and employ a variety of tools rather than a single econometric model. The recently concluded Primedia/Kaya partial merger case, in which radio market definition was highly contentious, is used to discuss the extent to which the market definition conforms to the decision rule.

Session G2
Finance
Schumann 107

Barry Strydom and Ailie Charteris, The South African risk-free rate anomaly Abstract: The Capital Asset Pricing Model (CAPM) remains the foremost model for estimating required rates of return despite extensive criticism of its unrealistic assumptions and reliance on proxies. The minimum-variance zero-beta portfolio provides an alternative measure of the risk-free rate rather than relying on proxies. International tests of the suitability of this method have adopted an indirect approach; focusing only on the relationship between the minimum return required by investors implied by the CAPM and the risk-free rate. These tests reveal that the risk-free proxy returns understate the true minimum return and thus support the zero-beta portfolio approach. Similar tests in South Africa find that the minimum required return is not significantly different from the return on the risk-free rate proxy. This study seeks to resolve this apparent anomaly by employing both a direct and indirect approach to the question of which method is best for estimating the risk-free rate. It is found that, in keeping with international evidence, the minimum required rate of return exceeds that of the risk-free rate proxy; whilst the minimum-variance zero-beta portfolio return closely approximates the minimum required return. The implications of these findings for researchers and practitioners using the CAPM are discussed.

Lalitha Yadavalli and Kanyane Matlou, Regime switching model of stock market volatitlity Abstract: The present paper aims to conduct an empirical analysis of daily returns of the all share index of South Africa, using different variants of the Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model. The All Share Index (ALSI) of the JSE is a broad index comprising of companies from a wide range of sectors in the economy, and makes up 99% of all JSE-listed companies, and movements in the ALSI are fairly volatile. Financial time series exhibit a considerable degree of volatility clustering and leptokurtosis, and this phenomenon is often captured by GARCH models. Some proposed extensions of GARCH models are Exponential GARCH (EGARCH) model and the GJR model (Glosten et al.(1993), which are asymmetric. The variants of the GARCH models are compared with the Markov Regime Switching GARCH (MRS-GARCH) model. Different density functions employed in the study are the normal distribution, Student’s t-distributuion and the Generalised Error Distribution (GED). Methodology The robustness of the estimation of the parameters in the model is examined with three different distributional assumptions for the innovations; Gaussian distribution, Student-t distribution and GED (Generalised Error Distribution).The maximum-likelihood approach is used for the parameter estimation. These procedures are applied using Matlab. Markov Regime switching model In the MRS-GARCH model, the parameters switch between a low volatility regime and a high regime. Empirical analysis demonstrates that MRS-GARCH models outperform the standard GARCH models in forecasting volatility at short horizons. Financial returns display sudden jumps due to structural breaks and changes in expectations of the operators. The four elements of MRS-GARCH model are the conditional mean, the conditional variance the regime process and the conditional distribution. Successful volatility model forecast depends greatly on the choice of error distribution than the choice of GARCH models.

Nombulelo Gumata and Nonhlanhla Nhlapo, Determinants of growth in private sector credit extension in South Africa: the role of house and equity prices Abstract: The paper investigates whether episodes of booms and busts in growth in credit extension in South Africa are in any way linked with developments in real house prices (and the developments in the non-performing loans or impaired advances) and equity prices over and above those in real GDP and short-run interest rates. The paper follows the Hofman (2001), Goodhart and Hofman (2008) and Claessens et.al. (2011) methodologies in exploring the dominance of these factors over economic (financial) cycles. The research paper uses a cointegarated VAR approach and analyzes impulse responses based on the standard Cholesky decomposition to test for the direction of the interaction between credit extension, house prices and equity prices. The research also tries to determine the duration and synchronisation of these variables over the financial cycles, using the quantitative methodology (fundamental approach) of identifying turning points of business cycles, Burns and Mitchell (1946).

Lizelle Janse van Rensburg and Philippe Burger, A hedonic house price index for the City of Johannesburg: An alternative to mean and median house price indices Abstract: Like many other countries, South Africa experienced a significant real increase in house prices since the turn of the millennium. As in most of these countries, this increase came to a halt in 2008, and thereafter price changes turned negative. The appreciation of residential properties is not shared equally by all houses. Unlike many other consumption goods, the housing market is unique as it manifests the characteristics of durability, heterogeneity, and spatial fixity. However, mean or median house price indices treat houses as homogenous units across time and space and disregard the impact of heterogeneity on house prices. As an alternative to the traditional mean or median house price indices, many researchers and practitioners turned to the hedonic method to extract more accurate time-series indices. Hedonic house price indices are officially used in the Netherlands, Norway, Sweden, the U.S., the UK and Germany. Controlling for property characteristics, the hedonic technique uses regression analysis to explain the variation in house prices. The regressions typically include time dummies, the parameters of which can be used to construct the hedonic house price indices. The key advantage of the general hedonic formulation is that it provides direct estimates of pure price changes after controlling for heterogeneity in housing characteristics. This paper develops a hedonic model that permits the quantitative analysis of differences in house price growth rates over space and time in the City of Johannesburg. Its main finding is that once the model controls for the house price characteristics, the increase in house prices has been much less pronounced compared to the increase registered by the mean- and median-based indices. This might have significant implications for the analysis of personal and household wealth and consumption.

Session G3
Urban economics
Schumann 101

Matthew Macdevette and Mark Ellyne, Estimating the Impact of the 2010 FIFA World Cup on the South African Economy Abstract: The World Cup has come and gone, but it is still unclear what the economic impact of the event was and will be. Ex-ante impact studies were conducted using speculative figures that, as previous literature on mega-events has shown, tend to significantly overestimate the benefits accruing to host countries. In December 2010, official statistics on the tourism generated by the World Cup became available, and allow a reassessment of the economic impact. We employ a Leontief multiplier analysis based on the South African Social Accounting Matrix (SAM) for the year 2000, using official data, to generate ex-post estimates of the net economic impact of the event. We split the event into three phases: Pre-event (the building of stadia and related infrastructure), Event (operations, foreign tourism revenues, ticket sales) and Post-event (expected tourism and paying for fiscal deficits). Importantly, and contrary to a worrying trend in mega-event impact studies, we pay close attention to the financing of higher government deficits in the years to come. We run a number of simulations involving: alternative government financing arrangements, various estimates of future increases in tourism, and differing definitions of event-specific expenditure. We find that by: including transport and related infrastructure as well as stadia, assuming a 3% boost to tourism after 2010 and financing deficit spending through taxation; the net long-run addition to GDP is approximately 1%, while an additional 155 300 jobs are created. Including only the event-specific construction (stadia), the net addition to GDP is approximately 0.7%, while an additional 89 300 jobs are created. We find that estimates are sensitive both to variations in future increases in tourism and to alternative government financing arrangements. As ex-ante impact estimates suggested only slightly lower levels for 2010 alone, our results seem to indicate more modest benefits than previously expected.

Alain Bala Pholo and Kristian Behrens, Do rent-seeking and interregional transfers contribute to urban primacy in sub-Saharan Africa? Abstract: We develop an economic geography model where mobile skilled workers either choose to work in a production sector or to become part of an unproductive elite. The elite sets income tax rates to maximize its own welfare by extracting rents, thereby influencing the spatial allocation of production and changing the available range of consumption goods. We show that such rent-seeking behavior favors the occurence of agglomeration and of urban primacy. In equilibrium, the elite may tax the unskilled workers but does not tax the skilled workers, and there are rural-urban transfers towards the agglomeration. The size of the elite and the magnitude of the tax burden that falls on the unskilled decrease with product differentiation and with the expenditure share for manufacturing goods.

Mario du Preez and Michael Sale, Determining the effect of social housing developments on adjacent property prices: An application of a spatial hedonic pricing model. Abstract: The question of whether social housing projects lead to the deterioration of surrounding property values has long been a subject of debate. Social housing projects have often been referred to as “NIMBY’s” and are thus frequently plagued by “local opposition” who argue that their properties will be adversely affected by these structures. Previous studies, however, have produced differing results, some concluding that social housing may in fact lead to an improvement in surrounding property values. By taking an existing housing development catering for low income earners (the Walmer Township), this study seeks to determine its effect on surrounding property values and thus provide some insight into the potential effects of social housing in Port Elizabeth, South Africa. In an application of the hedonic pricing method, the study makes use of a Box – Cox regression to select the functional form that allows for better estimation than that produced by standard functional forms. In addition to this, the study includes a spatial autoregressive term in order to address the issue of spatial autocorrelation. The study also defines the impact zone which allows for a discrete change estimate. The findings of this study indicate that there is a disamenity effect caused by the Walmer Township, more specifically, distance from the township is valued at R177.49 per meter.

Ronald Richard Mears, Demographic and urban characteristics of Soweto: a comparison between 1993 and 2008. Abstract: Demography is the study of the statistics of births, deaths, immigration, diseases, etcetera and perceptions to illustrate the conditions of life in communities. The major issue facing local communities in general and Soweto in particular is how to accommodate future population growth, while maintaining the prevailing quality of life. Moreover, economic opportunities in urban areas attract workers seeking employment and a better quality of life. The migration process to Soweto was largely determined by political decisions and the significant development of Johannesburg as the primary city in South Africa. Although the three levels of local, provincial and central government believe that they can eradicate informal settlements before 2014, this has contributed to the rapid migration to Soweto. The research question investigates how the demographic and urban characteristics can contribute to a better quality of life? Soweto was divided into 238 blocks and 4 questionnaires were sampled in each block. The stratification of the sample ensured that the total population and geographical areas were covered. The demarcation was based on the types of accommodation in the entire area and on the nature and/or density of housing. This is an empirical study of 951 households with a survey population of 4532 people in 2008, compared with the 800 households and 4197 people surveyed in 1993. The demographic characteristics are discussed under the perceptions of Sowetans, population, age and gender profiles, education levels, employment status and mobility in and migration to Soweto.

Session G4
Monetary
economics

Schumann 204

Leroi Raputsoane and Ruthira Naraidoo, Financial market conditions and the response of monetary policy to uncertainty with asymmetric and zone targeting preferences in South Africa Abstract: Purpose - The purpose of this paper analyses the impact of uncertainty about the true state of the economy on monetary policy in South Africa based on a framework that allows asymmetric and zone targeting monetary authorities’ preferences. Methodology– We develop a model of optimal monetary policy rule that have forward looking features of the New Keynesian model. However the model is extended to include features of signal extraction under the assumption that the authority does not observe the state of the economy. The empirical model is an extended version of Svensson’s (1999), Yun (1996) and Woodford (2003) models of inflation targeting. It combines elements from Orphanides and Wieland (2000) and Boinet and Martin (2008) to accommodate ‘zone-like’ and asymmetric behaviours in the policy reaction function. This modelling framework is coupled with models that are drawn from the theoretical literature on optimal monetary policy when there is uncertainty about the true state of the economy, most prominently Svensson and Woodford (2003, 2004) and Swanson (2004). We also contribute to the recent financial crisis by augmenting the analysis with a comprehensive index that collects and synthesises the information from the financial asset markets to assess the impact of uncertainty surrounding financial markets on monetary policy decision making. Findings - The empirical results reveal a significant impact of uncertainty on domestic interest rates during the inflation targeting period and that the monetary authorities exhibited discretionary behaviour when implementing monetary policy under uncertainty. The recursive estimates show that the monetary authorities allowed a wider zone of tolerance of the deviations of inflation away from the inflation target mid point after the onset of the financial crisis. Their reaction to the deviations of output from its desired level was increasingly passive, while their reaction to financial conditions increased significantly with the oncoming of the financial crisis.

Shakill Hassan, Greg Farrell and Nicola Viegi, Minimal conditions for bad news about inflation to cause currency appreciation on impact Abstract: This paper shows that if a central banks adopts an inflation-targeting interest rate rule, and there are no arbitrage opportunities between the fixed-income and exchange rate forward/futures markets, bad news about inflation will cause the currency to appreciate on impact. No other significant assumptions are required. The empirical section examines the South African exchange rate reaction around inflation announcements.

Shakill Hassan and Nicola Viegi, Exchange Rate Volatility and Monetary Policy in South Africa: Reconsidering the Evidence Abstract: The paper analyses the relationship between exchange rate volatility and monetary policy in South Africa during the inflation targeting period. We use and extend recent theoretical developments in international finance which points to the possibility that monetary policy might be a direct contributor of exchange rate variability. The paper starts from two observations: the first, by Alvarez et al (2007) is that interest rate differentials are not correlated to the level of exchange rate but more likely to its conditional variance. We show that this is the case in South Africa too. The second observation, following Brunnermeier et al (2008) - is that carry traders are subjected to crash risk (i.e. that exchange rate movement between high interest rate and low interest rate currencies are negatively skewed). This gives a explicit and endogenous interpretation of the conditional variance of the exchange rate as the "currency risk" and provides a direct link this to the conduct of monetary policy. The paper links formally these two streams of literature in a common small open economy framework and show that exchange rate variability is directly linked to the strenght of the response of monetary policy to deviations of inflation and output from theier respective targets. Higher responsiveness of the monetary policy instrument to deviation from the target reduces the volatility of the exchange rate, absorbing part of the risk in the volatility of the instrument itself. The analysis seems to suggest that a stricter implementation of a flexible inflation targeting regime could be an indirect way to reduce the volatility of the exchange rate as well.

Mike Sikwila, Inflation impact of an exchange rate adjustment: A case of Zimbabwe 1990-2006 Abstract: This paper aims to econometrically estimate the impact of an exchange rate adjustment on inflation using quarterly data from 1990-2006. The first round impact of devaluation on consumer prices is found to be low. The elasticity is 0.5. This means that, in the short-run, 100 percent devaluation would increase inflation by only 5 percent. This is consistent with the earlier studies. The long term elasticity is estimated at 0.51. That is, about half of an exchange rate adjustment would be passed on to domestic inflation and about 50 percent real devaluation would be achieved. The paper also reports that excess demand exerts strong pressure on domestic prices. Therefore, prudent fiscal and monetary policies are essential to moderate the impact of an exchange rate adjustment on domestic prices

Session G5
Microeconomics
Schumann 205

Timothy Hinks and Dorrit Posel, Trusting neighbours or strangers in a racially divided society: Insights from survey data in South Africa Abstract: In this paper, we investigate reported measures of trust in South Africa, collected in the 2008 National Income Dynamics Study. In particular we compare responses to two questions asked of all adult respondents about the likelihood, on a scale from 1 to 3, that a lost wallet or purse containing 200 Rand will be returned either by "someone who lives close by" or by a "complete stranger". Although reported levels of trust are very low, we find that South Africans are significantly more likely to report trusting neighbours than strangers. We use ordered probit regressions to estimate the determinants of these two measures of trust. Consistent with studies from the US (Alesina and La Ferrara 2000; Glaeser et al 2000) and from South Africa (Burns 2006), we find considerable racial variation in reported trust. In comparison to Whites, other population groups in South Africa are significantly less likely to report trusting people who live close by. However, these racial differences are dramatically reduced once differences in personal and neighbourhood income are controlled for. In contrast, racial differences in trust of strangers are smaller, and differences are even reversed among Africans, who appear more trusting than other population groups of strangers. One possible explanation for this finding relates to insider bias, where individuals may be relatively more willing to trust people who belong to their population group. Because Africans comprise the majority of the population, African respondents may be more likely than other respondents to assume that a complete stranger will be someone from their population group.

Cally Ardington, Till Barnighausen and Case Anne, The Economic Consequences of Illness and Death in South Africa Abstract: Institutions, such as funerals, that develop over a long period of time may take time to adjust to a change as profound as the shift in the age-mortality profile that occurred in Southern Africa over the past fifteen years. As a result, households that bury members who die in middle age may find themselves less able to maintain a stock of productive assets, to stake migrants in urban areas until they find work, to finance schooling, and more broadly to provide a healthy environment within which to raise children. All these threaten household and individual wellbeing. To date, there has been little systematic evidence on the size of this effect. In this paper, we use longitudinal demographic and socioeconomic data collected in the northern KwaZulu-Natal between 2000 and 2010 to document the impact of household death on household and children’s well-being. In 2000, the Africa Centre for Health and Population Studies began demographic surveillance of approximately 11,000 households. At six month intervals, every household is visited and demographic and health information is collected on all household members. Between 2001 and 2010, seven rounds of socio-economic data were collected, which allows us to track household characteristics (such as asset ownership) and individual characteristics (such as enrollment, educational attainment, and expenditures made on children’s educations). Within a year of each death, a verbal autopsy is conducted to determine the cause of death allowing us to investigate whether the impact of death varies by cause (e.g. AIDS). To quantify the effect of a death in the household, we run ordinary least squares, and household-specific and child-specific fixed effect models of range of household (assets, household composition) and child outcomes (schooling, residential mobility and their interaction) on indicators for whether prime-aged males and females (including mothers and fathers), or pension-aged adults have died.

Ronelle Burger, Marisa Coetzee and Carina van der Watt, Calculating the benefits of linking ties: the case of domestic workers Abstract: In South Africa social networks are usually assumed to perpetuate socio-economic differences. Social exclusion remains a problem due the multiple and overlapping divisions in post-apartheid society and the lack of linking ties that can create bridges between these worlds. To quantify the potential impact of such linking ties, we examine the case of domestic workers in South Africa. Domestic workers are a vulnerable sector of workers, but often develop strong relationships with individuals from advantaged groups through their work, thus enabling the formation of a patron-beneficiary relationship that could be used to gauge the effect of linking ties on poor households in South Africa. This paper considers the contribution of networks to individual and household welfare, investigating a series of outcomes including unemployment duration, educational attainment, ownership of a selection of assets and the prevalence of child and adult hunger. We compare these outcomes using a pooled version of seven General Household Surveys (2002 – 2008) to construct a well matched comparison group for domestic workers via propensity score matching. Due to the personal nature of the relationship between domestic workers and their employees, the casual nature of the work and the difficulties monitoring conduct in this sector, domestic workers have often been exploited in the past and are traditionally viewed as being more vulnerable than counterparts earning a similar salary. Therefore, these estimates are regarded as a lower bound.

Session G6
Economic
education

Schumann 208

Alicia Fourie, Gender disparity in human capital and utilisation rates of introductory economics students: NWU, Potchefstroom Campus Study Abstract: Many students struggle with introductory economics and it is therefore important to understand factors that influence their performance. This paper looks at the effects of human capital and utilisation rates of students in an introductory economics module and how these relate to performance. It also highlights gender differences in these areas. Gender, prior knowledge and education are used as proxies for human capital, while lecture attendance and student effort are proxies for utilisation rates. This paper focuses on the 2010 cohort of students in Introductory Economics (ECON111) at the North West University, Potchefstroom campus. Primary data was collected via a multiple choice questionnaire covering demographic and previous academic level information (high school grades achieved in Mathematics, English and Economics), as well as questions related to the specific module in comparison to other first semester modules. Analysis of variance (ANOVA) was used to analyse the data and determine whether a gender disparity exists. Other than establishing that male and female students do differ in utilisation rates and performance it was also found that females performed better in ECON 111 than males, contradicting previous literature findings. Further analyses using Multinomial Logistic Regressions indicated that high school performance in English and Mathematics as well as lecture attendance played a significant role in determining the final mark achieved in ECON111.

Neil Rankin, Volker Schöer, Claire Sebastiao and Corné van Walbeek, Predictors of academic performance in introductory economics courses: National Senior Certificate (NSC) versus National Benchmark Test (NBT) Abstract: The first National Benchmark Tests (NBT) were written by first-year university students in South Africa in 2008. The relative newness of the tests means that there has been almost no published research into students’ test results. This paper aims to contribute to what is likely to be a growing body of literature around the subject by looking at the NBT results of first-year Economics students at two South African universities. Using this data, the paper first explores whether or not the NBT results are a good predictor of future student performance at university compared to the National Senior Certificate (NSC) results. Preliminary findings indicate that both NBT and NSC results can be used as predictors of performance in our sample. The second half of the paper is dedicated to investigating whether or not the time at which students write the NBT affects their results and the ability of the tests to predict academic performance. Unlike the NSC, where exams are written at the same time across the country, the NBT can be written at different times either prior to or after university acceptance. To test the impact of the different times on the NBT results, we control for the date at which the tests were written. Furthermore we use instrumental variables to control for possible endogeneity. The results indicate that students who write the NBT tests earlier get on average higher NBT scores than their counterparts who write the NBT tests later. This could provide evidence for the argument that all students should write the tests before they are admitted to university in order to more accurately reflect students’ university preparedness, thus improving the NBT results’ ability to predict students’ future university performance.

Jen Snowball and Markus Mostert, Dancing with the Devil: Formative Peer Assessment and Academic Performance Abstract: Peer assessment using assessment criteria can be important in developing active and independent learners, as well as providing more and faster feedback in large classes. In addition the evaluative, critical stance required by students in order to assess their peers’ work encourages the development of higher-order cognitive skills. However, peer assessment does have potential problems: and there is some debate as to the appropriate academic level at which to implement it, and the kinds of feedback (technical versus content-related; general versus specific) that are given, and the ways in which students respond. In addition, there is little evidence that peer assessment has an impact on academic performance. This research reports the results on an online peer assessment exercise for a macroeconomics essay conducted in a large (800 student) economics 1 class at Rhodes University. Data was collected from students via a formal evaluation. In addition, a sample of 50 essays was evaluated in terms of the initial submission, peer feedback received, changes made to the final version, and the correlation of peer and final tutor marks. An OLS regression was used to investigate the impact peer assessment participation on marks. Results showed that there were large deviations between peer and final marks, especially for essays whose final mark was a first class or fail. In general peers gave more useful feedback on technical aspects, such as presentation and referencing, (which were also the categories in which students most often made improvements) than on content. Regression analysis showed that peer assessment participation was not a significant determinant of final essay mark, but that economics ability and English language proficiency were.

Neil Rankin and Volker Schöer, Do different teaching styles affect students’ performance in an introductory Economics course? A Randomised Controlled Trial of active learning in first year economics tutorials. Abstract: Adjusting to the learning environment at tertiary institutions presents a major stumbling block for a large number of first year students. The difficulty of this adjustment is reflected in the large number of first-year drop-outs and high failure rates of students who have met the admissions requirements to register for university degrees but find it difficult to adjust to the required workload. Universities can respond to this problem in two ways: 1) changing the teaching approach to improve the learning experience of the first year students; 2) by sourcing students into university programmes that have a higher probability of passing the courses given their pre-university characteristics. This paper investigates the impact of different teaching styles through a randomised controlled trial of active learning – course material related class activities - in tutorials of the first year economics course at the University of the Witwatersrand. 1620 first year economics students were randomly assigned to two different types of tutorial delivery: active learning and the traditional ‘chalk and talk’. Preliminary findings suggest that the intervention (active learning) had little effect at the aggregate level but might have influenced subgroups differently. These findings could be used to argue for the separation of students of different performance levels into particular tutorials.

Session G7
Public
economics

Schumann 207B

Manoel Bittencourt, (Young) Democracies and Government Size: Evidence from Latin America Abstract: In this paper we investigate the hypothesis that young democracies, or fragile and unconsolidated ones, increase the size of government in an attempt to buy out the electorate, so that democracy becomes the `only game in town'. Our sample includes eight Latin American countries between 1970 and 2007 and the results, based on principal component and panel data analyses (Fixed Effects, DIF-GMM and SYS-GMM estimators, and the Kiviet correction), suggest that the young democracies of Latin America are indeed associated with bigger governments. Furthermore, we test for the hypothesis that the old dictatorships left the young democracies with bigger deficits to be repaid. This hypothesis is not confirmed by the analysis conducted here. Finally, inequality (contrary to the conventional wisdom), is not confirmed as the main determinant of bigger governments (via redistribution), in the region either.

Mduduzi Biyase and Talent Zwane, The robustness of Wagner's law: evidence from Africa Abstract: The main aim of this paper is to investigate whether the Wagner’s law holds in African countries. We use panel data for 30 African countries for the period 1990 to 2005. The models used in this paper include the pooled ordinary least square (OLS), fixed effects model (FE), and the generalised method of moments (GMM). Based on the results of the models, the study confirms that there is a strong support for Wagner’s law in the African countries under investigation.

Margaret Chitiga, Ramos Mabugu, Helen Maisonnave and Vernonique Robichaud, Realising MDGs through Intergovernmental Transfers in South Africa Abstract: South Africa has made progress on achieving its MDGs. There are, however some gaps pertaining to inequality, education attainment, child mortality and maternal mortality that need to be addressed. This paper looks at how much additional public spending is needed to reach some of the goals using an integrated model of the economy. The model has at its core a recursive dynamic computable general equilibrium model along the lines of Chitiga et al (2010). Specific modules to study MDGs have been added to it based on Maisonnave and Robichaud (2010) which itself is an adaptation of the framework developed by Lofgren et al (2006). The model specifies explicitly health, water and education sectors and students behaviour interacting with the rest of the economy. Moreover, some MDGs have a feedback effect on other MDGs which is accounted for in the model. For instance, the HIV/AIDS MDG (MDG6), which will probably be reached, directly affects MDG4 and MDG5 (National Treasury, 2011). Indeed, more mothers who are HIV positive die giving birth than HIV negative ones. The same is true for under-five mortality (UNDP, 2007). Thus, this particular beneficial effect is modelled as having positive effects on other MDGs. Four scenarios are analyzed: the first one was testing the feasibility of reaching all the MDGs in 2015, and it turns out that it is not feasible at all, given the time constraint. The second and third scenarios were dedicated respectively to reach MDG2 and MDG6. In both simulations, it was first assumed that government does not institute a compensatory fiscal adjustment, meaning that it is borrowing (from the domestic firms) to finance the policy. It is known that this is unsustainable in the long run. Therefore, in the last scenario, the impact of a combined policy is analysed: reaching the MDG target and implementing a compensatory fiscal adjustment (through an increase in indirect taxes) to finance the policy. The indirect tax is shown to have harmful impacts on households' consumption and on the economy that finally reduce the benefits of the policy.

Charl Jooste, Ruthira Naraidoo and Dave Liu, Analysing the effects of fiscal policy shocks in the South African economy Abstract: Purpose/Research questions - The size of the fiscal multiplier is important in determining the effectiveness of fiscal policy on the overall economy. It helps shed light when thinking of implementing fiscal rules to stabilise output and debt. The purpose of this paper is to analyze the fiscal multiplier for the South African economy by using various methodologies – a small open economy New Keynesian DSGE model is compared to more data driven models such as a structural vector error correction model and a Markov switching VAR. Design/methodology/approach – We build a general equilibrium model of a small open economy that captures the features of the South African economy with the purpose of analyzing the effects of a fiscal rule-based policy. Some of these inherent features include a distinction between hand-to-mouth consumers and Ricardian consumers. In particular, we analyse cases where the fiscal multiplier is not zero which then makes fiscal policy effective in stimulating demand and therefore a simple numerical fiscal rule would be insufficient. Thus, deviating from a strict fiscal rule when required could be substantiated. We analyse how shocks are transmitted to the economy in the presence of this fiscal rule by introducing shocks to government spending among other variables. We then compare the impulse responses of the model with more data driven models such as a structural vector error correction model and a Markov switching VAR which allows us to study both linear and nonlinear impulse responses. Findings - Our results indicate that fiscal multipliers are larger than one if one operates in a closed economy. Opening up the economy reduces the multiplier significantly, but not to zero, though strictly speaking one has to weigh up the overwhelming benefits of an open economy. We are able to capture interesting results from the nonlinear impulse responses – Multipliers are larger when fiscal policy is conducted in a countercyclical manner when compared to procyclical fiscal policy.

Tuesday15:00 - 15:30
V V H Neelsie
Tea
Tuesday15:40 - 17:00Parallel Sessions H
Session H1
Competition
policy &
regulation

Schumann 104

Ralitza Dobreva, Competition, Productivity and Corporate Control Abstract: An intuition among economists prompts that competition affects productivity in a positive way. However, in the theoretical debate there is no dominant view about whether relationship is positive or negative. With regard to the ways in which competition affects productivity, many propositions exist about the mechanism(s) of influence. In addition, the causality is most likely to be a two-way influence. This paper reviews the major theoretical arguments about the way in which competition influences productivity and considers the important empirical contributions in order to shed light on the knowns, unknowns and to compare the usefulness of different lines of enquiry into the competition-performance relationship. It reviews the evidence from developed and developing countries and compares it to the piecemeal South African evidence. Finally, the paper explores avenues for further research about this fundamental yet still mysterious relationship.

James Fairburn, Corporate Control and the Managerial Labour Market Abstract: This paper examines why firms may obtain managers through takeover of other firms rather than recruitment in the labour market. Direct recruitment is costly if managers are risk averse, because risk premia must be added to the performance contracts that are required to screen out good managers from bad. The profitability of takeovers and direct recruitment are compared, and influences over the takeover/recruitment decision are examined. The paper is centred on a theoretical contracting model, but the relevant empirical literature is also reviewed.

Nicola Theron and Johann van Eeden, Two Sided Markets: an Application to Mobile Termination in South Africa Abstract: The concept of a two sided market has received increased attention in the academic literature of late. In this paper we argue that the market for call termination is an example of a two sided market. We apply the concepts of a two sided termination market to the current attempts by ICASA to reduce mobile termination rates through regulation. We also deal with the concepts of significant market power (SMP) and established significant market power (ESMP) and show that the traditional thinking around market power has to be adapted when one deals with two sided markets. More specifically, we analyse these concepts by looking at the position of Cell C, a smaller player in the mobile market in SA. We show that market power (and appropriate pro-competitive remedies) in call termination markets cannot be established without considering the origination (retail) market – the other side of the two sided market.

Lukasz Grzybowski, Fixed-to-Mobile Substitution in the European Union Abstract: This paper analyzes substitution between access to fixed-line and mobile telephony in the European Union. We derive a structural model of household's demand for: (i) fixed-line only, (ii) mobile only, (iii) and both fixed-line and mobile access. We estimate demand for mobiles conditional on having fixed-line access and demand for fixed-line conditional on having mobile access. These regressions suggest that mobile and fixed-line access are perceived as substitutes in the Western European countries and as complements in Central and Eastern European countries. We also estimate unconditional household's demand for fixed-line only and mobiles only access, which confirm that mobile and fixed-line access are substitutes. In addition, we find that use of cable broadband decreases fixed-line connections. A decline in fixed-line is on the way in Central and Eastern European countries both due to substitution with mobiles and growing use of alternative to fixed-line means of internet access. Once, households start using cable broadband to access Internet and mobiles to make calls, fixed-line becomes obsolete. The complementarity between mobile and fixed-line access in Western European countries postpones a decline in fixed-line connections but this can change in the nearest future with increasing competition for the provision internet access from both mobiles and cable.

Session H2
Environment
Schumann 107

Deborah Lee, Stephen Hosking and Mario du Preez, Estimating the willingness to pay for estuarine recreational services: An application of the choice experiment method to the Sundays River estuary Abstract: A lack of information on recreation values, especially non-market values, has contributed to estuary degradation in South Africa. In order to fill this information gap, this study uses a choice experiment to estimate recreation values of the Sundays River Estuary, a popular estuary along South Africa’s east coast. Three attributes related to the recreational use of the estuary (the size of the population of fish stocks, boat congestion and public access) along with a cost attribute were included in the experiment by means of an orthogonal full factorial design. One hundred and seventy five questionnaires were administered to recreational users, each including four choice sets that required trading off the four attributes. The questionnaire responses were analysed using three models, namely a conditional logit (CL), a heteroskedastic extreme value (HEV) logit, and a random parameters logit (RPL). The results showed that although the levels of boat congestion and public access were important, the size of the population of fish stocks was the most important predictor of choice. The estimated marginal willingness to pay (implicit price) for an increase in the size of the population of fish stocks, a reduction in boat congestion and an increase in public access, respectively was R154.13, R33.04 and R33.16. The findings of the study can provide the relevant authorities and other stakeholders with information about trade-offs that could be used to enhance the future management of South African estuaries.

Johane Dikgang and Edwin Muchapondwa, Estimating Optimal Conservation Fees in the Presence of Land Restitution in the Kgalagadi Transfrontier Park between Botswana and South Africa Abstract: In developing countries like South Africa, national parks are under increasing pressure to foster economic growth and development to local communities surrounding parks. Out of 22 national parks managed by South African National Parks (SANParks), about 6 parks have been affected by the land claims. The core research question is to find out how the Transfrontier can serve as a drive in tourism that generates economic and social benefits to the land claimants and as a result maximize the positive spill over effects on the Khomani San people. One way of doing this is to revise the conservation fees to an optimal level and designate the entailed increment as a voluntary community-bound donation. As the aim of this paper is to estimate the demand function for the Kgalagadi Transfrontier Park (KTP), information about substitutes and compliments is included. Using the KTP, Kruger, Pilanesberg and Augrabies Fall national parks as a case study, this paper applies the Contingent Behavior (CB) approach to estimate revenue-maximizing conservation fees. Our study assumes that Kruger, Pilanesberg and Augrabies Fall national park pass as either substitutes or complements for visitors. Price and cross-price elasticities of demand are estimated using the Tobit models to assess the responsiveness of visitation demand to changes in park conservation fees. The validity and credibility of the revenue-maximizing conservation fees of which the community-bound donation estimate is dependent on can practically only be tested by implementing these fees at the point of entry at the parks. This is practically not possible, hence the only realistic way to test the consistency and credibility of these estimates is to look at them in the context of the general pricing structure of recreational sites in South Africa.

David Roche-kelly and Lizelle van Dyk, A cost effectiveness analysis of some solutions to the Acid Mine Drainage in the Witwatersrand mining basins in the Johannesburg area Abstract: The city of Johannesburg and the towns to the west and east of it are underlain by a vast network of the tunnels of the gold mines on which their prosperity was built. As mining and water pumping operations have ceased, so these old workings have slowly filled up with water. Over time reactions between the water and the minerals in the rock have led to the creation of acidic water. A number of distinguished scientists have warned of widespread damage and harm to human and environmental health as well as to property and infrastructure should the main body of water be allowed to rise unchecked to the surface. In December 2011, an Inter-Ministerial Committee released a report compiled by a large team of scientists*. In the report a number of solutions are recommended together with preliminary estimates of the costs of these solutions. Our paper will analyse the various elements of these proposals. It will test and expand the current cost estimates. We will also attempt some estimates of the variation in costs associated with differences in the quantity of the water treated and the quality delivered. We will use a Cost Effectiveness Analysis (CEA) framework which will incorporate analyses of the discounted cash flows of the various projects. Since efforts to address acid mine drainage will have to continue for many decades into the future, we briefly explore a number of ways in which institutions and incentives might be aligned so that new technology can be development and introduction in the future to better treat acid mine drainage. With sustained effort and ingenuity we “Joburgers” can convert our current legacy of poisonous acidic water into an enduring resource of quality water, which will ensure the survival of our city long into the future.

Session H3
Macroeconomics
Schumann 101

Nthabiseng Tsoanamatsie and Manoel Bittencourt, Financial Development and Economic Growth: Evidence from BRICs Abstract: We investigate in this paper the role of financial development on economic growth in BRICs countries covering the period of 1970 and 2009. For that, we make use of principal components analysis, to construct our financial development proxies, and also of dynamic panel time-series analysis, which allows us to deal with important econometric issues like non-stationarity in panels, heterogeneity bias and endogeneity. The results indicate that finance plays an important, and robust, role in determining economic growth in this sample of emerging countries. All in all, we suggest that a good institutional framework is of paramount importance for financial development, and that, in turn, financial development is indeed able to foster faster economic growth and prosperity.

Joel Hinaunye Eita, A Macroeconometric Model of the Namibian Economy Abstract: This paper presents a macroeconometric model of the Namibian economy for the period 1970 to 2010. The model consists of the demand side and the supply side of the economy. In this paper, the main characteristics of the Namibian economy are summarised. The model comprises of behavioural equations of both the demand the supply side of the economy. Identities and definitions are introduced in order to link endogenous variables. This ensures that there is a full dynamic system. Econometric techniques and methodologies (Engle-Granger and Johansen) that take into account of time series properties of the data such as non-stationary are employed to construct a macroeconometric model for Namibia. The estimated macroeconometric model can be used to for forecasting or policy simulation in the Namibian economy.

Albert Touna Mama and Nicola Viegi, Institutional causes, Macroeconomic Outcomes and Saving-investment Correlations Abstract: In this paper, we explore the role of institutional causes in explaining the correlation between domestic saving and domestic investment. The persistence of high saving-investment correlations despite free capital movements is the most important puzzle in international finance literature. While a large body of research examines the robustness of this puzzle to different sample and estimation techniques, much less work has been done on the causes of this macroeconomic outcome. We explore the idea that some economic institutions tend to retain a large segment of national saving at home. Moreover, these institutions tend to persist for long periods of time thereby providing a channel for high and long lasting saving-investment correlations. We start by providing a case study strongly supporting this idea. Then, following Acemoglu et al. (2001), we exploit variations in colonial origins of 60 countries to isolate the historically determined feature of institutions. We find strong evidence supporting the role of institutions. Unlike the case study, however, our estimations capture a different effect than the one anticipated.

Manoel Bittencourt, Rangan Gupta and Josine Uwilingiye, Tax Evasion, Financial Development and Inflation: Theory and Evidence Abstract: Anecdotal evidence suggests that size of the underground economy (tax evasion) is negatively related to the level of financial development. Given this, our paper provides a theoretical explanation of the same. In this regard, we develop an overlapping generations stochastic production economy-monetary model characterized by tax evasion, determined endogenously, and financial intermediation subject to costly state verification. We show that the fraction of income evaded is positively related to the fraction of resources the banking sector has to spend (a measure of the degree of lack of financial sector development) in verifying that the firms in the economy do not declare bankruptcy even if the production project is in fact successful. In addition, we indicate that the size of tax evasion is related to the positive inflation rate. These theoretical predictions are confirmed empirically using a panel data set of South American countries covering the periods between 1980 and 2011.

Session H4
Monetary
economics

Schumann 204

Lumengo Bonga-bonga, Equity prices, monetary policy and economic activity in South Africa Abstract: This paper investigates the possible influence equity price shocks have on economic activities and inflation in South Africa. Moreover, the paper discusses the role monetary policy action should play in preventing or reducing the disruptive effects of equity market volatility in South Africa. It uses the structural vector error correction (SVEC) model to identify the different shocks and obtain the impulse response functions. The paper finds that positive shocks to equity prices negatively affect expected inflation in the first two quarters before the effect becomes positive. This finding indicates that initially high stock market valuations raise the expectation of high capital and labour productivity by investors. Later on, the possibility of high stock prices increasing economic activity creates an expectation of high inflation rates in the future. From this finding, the paper concludes that the monetary authority in South Africa should include equity prices in its reaction function.

Salminah Pulumo, Analysis of SADC inflation rates by means of Markov Chain Monte Carlo simulations with Gibbs Sampling Abstract: This study uses Markov Chain Monte Carlo simulations combined with Gibbs sampling to analyse the behaviour of inflation rates in the Southern African Development Community (SADC) region. It finds that over the past decade of 2000–2009, the relative inflation differentials and inflation variabilities in the SADC increased with geography. Of the countries that are geographically far from South Africa, only Tanzania’s inflation seems to behave more like Common Monetary Area (CMA) countries. Secondly, with the exception of Seychelles, in the last half of the decade inflation variability has become similar and stable in the SADC. Thirdly, intra-decade analysis shows that some countries have experienced widening relative inflation differentials, while others experienced contracting relative inflation differentials. The last conclusion is that, within the SADC, there are countries whose behaviour of high inflation makes them outliers.

Basil Moore, The Post Keynesian case for the coordination of monetary and fiscal policy to offset AD deficiency Abstract: Post Keynesian economists stress the paramount importance of Aggregate Demand (AD) in determining levels of output and employment. The current world crisis is in many ways a repeat of the Great Depression of the 1930's, with its unprecedented fall in prices, AD and output. In developed economies most firms are price-setters and quantity-takers in their output markets, so output responds directly to increases in demand for their product. In the current crisis most firms in developed economies are demand-constrained, and capacity utilization rates average between 50 and 75 per cent. In response most central banks have rapidly reduced Bank Rate to near zero levels. But due to the lack of business and household demand for credit, investment spending has not responded. As Keynes argued, when "animal spirits" are depressed and private firms are faced with excess capacity, governments should step in to invest in those social infrastructure projects with the highest expected returns, e.g. roads, bridges, dams, etc. Although governments are much less efficient than private firms carrying out and administering investment projects, where is it written that government must undertake these projects themselves? They should rather put such social infrastructure projects out for bid by those private firms who have a comparative advantage in efficient construction and delivery. So long as expected returns substantially exceed the low interest rates currently ruling in liquidity trap situations, such public investments should be undertaken. Green investments to economize on energy and reduce climate warning could become the AD replacement of World Wars for the 21st century. In attempting to judge the fiscal "burden" of government deficit spending, government debt-income ratios (Debt/GDP) must be replaced by government interest service-income ratios (RD/GDP) and government asset-income ratios (A/GDP). Even though governments are less efficient at producing goods and services than private firms, government investment spending should be undertaken whenever the estimated returns on government spending exceed the expected interest costs.

Session H5
International
trade

Schumann 205

Paul Alagidede, On trends and cyclical dynamics in the net barter terms of trade of sub-Saharan Africa’s primary commodity exporters Abstract: This paper addresses terms of trade shocks in four commodity-exporting countries: Botswana, Cote d’Ivoire (Ivory Coast), Ghana and Zambia. We address both the short run cyclical fluctuations and the long run trends. The latter is important for importing countries with respect to the uncertainties associated with production and manufacturing. For exporting countries, it enables policy makers to cope with price risk in international markets. Using unobseved components models we showed that adverse shocks to the terms of trade dissipate between 2 and 9 years, with the long run trend indicating the tendency for the net barter terms of trade to decline over time. In addition, we showed that the shorter the shock to the terms of trade, and the longer the frequency of the shock, the more severe the accumulated long run loss in welfare and output. Hedging the downside risk of commodity prices, commodity beneficiation and stabilisation are suggested as policy menus for smoothing the path of income and consumption.

Johan Fourie and Maria Santana-gallego, Historical migration, trade and tourism Abstract: The reasons that firms trade across international borders are neither new nor surprising. Technology differs (resulting in Ricardian comparative advantage), factor endowments differ (the basis for the Hecksher-Ohlin-Samuelson model), pro-competitive gains arise and consumers love variety (Krugman). In tourism, demand-side factors are cited as causes: per capita income (tourism is a luxury product), price differentials and the costs of transport (often associated with distance). Yet, these explanations often ignore the historical context of such exchanges. Trade and tourism gravity equations, known for its closeness-of-fit with real-world data, show that countries that share a common language (or colonial ties) trade more, ceteris paribus. This suggests that, ultimately, countries (firms, people) trade more with those that are more familiar to them. This paper attempts to identify exactly the size of this ‘social affiliation’. We use a new data set developed by Putterman and Weil (2010) to test the impact of historical migration on international trade flows and tourist arrivals respectively. Our results suggest that ‘social affiliation’ matters significantly for tourist arrivals but have little impact on international trade. These results have significant implications for the theoretical understanding of tourism and also suggest some tentative policy implications.

Thembeka Khumalo, Upgrading export structure in Sub-Saharan african countries Abstract: After decades of a more integrated and liberalized world economy, the benefits of globalization have to be challenged when it appears the gains have been unequal even amongst those countries that have participated. The last few decades have seen a major increase in world trade and together with this a number of countries have successfully stimulated export led growth which has allowed them to significantly address poverty issues and economic development. Asian countries show the highest growth in this regard whilst the performance of Sub-Saharan African economies leaves much to be desired. Not only has the share of Sub-Saharan exports in world exports fallen, the trade structure has continued to rely heavily on low-value added, commodity based exports which offer no opportunities for technological advancement and the development of competitive manufacturing industry. It is only through the development of industry that these countries can achieve sustainable economic growth and improve living standards. The question therefore is: how is it that some countries are better able to gain from trade than others. This paper discusses the challenges and opportunities to upgrading trade structure in the more competitive and fragmented global production era. It will draw on value chain theory and product space theory in discussing the challenges faced by Sub-Saharan countries. The capacity to absorb technology will be assessed, as the technology required to establish competitive and sustainable industries will have to be adopted through trade and foreign direct investment. Using panel-data on Sub-Saharan African countries for the period 1985-2009, I estimate the determinants of export diversification and sophistication. The aim will be to provide some policy recommendations for appropriate industrial policy in Sub-Saharan Africa.

Vasily Sidorov, South Africa and Foreign Trade Abstract: This paper will consider the current state and the future of South African foreign trade. Given the fact that historically South Africa was a country of ‘settler’ colonialism, it is hardly surprising that foreign trade always was essential for South African economy. Today the fact that South Africa has joined the BRIC group and participated in the first BRICS summit shows the importance of South Africa for the global economy, and, therefore, for international trade. First, the paper provides a short historical overview regarding how the role that trade played in South African economy changed over the years. Second, the author looks at the structure of South African exports and imports (what are the goods that South Africa exports and imports), and how it has changed. Third, analysis of the geographic distribution of trade (both by regions and by countries) – which trading partners are more important, and whose influence is rising or declining – is performed. At the moment the most important export destinations for South African goods are China (11.3%), USA (10.1%), Japan (8.9%), Germany (8.2%) and Great Britain (5.1%). Towards the end of the paper South African trade with Russia will be considered (though it is rather limited compared to other BRIC countries). And in conclusion there is a summary on the influence of a global crisis on South Africa’s external trade. Overall, it seems in the future distribution of South African trade will continue to change – away from the West and towards the developing economies (primarily China, India and African countries). The fact that South Africa has now became a member of the BRICS group just underlines this trend.

Session H6
Economics of
Education

Schumann 208

Robert Garlick, Peer effects under mixing and tracking: Evidence from South African college dormitories Abstract: Peer effects have become an important subject of economic study over the past decade, particularly in the economics of education. These studies face the fundamental challenge of separating true peer effects from within-group correlations in outcomes arising from self-selection into peer groups. Many papers address this challenge by exploiting natural experiments in which institutional rules assign peers randomly to groups, such as university residences. These research designs can cleanly identify peer effects but cannot speak to the effect of non-random peer assignment regimes, such as tracking. I study a unique natural experiment that contrasts peer effects under two regimes: random assignment and tracking. A South African university research university used random assignment to residences for several years and tracked first year students into residences with peers of similar ability for several other years. I employ a difference-in-differences research design that estimates the effect of assignment under tracking using non-residential students as a control group. As the effects of tracking may be be heterogeneous, I use a novel semiparametric quantile difference-in-differences estimator that estimates the full counterfactual distribution of outcomes if tracking had not been implemented, allowing for selection on observed characteristics. I find that tracked assignment led to a substantial (0.15 standard deviation) fall in mean grades. This change was concentrated in the lower half of the distribution, with losses of up to 0.3 standard deviations at the 10th percentile. Perhaps surprisingly, the top tail of the distribution performed marginally worse under tracking: effects up to the 95th percentile remained negative, though small and imprecisely estimated. Standard measures of inequality (Gini coefficient, Theil index, IQR) were higher under tracking. These results suggest that replacing tracking with random peer assignment was effective at simultaneously reducing achievement inequality and raising aggregate achievement.

Debra Lynne Shepherd, The impact of teacher subject knowledge on learner performance in South Africa: A within-student across-subject approach Abstract: This paper assesses the impact of teacher subject knowledge specifically, amongst other teacher characteristics, on student performance using a nationally representative dataset of grade 6 students in South Africa. Differences in student test scores are used to identify within-pupil across-subject variation in performance. Teacher subject knowledge is only estimated to have a significant positive impact for student learning when considering the subset of 20 percent richest schools and students taught by the same teacher in mathematics and English. However, there is evidence to suggest that this effect may be due to teacher unobservables and/or subject-varying student and school unobservables. There is therefore insufficient evidence to suggest that teacher subject knowledge has a positive impact on student performance.

Paula Armstrong, Teacher wages in the South African economy: how attractive is the teaching profession? Abstract: A central question in the economics of education literature is whether teacher remuneration results in the attraction, recruitment and retention of a high quality teaching force. It is widely believed that the quality of an education system cannot exceed the quality of its teacher”. In South Africa, this question is of obvious importance given our dismal performance on international educational achievement tests. This paper investigates the wages structure of South African teachers in comparison to their nonteaching counterparts in the labour market. It therefore aims to answer the question as to whether South African teachers are overpaid or underpaid relative to individuals with the same level of education and experience. It makes use of basic Mincerian wage functions to compare the returns to productive characteristics (i.e. educational attainment and years of potential experience) between teachers, non-teachers and non-teaching professionals. A Denado, Fortin and Lemieux decomposition is used to compare the wages structures of the aforementioned groups by reweighting the wages distribution of teachers to reflect what the distribution would look like if teachers were remunerated according to the same structure as non-teachers. The analysis is applied to South African data, Chilean data and data from some Sub-Saharan African countries. A brief analysis of the academic ability of teachers is conducted using data on the matric performance of first year students enrolled in different degrees. This is a fairly loose and indirect attempt to ascertain whether top quality candidates are entering the teaching profession and how candidate teachers compare academically with candidates enrolled for other degrees. Data from admission tests and matric performance records are used to conduct the analysis.

Session H7
Growth and
investment

Schumann 207B

Mduduzi Biyase and Talent Zwane, An export-led growth (ELG) paradigm in Africa: Panel data Approach Abstract: The purpose of this paper is to investigate the export-led growth (ELG) paradigm for African countries. The data used is a panel data covering 30 African countries for the period 1990 to 2005. The paper uses five panel data models: pooled ordinary least square (OLS), fixed effects model (FE), random effects model (RE), Two-Stage Least-Squares (2SLS) and generalized methods of moments (GMM). The results from these models provide some support for the export-led growth (ELG) paradigm in Africa – a 1% increase in export leads to 0.056% increase in economic growth ceteris paribus.

Elsabé Loots, Carike Claassen and Henri Bezuidenhout, Chinese foreign direct investment in Africa: Making sense of a new reality Abstract: The eyes of the world have, in recent years, been steadfastly focused on China’s economic progress. As China has in recent years emerged as a major player on the world economic stage, its growing relations with other developing regions received much attention. Of particular note is the way in which Sino-African relations have increased since 2000. This paper aims to put Chinese FDI in Africa into perspective and provide some answers on the nature and possible impact of these flows to the continent. In order to address these issues, the paper presents a literature overview on FDI flows to Africa, followed by an overview on the African recipients of Chinese FDI as well as a sectoral breakdown of these flows. An econometric analysis by means of a cross-section panel model of the available data represents the empirical analysis. The research discloses that China’s outward FDI to Africa is concentrated in diversified, medium growth economic performers, with Southern Africa being the most popular regions for Chinese outward FDI. A literature survey on Chinese investment deals concluded in Africa demonstrates a definite Chinese interest in mining, oil and infrastructure in Africa. The empirical analysis of Chinese FDI in Africa reveals that agricultural land, market size and oil are important determinants of Chinese FDI. Though agricultural land and oil conform to the general notion of resource-driven Chinese FDI in Africa, the fact that market size is important indicates that Chinese investment is not solely resource-driven. As regards the possibility that Chinese FDI could positively contribute towards economic growth in Africa, causality tests conclude that the relationship between African GDP and Chinese FDI is bi-directional, while uni-directional relationships were established between Chinese FDI and African infrastructure and corruption, respectively.

Ewert Kleynhans, FDI, technology, sales, and R&D spillovers enhancing production and competitiveness of firms on a micro-economic level Abstract: The paper studies the interaction of foreign direct investment (FDI), technology, sales, and research and development (R&D) spillovers enhancing production and competitiveness of firms on a micro-economic level. An empirical investigation on firm-level of South African companies was conducts. It starts by assuming that spillovers are good and should be encouraged. Industrial development seems to escalate when firms are growing individually and this growth is extended to other firms. Other firms learn from growing firms and then grow too. This is what is meant by spillover effects of industrial development. It is usually assumed that a rise in FDI, technology and R&D will have great returns for any firm and even greater returns for the industry as a whole. The motivation for this study was to test whether this is the case. Spillovers, however, have the ability to not only enhance, but also diminish productivity growth. The study mainly utilised data from the World Bank’s firm-level survey, applying regression analysis. It found that direct foreign investments and foreign ownership contribute little to spillovers and probably depend on absorptive capacity. Technological advancement did not show up as a significant factor. Likewise, research and development are dependent on absorptive capacity to enhance competitiveness, especially with regard to investment on human capital. International quality certification, foreign licensing and capacity utilisation all contribute towards the competitive position of firms.

Seloinyana Elizabeth Selelo and Mike Nyamazana Sikwila, The determinants of fixed foreign direct investment in Botswana (1980-2007) Abstract: The Government of Botswana has over the years provided a number of investment incentives to attract Foreign Direct Investment (FDI) into the country in order to diversify the economy away from the mining sector. However, despite the efforts to encourage FDI, the amount of FDI has continued to be relatively low. The FDI in Botswana is still skewed towards mining, especially diamond mining. This paper examines the determinants of FDI and the effects of economic growth on FDI in Botswana. The study uses the accelerator theory of investment in finding the effects of FDI on the economy. To examine the determinants of FDI, FDI is expressed as a function of GDP growth rates, human capital, terms of trade, domestic investment, and government expenditure. We use 1980-2007 time series annual data from Botswana Central Statistics Office (CSO) publications, Bank of Botswana and United Nations Conference on Trade and Development online statistics. In finding the determinants of FDI, we employ both the co-integration and Vector Error Correction Model to find the short-term and long-term effects. The econometric results show that GDP growth rates, terms of trade and domestic investment significantly influence FDI flows in Botswana. The results also show that economic growth significantly explains FDI flows in Botswana at 10% level of significance in the long-term. In addition, the results show that economic growth, terms of trade and domestic investment significantly explain FDI flows in Botswana in the short-term at 5% level of significance. Economic growth positively impacts on FDI in Botswana as expected in both the short-term and long-term. The positive impact of economic growth is consistent with the acceleration theory of investment. This finding confirms that the accelerator theory is useful in Less Developed Countries.

Tuesday17:00 - 18:00
Schumann 107
EHSSA AGM
Tuesday18:45 - 
Spier Estate
Gala Dinner
Wednesday08:15 - 09:40Parallel Sessions I
Session I1
Finance and
regulation

Schumann 104

Harold Ngalawa, Nicola Viegi and Fulbert Tchanatchana, Banking Instability and Deposit Insurance: The Role of Moral Hazard Abstract: Deposit insurance has become increasingly popular in recent years with a large number of countries adopting the scheme in their regulatory framework for banking system stability. Countries adopting deposit insurance aim at minimising the risk of banking crises arising from self-fulfilling expectations. However, deposit insurance also creates a moral hazard problem by freeing economic agents from the consequences of their actions. The primary objective of this paper is to empirically investigate the role of moral hazard emanating from deposit insurance in banking stability/instability. If the negative effect of deposit insurance on banking stability is through moral hazard, then deposit insurance will be associated with bank insolvency more than with bank runs. To test this hypothesis, we develop a new empirical framework where we distinguish between banking instability initiated by a bank run or panic withdrawals of deposits, and banking instability initiated by the insolvency problem of banks. Using a panel dataset covering 118 countries over the period 1980-2004, we estimate a random effects logit model using the maximum likelihood method to find the probability of banking instability in a baseline model aimed at investigating how banking system instability is influenced by moral hazard arising from the adoption of deposit insurance. The study also explores whether the generosity of deposit insurance payouts increases the likelihood of banking instability. We further examine the impact of extending coverage of deposit insurance to foreign exchange and interbank deposits on banking instability. In addition, we test the prediction that banking fragility is affected by the nature of legal authority vested in a deposit insurance agency. Finally, we analyse how banking instability is affected by the manner and style in which a deposit insurance fund is administered.

Nicola Brink and Co-pierre Georg, Systemic Risk in the South African Interbank System Abstract: This paper analyses the network structure of the South African overnight interbank market by employing measures from network theory. A unique data set of interbank transactions from the South African Multiple Options Settlement (SAMOS) system is used. It is shown that the South African interbank system has been largely stable and resilient over the period from March 2005 to June 2010, even in times of great distress on the international financial markets. The number of banks participating in the interbank market was approximately constant over the analysed period, as well as the high level of interconnectedness. A low average path length and high clustering coefficient indicate a high level of liquidity allocation and risk sharing in the system. Furthermore a Network Systemic Importance Index (NSII) is developed to assess the systemic importance of individual banks in South Africa. This index measures each banks size, interconnectedness and substitutability by employing network theory. It is a relative index in the sense that the systemic importance of any given bank does not only depend on the properties of the bank itself, but rather on the properties of the whole network. This approach is therefore less prone to moral hazard and can be used as a tool for macroprudential oversight in addition to microprudential supervision. The NSII addresses the cross-sectional dimension of systemic risk. It has to be stressed, however, that it gives no indication of the default probability of individual banks and has therefore be accompanied by other macroprudential tools for a full picture of systemic risk.

Jaco Mostert, The impact of the recent global meltdown on banking regulation and supervision Abstract: Banks have been regulated since the 1988 based on the Basel I capital accord. The 1988 accord followed a rules based one-size-fits-all approach to regulation of the capital adequacy of banks. The increased capital flows and globalisation in the financial markets in the nineties provided the need to review the 1988 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 key issues were whether the new Basel II accord will be adequate in the face of a global financial meltdown. The recent global crises highlighted various issues in terms of the prudent regulation and supervision of banks. Some of these issues include the banks that is deemed of too-big-to-fail, moral hazard and the role of regulators in preventing these kind of concerns. The actions of governments bailing out failing banks were also highlighted. The Basel Committee on Bank Supervision has indeed proposed new rules for the capital adequacy of banks after the crises, releasing the Basel III proposals. The paper will deal with this whole debate and make some suggestions on the way forward in terms of the review of the regulation of banks. The paper will be based on a literature review.

Richard Cheng and Mark Ellyne, Valuation of Deposit Insurance in South Africa Using an Option-Based Model Abstract: It is peculiar that an emerging market economy like South Africa does not have a deposit insurance scheme, which would provide a public benefit of increasing confidence in the financial system. Moreover, discussions about a scheme have been afloat since 2000, without any official proposal being published or brought to Parliament. It is likely South African banks have resisted introduction of any scheme owing to costing issues. This paper, based on the work of Ronn & Verma and Duan, estimates deposit insurance premiums for the first time for 7 large South African banks, using an option-based model and employing daily stock market data over the period 2000 to 2009. The method creates annual estimates of premiums for individual banks, which allows us to investigate additional questions: What is the risk distribution among banks, and what would be the implication of a fixed rate premium on cross-subsidisation? How variable is the calculated premium over time; and how frequently should premium rates be adjusted? How does a conservatively assumed, historical-based insurance premium rate compare with the option-based approach? Do the estimated premiums support any particular insurance structure for South Africa? We find that the premiums exhibit high volatility over time and across banks, which may just reflect business cycle conditions, but nevertheless produce an average value that is internationally comparable. We find that the banks exhibit different levels of risk, which may merit differential premium pricing, as is common internationally. Based on our results, we suggest a three-tier, risk-weighted, premium structure as most appropriate for South Africa.

Session I2
Labour
economics

Schumann 107

Anmar Pretorius and Derick Blaauw, Being a Zimbabwean day labourer in South Africa Abstract: Zimbabwe’s political instability and economic meltdown cause its citizens to leave the country in search of ways to earn a living for themselves, and to support their families that stay behind. Most professional and qualified Zimbaweans leave the country as legal emigrants and are officially counted. Unskilled individuals usually leave as unrecorded cross-border migrants. These, mostly undocumented, Zimbabweans compete with South Africans for job opportunities and housing in informal settlements. One specific manifestation of this migration pattern is the increasing number of Zimbabweans standing on street corners in South African cities, waiting for someone to offer them a job. The plight of Zimbabweans working in South Africa received attention both in the academic and popular press. Most of these articles focused on farm workers in the rural areas and street vendors. This is the first article to focus on the experiences of Zimbabwean day labourers in South Africa. This paper investigates the socio-economic circumstances faced by Zimbabweans working as day labourers in South Africa. It describes their demographic characteristics, employment history and income earned as day labourers, and their day-to-day living conditions. The 395 respondents for this study were interviewed during a countrywide survey of day labourers in 2007. The paper concludes that it is mainly young Zimbabweans, between the ages of 21 and 30, who resort to this activity. They are better qualified than the average day labourer in South Africa - amongst them were former teachers, electricians and even a medical doctor. Their income exceeds that of the average day labourer in South Africa. Most of them send money home on a regular basis. It is evident that Zimbabwean day labourers in South Africa are better off than their countrymen in other economic activities where they are exploited and paid less than local workers.

Patrizio Piraino, Marital Sorting and Intergenerational Mobility in Brazil and South Africa Abstract: This paper uses data from Brazil and South Africa to estimate the effect of family background on individuals’ earnings in a framework that highlights the role played by assortative mating. The empirical analysis is motivated by a simple model of intergenerational transmission of economic status that takes into account nonrandomenss in the process of spouse selection. The model shows that offspring’s earnings are affected by the human capital of both parents and parents-in-law. Using comparable data from the Pesquisa Nacional por Amostra de Domicilios (PNAD) for Brazil and the National Income Dynamics Study (NIDS) for South Africa, I estimate earnings equations that include the schooling of fathers and fathers-in law. The estimated coefficients are significantly different across the two countries, which results from differences in assortative mating, female labour market participation, and family nepotism.

Derick Blaauw and Anmar Pretorius, The determinants of migrant wages in South Africa: the case of Zimbabwean day labourers Abstract: Literature concludes that there has been an increasing inflow of migrants and refugees into South Africa during the last two decades. The origin of these migrants is mainly from South Africa’s long-established sources of migrant workers, including the SADC countries. Over the last decade, African immigrants have encountered brutal manifestations of resentment to their presence in South Africa. The reasons for this is multifaceted but one of the pertinent, yet unsubstantiated perceptions is that that immigrants from north of the country’s borders are taking South Africans’ jobs. It is often claimed that immigrant causal workers are willing to work for very low daily wages, leading to them getting temporary employment in the informal and formal economy at the expense of South African workers who have much higher reservation wages in the same informal labour market. This is the first article to focus on the wages of migrant day labourers in South Africa to empirically test these perceptions. This paper investigates the determinants of day labour wages for migrant day labourers from Zimbabwe and compares these wage levels with that of their South African counterparts in order evaluate this perception. The respondents for this study were interviewed during the first ever countrywide survey of day labourers in South Africa during 2007. Using the findings of the survey among 395 Zimbabwean day labourers, supplemented with cross sectional regression analysis, the paper concludes that in the day labour market these perceptions do not hold. Migrant day labourers from Zimbabwe are in many cases better qualified than the average day labourer in South Africa. Their income, in fact, exceeds that of the average day labourer in South Africa. This opens up further research areas and an improved understanding of the debate around migrant wages in South Africa

Gareth Roberts and Natasha Suchecki, A Comparison of the Self-Reported Employment Status and the Official Labour Market Classifications of Youth in South Africa. Abstract: This paper investigates whether individuals’ perceived employment status differs from their official employment classification in terms of the standards followed by the International Labour Organisation (ILO). According to Statistics South Africa’s Quarterly Labour Force Survey (QLFS) for the first quarter of 2010, South Africa’s official unemployment rate was 25, 2%. The official unemployment rate as reported by Stats SA (1998) require that that, in order for an individual to be classified as unemployed, he/she must fall within the economically active population who: Did not work during seven days prior to the interview; wanted to work and was available to start work within the week following the interview; and had taken active steps to look for work or to start some form of self-employment in the four weeks prior to the interview. One major limitation of the official definition of unemployment is the fact that the statistical agencies impose a classification onto the respondents based on their behaviour assuming that the behaviour is a fair reflection of the labour market status which the respondent believes to be in. This paper follows Kingdon and Knight (2006), Dinkelman and Pirouz (1997), and Jones and Riddell (1999), but adds to these studies in two ways: It consider not only the relevance of the distinction between searching and non-searching unemployed, but also the importance and application of the criteria for employment. Secondly, it investigates whether individuals’ perceptions of their involvement in the labour market are consistent with their classification according to the International Labour Organisation standards incorporated by Stats SA and reported as official labour market statistics. There has been very little published work on self-reported unemployment rates, and specifically, to our knowledge, none conducted in South Africa. Thus, this paper adds to the understanding of labour market dynamics and the implications these hold for policy.

Session I3
Monetary
economics

Schumann 101

Rangan Gupta and Anandamayee Majumdar, Reconsidering the Welfare Cost of Inflation Using Nonparametric Estimation of the Money Demand Cointegration Equation Abstract: In this paper, we first estimate a linear long-run money demand equation for the US economy based on quarterly data covering the period of 1980:Q1 to 2010:Q4, using standard cointegration approaches developed for linear models. We then restimate a non-parametric version of this long-run relationship using the projection pursuit regression, to show that the interest elasticity in the latter case is relatively higher compared to the linear model. More importantly, when welfare costs of inflation are evaluated using the linear and the non-linear long-run money demand functions, we obtain substantially higher, nearly eight times, the welfare cost under the non-parametric model. These results suggest that the Federal Reserve’s current policy, which generates low but still positive rates of inflation, might not be an adequate approximation in terms of the welfare cost of inflation. Perhaps, moving all the way to a Friedman-type deflationary rule for a zero nominal interest is a more desired policy given the size of welfare loss.

Thabo Mokoena, Inflation, inflation uncertainty and real output growth in South Africa Abstract: This paper focuses on the relationship between inflation and inflation uncertainty and inflation uncertainty and real output growth in South Africa. We find evidence that there is a significant negative effect of inflation uncertainty on the inflation rate. This evidence supports Holland’s “stabilisation hypothesis” in which a conservative monetary authority prefers an anti-inflation stance to reduce inflation and inflation uncertainty. Secondly, the results are consistent with Friedman’s hypothesis that higher inflation rate leads to more inflation uncertainty. Thirdly, we find that inflation uncertainty is detrimental to output growth. This is consistent with Friedman’s arguments related to the negative real effects of inflation uncertainty on output growth. Our analysis suggests that an anti-inflation stance by a central bank can successfully reduce inflation uncertainty and that a clear focus on long-run price stability helps to anchor medium-to-long-term inflation expectations, thus reducing inflation uncertainty.

Brian Kantor and Hakon Kavli, Inflation and Inflation Expectations in South Africa: The observed absence of second round effects Abstract: In this study we examine closely the relationship between inflation and inflation expected in South Africa. And its reverse the feed back effects from inflation expected to inflation itself, the so called second round effects of inflation expectations. This issue has become an important one as supply side shocks again threaten the outlook for inflation in South Africa and the financial markets have come to expect the SA Reserve Bank to raise short term interest rates in response. The quarterly surveys of inflation expected referred to here are conducted by the Bureau for Economic Research, University of Stellenbosch and published by the S.A. Reserve Bank in their Quarterly Bulletins since 2002. Additional we utilise measures of inflation compensation drawn from the bond market. We have used the data applying EViews software to test the proposition that inflation expectations or more precisely changes in inflation expected in SA have influenced inflation itself. We do so using cross correlations at different lags (correlograms) with inflation and inflation expectations of business, trade unions and financial institutions either leading or lagging. We run regression equations relating differences in inflation on lagged differences in inflation expected and vice versa. We conclude with a Granger causality test. The results strongly support the hypothesis that inflation influences inflation expected- especially over one year but not the reverse- there appears no statistically significant relationship between inflation expected and inflation. The results are obviously important for monetary policy. Interest rates should not be set with second round effects of inflation in mind.

Monique Reid, Inflation Expectations of the Inattentive General Public Abstract: The vast majority of academic research on central bank communication has analysed a central bank’s audience as a single group. Empirical analyses have focused almost exclusively on a central bank’s interaction with the financial markets, facilitated by the availability of high quality, high frequency asset price data. In practice, a central bank’s audience is heterogeneous and recognising this is advantageous for both modelling purposes and effective central bank communication. Many central banks use a range of communication tools to reach the various segments of their audiences, but little formal analysis has been conducted to guide policy design and communication strategies. A literature has emerged over the past decade, led by Mankiw and Reis (2001), who developed the Sticky Information Phillips Curve (SIPC) and Carroll (2002, 2003) who proposed micro foundations for the SIPC, which has the potential to address these weaknesses. Gathering and processing information is costly for the general public, so they make rational decisions that limit the quantity of time and resources they allocate to the task. As a result, aggregate inflation expectations of the inattentive general public as a whole can be described as ‘sticky’ in that the spread of information about inflation expectations through the economy is not instantaneous. This paper follows Carroll (2002, 2003) in adopting epidemiological models to provide insight into how the inattentive general public in South Africa forms its inflation expectations. This enables the estimation of the speed at which this South African general public updates their inflation expectations (information stickiness). Agent based models, which explain the complex aggregate inflation expectations of the general public from agent level upwards, are then used to verify these estimates of information stickiness and explore the microfoundations from the disaggregated level.

Session I4
Poverty and the
middle class

Schumann 204

Justin Visagie and Dorrit Posel, A reconsideration of what and who is middle class in South Africa Abstract: We compare two broad approaches to defining the middle class in South Africa: a middle class identified by the middle share of the national income distribution; and a middle class identified by an absolute level of affluence and lifestyle. Using data collected in the 2008 National Income Dynamics Study, we show that both the size and the composition of the middle class differ significantly across these two definitions, a finding which reflects high levels of poverty and inequality in the country. The study considers also the robustness of our findings to the inclusion of implied rent and to the use of expenditure rather than income to identify class status.

Ronelle Burger and Asmus Zoch, Examining the changing structure and characteristics of the middle class in South Africa Abstract: The middle class plays a pivotal role in South Africa not only from a pure economic perspective, but also from a social and political point of view. Almost two decades after the first democratic and fully inclusive elections in 1993, the society continues to be characterised by a lack of cohesion. This polarization and fragmentation also have implications for the effectiveness and the stability of the political process and democratic institutions. The growing black share of the middle class suggests that race may be becoming disassociated with class. There is some controversy surrounding the magnitude of this shift, but what appears to be clear is that the middle class is slowly becoming more integrated and representative and this is a promising sign, with potential positive political, social and economic repercussions. (see Schlemmer, 2005 or Southall, 2004) Against this background, our paper critically examines the contrasting conceptualization and empirical implementation of the middle class in the various streams of literature. We survey and compare a number of approaches, including a polarization method developed by Esteban, Gradín and Ray (1999) using the concepts of identification and alienation to endogenously determine the threshold incomes defining classes. We explore the features of the emerging black middle class vis-a-vis the more established members of the middle class. We also track changes in the size and the characteristics of these groups over the period. This analysis is supplemented by work on World Value Surveys for South Africa in 1990, 1995, 2001 and 2006 considering patterns in self-identification as middle-class members. The surveys show that there is a growing tendency of black individuals to identify themselves as middle class over this period. Furthermore, the survey allows us to assess the empirical basis of the widely held belief that certain values and attitudes are robustly and significantly associated with the middle class.

Lori Curtis, Child poverty in Canada and the UK Abstract: In Canada, an all-party motion in the House of Commons moved to eliminate child poverty by the year 2000. Policies were implemented to move towards the goal but little coordinated effort was made until the introduction of the National Child Benefit (NCB) in 1998. The UK government made a similar declaration in 1999, indicating that child poverty would be halved by 2010 and eliminated by 2020. Although neither country has hit its target, Canada’s child poverty rate increased by 2.25% between mid 1990 and mid 2000 while the UK’s decreased by 3.55%. This study will examine trends in child poverty rates for Canada and the UK from the late 1990s onward studying child income and expenditure poverty trends over the decade when the two governments made explicit claims to focus on and reduce/eliminate child poverty. The study will use multiple cross-sections of Expenditure Surveys from the two countries. Decompositional analyses will provide added information on changes in poverty status in the two countries. In particular, the population of families with children will be partitioned into groups (e.g., family type, work status, and age of parents) and changes in within-group poverty, and changes in the composition of the group (that is, the share in each group) will be examined to assess the contribution to the overall development of family/child poverty between the late 1990s and the late 2000s in the two countries. This study will give policy makers necessary information on the evolution of family/child poverty in Canada and the UK in a period when both governments claimed a focus on child poverty reduction. The examination of differences in implemented policies across the two countries and resultant changes in poverty trends may offer governments alternatives to current policy regimes for fighting child poverty.

Michael Rogan, Poverty and headship in post-apartheid South Africa, 1997-2006 Abstract: In this paper, I investigate the characteristics and poverty status of female- and male-headed households in South Africa using nationally representative household survey data collected from 1997 to 2006. Over the decade, an increasing proportion of all households were headed by women. The study examines the characteristics of female and male heads, whether these have changed over time and the key features which distinguish male- and female-headed households. I then compare poverty risks both between female- and male-headed households, and among these broad household types. The findings demonstrate that there are number of significant differences in the household composition of female-headed households during the period under review. For example, relative to male-headed households, female-headed households support more children, and have fewer working age adults, and therefore have a higher dependency ratio. A greater proportion (compared with male household heads) of female household heads do not live with a spouse or partner (i.e. have never married, are divorced or separated, or are widowed). Despite the absence of a resident male partner in most female-headed households, female household heads live in larger households and increasingly, relative to male heads, support children without the presence of a spouse or partner in the household. Female-headed households are also more likely to face a number of labour market disadvantages compared with male-headed households. On average, female-headed households experienced an overall increase in the average number of employed members, but a decline in the number of resident employed males in the household between 1997 and 2006. Moreover, in female-headed households, employed members, on average, supported an increasing number of non-working (unemployed and inactive) household members over the period. In addition, the percentage of female-headed households supported solely by the work efforts of employed females (and social grants) increased considerably over the period.

Session I5
Microeconomics
Schumann 205

Steven Koch and Neil Rankin, The Efficiency of African Manufacturing Enterprises: A Consideration of Semiparametric Stochastic Frontier Analysis Abstract: The plight of Africa is often recounted in both the popular press and the academic literature. Although many countries in Africa, both resource-rich and not, managed to come top of 2010 economic growth tables, the fact remains that most of these countries are growing from a rather low base; Africa, as a whole, has generally grown more slowly than any other region, since the 1960s. There are likely to be many reasons for that poor performance, and discussing those reasons is beyond the scope of this paper; however, one component of that poor performance has not received much attention, primarily due to the lack of data. The component that we consider here is the productivity of African manufacturing firms. One manifestation of poor productivity and high levels of productive inefficiency could be low labour absorption rates and, subsequently, low levels of economic growth. Therefore, we analyse the productivity and inefficiency of African manufacturing firms using data from a series of enterprise surveys conducted in a number of African countries between 2006 and 2008. Our analysis is based upon both parametric and semiparametric stochastic frontier analysis. The primary purpose of the analysis is to determine inefficiency and determinants of inefficiency in these firms. We find that efficiency is rather high in our sample of firms, ranging from 85% to 90%. We also find that firms exporting directly to foreign countries perform significantly better than the average, approximately 15% to 25% better, depending upon the empirical specification. Our results suggest that further opening of trade barriers could benefit the productive capacity of African firms.

Rachel Jafta and Ramazan Uctu, Spinning off or licensing? The case of academic technology transfer at two South African Universities Abstract: Universities may seek to transfer technology from the public to the private sector, and therefore capture the benefits of commercialisation, through a number of different mechanisms. This paper focuses on the option of IP licensing of technologies from universities. Based on a case study of eight licensed technologies from the Universities of Cape Town and Stellenbosch, we examine the motivations behind licensing the technologies rather than creating a company, and the obstacles the researchers faced. Some of the results are that:  technologies are:mainly from engineering and health sciences; mainly in biotechnology industry,  technologies were created with joint effort, i.e. researchers collaborated  technologies were patented worldwide and locally,  the researchers licensed the technology in order to turn their knowledge into practical applications, to fully utilize existing knowledge, and to make profit,  the biggest difficulties faced by researchers are protection of the technology (e.g. patent), further investment is required in the technology and associated infrastructure in order to reach the market and ownership and/or rights to develop technology.  the most important factors in the decision NOT to create a spin-off company are funding, commercialisation and distribution.

Sanele Aubrey Gumede and Mihalis Chasomeris, Port Governance in South Africa Abstract: Ports in South Africa have passed through various governance structures. Historically, port users have expressed a justified discontent with port governance, policy and pricing that promoted: import substitution; intra- and inter- port cross subsidization; inter-modal cross subsidization; insufficient investment in port infrastructure and superstructures; bureaucracy; skewed prices; and created suspicion in maritime and transport impartiality of the port entity. This paper examines the literature and gathers industry perspectives on the historical evolution of South African port governance structures.The findings show that South African port governance has evolved through various forms of governance from the Pre-Union autonomous structures (1833 – 1908) to the South African Railways and Harbours (1909 – 1981) to the South African Transport Services (1982 – 1989); and to Transnet from 1989 till the present. The paper discusses critically the role of the Ports Regulator of South Africa as well as identifies a range of player-referee governance concerns including how private terminals compete with public terminals for market share.

Frikkie Booysen, Damien de Walque, Mead Over and Hashimoto Hashimoto, Family Functioning FEATS and Treatment Success: Behavioural Economics from the field of ART Abstract: Background: Support within family networks is a well-recognized strength in assisting individuals and families cope with the challenges of ill health, particularly in the case of chronic, life-long health challenges. In the era of anti-retroviral treatment (ART), the scale-up of which continues at pace, including in South Africa, which has the world’s largest treatment programme, HIV/AIDS has been transformed into a chronic condition for people living with HIV/AIDS (PLWHA). A greater understanding of families’ role in effective and sustainable ARV treatment programmes is also particularly important in the context of UNAIDS’s new Treatment 2.0 response to the epidemic, especially its fifth pillar, community mobilization. The paper explores the potential importance of dynamics in family functioning as a potential facilitator and benefit of treatment success in a public sector ARV treatment programme in a conceptual, theoretical and empirical manner. Method: Data on the Family Attachment and Changeability Index (FACI8) were collected from adult ART clients and other adult household members enrolled in the Effective Aids Treatment and Support in the Free State (FEATS) study, a three-year longitudinal cohort study of public sector ART clients conducted in Free State province. Guided by a theory of change and logic model informed by the existing theoretical and empirical literature, statistical and econometric analyses are employed to determine to what extent inter-temporal shifts in perceptions of actual-ideal family functioning and changes in intra-household inequality in perceived family functioning, through a process of adaption, directly or indirectly impact select measures of treatment success in different family types. Based on the results, recommendations are put forward regarding the design and rigorous evaluation of preventive, family-focused social work and social security interventions as part of the comprehensive, integrated global response to HIV/AIDS.

Session I6
Finance
Schumann 208

Bernhard Eckwert, Cheap Money and Risk Taking: Opacity versus Underlying Risk Abstract: In a Bayesian setting, investments can be risky either because they are opaque---i.e., their payoff-relevant signals are noisy---or because they are fundamentally risky---i.e., the variance of the prior is high. While both types of risk contribute symmetrically to the overall riskiness of an investment project, we show that changes in interest rates affect risk taking in these two types of risk very differently: When interest rates are high, investors choose transparent projects that are fundamentally risky; when interest rates are low, they choose opaque projects that are fundamentally safe. This analysis may help explain the popularity of senior tranches of CDOs in the low interest rate environment of the pre-crisis years, as these instruments were characterized by an unusual combination of high opacity and, supposedly, low fundamental risk.

Kevin Kotze, Cointegrated Pairs Trading Arbitrage Opportunities in South African Financial Markets Abstract: Engle and Granger's (1987) cointegrating framework provides a useful method of analyzing the dynamics of nonstationary data in both the short and long-run. However, despite its popularity in various areas of research, the application of cointegration to financial data has been limited. This paper provides an example of the application of cointegration in a pairs trading strategy to identify mean reverting spreads. The model has a state space form and time-varying parameters that are estimated with a Bayesian online algorithm, as in Montana and Triantafyllopoulos (2009). After modelling potential market inefficiencies as an Ornstein-Uhlenbeck process, an optimal trading strategy is then derived to maximize expected return subject to the cost of trading. An exact analytical solution for the optimization problem is then computed to minimize computational time, as in Bertram (2010), thereby ensuring that trades are executed expeditiously. This strategy is applied to securities on the Johannesburg Stock Exchange and the results suggest that it is possible to derive large arbitrage profits, which questions the efficiency of the market.

Andre Heymans and Ricardo da Câmara, Measuring spill-over effects of foreign markets on the JSE before, during and after international financial crises Abstract: There is a large body of research that proves that international stock markets co-move over time. This co-movement manifests in various instruments, ranging from stocks and bonds, to soft commodities. However, this co-movement is increased over crisis periods and can be visualised as returns and volatility spill-over effects. During the most recent financial crisis it was once again highlighted that no local market is immune to spill-over effects from other international markets. In this paper we measure both the returns and volatility spill-over effects of the Hang Seng, London and New York stock markets to the JSE by employing an aggregate-shock model. The findings confirm that spill-over effects are more prominent over financial crises and less so before and after crises.

Session I7
Happiness and
well being

Schumann 207B

Ferdi Botha, The gold of one’s ring is not far more precious than the gold of one’s heart: Reported happiness among married and cohabitating South African adults Abstract: This paper tests for differences in reported happiness between married and cohabiting persons, i.e. the cohabitation gap, and in particular whether selection factors can explain the cohabitation gap. The paper also explores whether age at marriage and at start of cohabitation as well as the duration of relationship type matters for subjective well-being. Based on statistical and regression analysis of the 2008 National Income Dynamics Survey, married and cohabiting persons exhibit some differences in their respective determinants of happiness. While age at relationship commencement has no relationship with well-being, there is evidence to suggest that married people become happier at a later stage of their relationship, while cohabitants are happier initially. A significant cohabitation gap exists (0.251), but after controlling for various selection factors, the cohabitation gap virtually disappears (0.042) and becomes insignificant, which suggests that marriage and cohabitation are very similar in South Africa. Relative income, education and health explain the largest part of the cohabitation gap. Against the global backdrop of an increasing trend towards cohabitation and declining marriage rates, the overall results of this paper suggest that, since a cohabitation gap no longer exists after controlling for selection factors, South Africans may as well not go the “official route” of entering into marriage, as cohabitation provides similar benefits in terms of its contribution to individual well-being.

Amina Ebrahim, Ferdinand Botha and Jen Snowball, The determinants of happiness among race groups is South Africa Abstract: Economic indicators, like GDP per capita, are commonly used as indicators of welfare. However, they have a very limited and narrow scope, excluding many potentially important welfare determinants, such as health, relative income and religion – not surprising since they were not originally designed to fill this role. There is thus growing acceptance, and use of, subjective measures of wellbeing, (called ‘happiness’ measures) both worldwide and in South Africa. Happiness economics does not propose replacing income based measures of wellbeing, but rather attempts to compliment them with broader measures, which can be important in making policy decisions that optimise societal welfare. This paper tests for differences in subjective wellbeing between race groups in South Africa, and investigates the determinants of self-rated life satisfaction (happiness) for each group. Using the 2008 National Income Dynamics Study (NIDS) data, descriptive methods (ANOVA) and an ordered probit model are applied. Results indicate that reported happiness differs substantially among race groups, with Black people being the least happy group despite changes since the advent of democracy in 1994. Higher levels of educational attainment increase satisfaction for the whole sample, and women are generally less happy than men (particularly Black women). As found in many other studies, unemployed people have lower levels of life satisfaction than the employed, even when controlling for income and relative income. The determinants of happiness are also different for each race group: While White people attached greater importance to physical health; employment status and absolute income matter greatly for Black people. For Coloured people and Black people, positional status (as measured by relative income) is an important determinant of happiness, with religious involvement significantly contributing to the happiness of Indian people.

Talita Greyling, Measuring and understanding the well-being of the population of the Gauteng Region of South Africa. Abstract: The conventional approach of economists to measure the development level of a country is to use income measures such as gross domestic product per capita. This has recently been challenged by policy makers as the objective of most countries is to maximize well-being of a population rather than wealth creation. This opinion was emphasized by Stiglitz and Sen in the Report of Economic Performance and Social Progress (2009). To measure well-being a multi-dimensional instrument including income and other socio-economic variables. The United Nation’s Human Development Index is the most used multi-dimensional measure of development, though it has many short comings including its objective nature and its limited definition of quality of life. A different approach to well-being, that addresses some of these short comings of the HDI, is to consider individuals’ well-being according to their own perception of the quality of their lives. This method will be used in this research to find a more appropriate measure for well-being. This paper estimates the factors which influences the subjective well-being of the Gauteng population and which should be included in a multi-dimensional measure of quality of life. For the purposes of this research a data set collected in 2009 by the Gauteng City Region Conservatory (GCRO) on quality of life is used. As well-being is an ordinal variable the appropriate means to estimate well-being is an ordered probit or logit regression, though it has been shown that similar results can be obtained by making use of OLS estimation In this research OLS and ordered probit regressions are used. This research establishes the relative importance of the various factors of well-being which can be used to indicate policy priorities to the Gauteng Local Government.

Marisa Coetzee, Subjective Well-Being and Poverty in South Africa pre-and post-1994 Abstract: The paper evaluates the changing patterns of subjective well-being (SWB), as a measure of poverty in South Africa. This is done by comparing data from the 1993 SALDRU survey (conducted a year before the first democratic election) to data from the 2008 National Income Dynamics Study. Following the approach by Kingdon and Knight (2007), SWB is used as a measure of poverty which incorporates both Sen’s capabilities poverty as well as the more traditional income poverty. The determinants of SWB are therefore seen as the sub-components of a subjective poverty measure. Ordered probit regressions are used to estimate the relative importance of each of the covariates in determining SWB. These estimates are then used as weights to construct a SWB poverty index in order to estimate the number of people in poverty in South Africa pre- and post- 1994. This SWB approach to poverty measurement has important policy implications as it provides a clear indication of the areas in which the poor are most vulnerable and public policy interventions are most needed. In order to obtain further clarity on the comparability of the SWB poverty measure, the paper also compares the results from this measure to more traditional (income) poverty measures and constructs a poverty profile of the SWB poor and the income poor. Last, in an attempt to explain the changes in subjective poverty from 1994, the paper investigates the changes in the determinants of SWB. The findings suggest that perceived relative income is an important determinant of SWB, and not race-specific relative income, as was found prior to 1994. This leads to the conclusion that, post-1994 it is inter-racial comparisons and not intra-racial comparisons which matter in the determination of SWB poverty.

Wednesday09:40 - 10:10
V V H Neelsie
Tea
Wednesday10:10 - 11:10Parallel Sessions J
Session J1
Labour
economics

Schumann 104

Claire Vermaak, Low-wage mobility in the South African labour market Abstract: Access to employment is a key determinant of well-being for individuals and households, therefore it is crucial to understand the dynamics of labour markets. This paper uses the six waves of South Africa’s Labour Force Survey panel to assess low-wage mobility between September 2001 and March 2004, as well as to track individuals’ movements into and out of employment. The paper produces three main findings on low-wage mobility. First, in addition to being poorly paid, employment for the working poor is also more precarious than for higher-earning workers. Therefore, it is important to examine transitions between employment states, in addition to mobility amongst wage categories. Second, in general, there is evidence of upward earnings mobility amongst the working poor: the probability of a worker moving up the distribution by one earnings category is roughly double the probability of moving down by one category. In addition, increasing upward mobility is observed following the implementation of minimum wages for vulnerable types of workers. Finally, however, not all of the working poor are upwardly mobile. There is evidence of working poverty traps, especially for females and those working in the informal sector, but better-educated workers and those in wage employment are upwardly mobile.

Koen Smet, Trade induced unemployment - The case of post-apartheid South Africa Abstract: This paper analyses the link between trade liberalisation and increasing unemployment in post-apartheid South Africa. Since the beginning of the 1990s the South African economy became more exposed to the global economy. From 1993 until 2006 both export and import shares increased steadily over time and South Africa (re)integrated in the world economy. Simultaneously, the newly elected multi-racial government faced a sharp increase of unemployment rates. Within the time span of five years the official rate of unemployment doubled. Although this is not the first research with regard to this topic, it is one of the few that uses a consistent trade framework. By means of a binding minimum wage the impact of trade liberalisation on unemployment can be analysed theoretically in an Heckscher-Ohlin framework. These theoretical insights are used to specify an econometric estimation function. Unfortunately, it is not possible to estimate the direct impact due to data limitations. Therefore, the econometric model tests the theoretical hypothesis in an indirect way and focusses on the impact of trade liberalisation on the factor input vectors for different industries and the effect of unemployment on this change. The econometric results support the findings of the theoretical model, which implies that trade liberalisation did increase unemployment in South Africa. Whereas further liberalisation would deepen the unemployment crisis in South Africa, labour market and social reforms could overcome the negative effect of trade liberalisation.

Antonie Pool, Poverty dynamics and post-apartheid migration of core and dynasty households in KwaZulu-Natal, South Africa Abstract: The high unemployment rate in South Africa is regarded as one of the most important economic challenges facing the country. In addition, huge development disparities between urban and rural areas remain a striking feature of the South African landscape. These economic considerations are important explanations for internal migration from rural to urban areas. In general, internal migration involves the movement of a person or household across defined boundaries for a specified period of time. However, migration is extremely complex and the literature agrees that migration cannot be explained by a single theory. The “general model of migration decision-making” emphasises the importance of family- and migration networks as well as family migration norms as important influences on a household’s decision to migrate. The “New Economics of Migration” theory in turn recognises migration as a household rather than an individual decision, which forms part of a risk management strategy aimed at income diversification. Thus, internal migration, both of core and dynasty households, may represent an important strategy for dealing with the remnants of post-apartheid poverty, with poverty dynamics in core households representing an important determinant of its own and its off-spring’s migration behaviour. The aim of this paper is to investigate the impact of poverty dynamics in core households on the migration patterns of core- and dynasty households over the 1993-2004 period. Data from the KwaZulu-Natal Income Dynamics Study (KIDS), which surveyed a panel of African households from KwaZulu-Natal in 1993, 1998 and 2004, is used to investigate these factors and relationships. To reach the stated research aim, the data is analysed using descriptive techniques, as well as probit- and linear regression models.

Session J2
Labour
economics

Schumann 107

Darma Mahadea and Richard Simson, Challenges of Employment Creation in South Africa Abstract: South Africa registered positive economic growth rates, as high as 5 per cent in certain years after the demise of apartheid, but it has been unable to provide adequate employment to its annual number of job seekers. Unemployment in South Africa is a serious problem. The Minister of Finance stated in his 2011 budget speech, “We cannot view the fact that 42 per cent of young people between the ages of 18 and 29 are unemployed as merely a statistic.” Government has responded with various strategies to deal with growth and employment but unemployment remains high. Job creation is a serious challenge. With improved economic conditions and infrastructure investment, there may be optimism regarding job creation. Encouragingly, the 2011 budget emphasised job creation, through the introduction of a R9billion Job Fund, youth employment subsidy, tax relief for labour-absorbing investment and the New Growth Path. Hopefully, these measures would assist in generating employment, reducing inequalities and poverty. But these strategies are state-driven. The growth of the public sector, against a background of high levels of corruption and crime, a small number of tax payers (6million) relative to the number of state grant recipients (15million), and a public sector wage bill that has doubled in the last 5 years and uncertainties surrounding growth prospects amid threats of nationalization, pose a serious threat to employment. There are concerns about the ability of the state to deliver on their employment creation aims. This paper examines the problem of low labour absorption capacity and high unemployment, against a background of economic growth in post-1994 South Africa. The study uses regression analyses to highlight the probable links between changes in employment growth and changes in employment. Initial results indicate that the growth elasticity of employment in post-apartheid South Africa is rather low.

Fiona Tregenna, The relationship between unemployment and earnings inequality in South Africa Abstract: Unemployment and earnings inequality have moved together remarkably closely in South Africa in recent years. This paper explores the relationship between unemployment and earnings inequality in South Africa, investigating the extent to which changes in unemployment can account for changes in earnings inequality. The primary methodology used is static and dynamic decompositions of inequality by employment status and also by employment type. The analysis uses microdata from various rounds of the Labour Force Survey. The results point to the centrality of unemployment in accounting for the both level and trend of earnings inequality. The distribution of employment in the formal and informal sectors is found to be of lesser importance in explaining earnings inequality, as is wage dispersion within each of these categories. The findings suggest that reducing unemployment in South Africa is central to reducing the extremely high levels of inequality. A version of this paper is forthcoming in the journal International Review of Applied Economics.

Gareth Roberts, Youth and unemployment: The role of inflated expectations Abstract: This paper investigates the extent to which young people unwittingly overestimate their value in the labour market, and are consequently impaired in their efforts to find employment. Beaulier and Caplan (2007) draw attention to a strand of behavioural literature that has provided increasingly robust evidence questioning one of the fundamental assumptions in the neoclassical models used to explain the behaviour of economic agents – that of the rational actor. One set of experiments, by Kruger and Dunning (1999), show how actors who are not able to recognize their own incompetence in a particular domain may have inflated self-assessments within that domain because they are unable to evaluate competence in this domain. The underlying premise of this investigation is the conjecture that young people are on average less skilled in this sense than adults are, and as Kruger and Dunning (1999: 1) point out, improving the skills of these young people may help them to realise “the limitations of their abilities”. The investigation uses a dataset that includes a series of questions posed to more than 1000 young people (in Gauteng and Limpopo between the ages of 22 and 26) regarding their assessment of the probability of finding employment. Preliminary evidence suggests that a significant proportion of these young people who initially overestimate their probability of finding employment do not update this estimation when provided with information about their actual probabilities. However, the probability of updating increases with age. If this relationship holds, it may provide evidence and an opportunity for policy-makers who promote interventions that improve the ‘skill’ attached to how young people perceive their value as they enter the labour market domain. This may improve both the efficiency and quality of matches between firms and these young workers in South Africa.

Session J3
Phillips curve
Schumann 101

Monique Brigitte Reid, A sticky information Phillips curve for South Africa Abstract: Mankiw and Reis identify 3 properties of the standard New Keynesian model that are at odds with mainstream views about the effects of monetary policy and propose the Sticky Information Phillips Curve as a way to address these. In this paper, a Sticky Information Phillips Curve for South Africa (based on the work by Mankiw and Reis (2001)) is presented as an alternative to the standard New Keynesian Phillips Curve. Instead of relying on the sticky adjustment of prices to create rigidity in the model, the Sticky Information Phillips Curve assumes that sticky information is the source of the rigidity. Information about inflation is assumed to spread through the economy in a gradual manner, the microfoundations of which are developed in a companion paper (Reid, 2011).

Cobus Vermeulen, A VAR analysis of inflation and employment in South Africa Abstract: It was recently contended that overly strict application of inflation targeting stifles employment creation in South Africa. The South African Reserve Bank was publicly criticised and there were calls for the inflation targeting monetary policy framework to be removed in favour of an “employment targeting” framework. It is argued that there is a trade-off between inflation and unemployment. Specifically, employment creation can be boosted through expansionary monetary policy, but at the cost of higher inflation. It is said that by tolerating a higher rate of inflation a lower level of unemployment (or a higher rate of employment creation) could be had. This paper investigates the direct relationship between inflation and employment in South Africa. It is an extension of existing Philips Curve-type models and aims to determine whether there is, in fact, a causal relationship between inflation and employment and if employment creation can be boosted through expansionary monetary policy (at the cost of higher inflation). The relationship is analysed using a vector autoregression (VAR) model. Due to issues of non-stationarity in the data a VAR is estimated in first differences, highlighting the dynamics between changes in the inflation rate and changes in the number of employed. Because employment and inflation are cointegrated, the analysis is further extended to a vector error-correction model (VECM). Finally, the effect of higher inflation on employment is tested using impulse response functions.

Temitope Leshoro, Empirical estimates of the Phillips curve for Kenya Abstract: There has been persistence in inflation rates in many African countries over the past two decades, and Kenya is one of the major countries that had its share. Kenya has its worst economic performance during 1991 to 1993, where inflation reached a record high of 100%. Therefore, this study estimates the causes of inflation in Kenya using quarterly data over the period spanning 1980Q1 to 2010Q4. Adopting the New-Keynesian Phillips Curve (NKPC), the variables considered are, lagged inflation, price expectations, money supply, discount rate (as a proxy for opportunity cost of holding money), exchange rate and real output. The purpose of this study is thus to find whether these factors have effect on inflation, and if so, are they short-run or long-run effects? Error correction model (ECM) was used to achieve these objectives. In the 1960s, inflation was not a policy problem although the exchange rate was fixed; inflation rate was low at an average rate of 3%. The inflation rate began to rise in the 1970s with the first oil price shocks causing balance of payments problems. This further led to the devaluations and changes in the exchange rate peg. In the mid-1970s, the expansionary fiscal and monetary policies worsened the situation and economic crisis resulted. Various policy measures which include real exchange rate rule and interest rate adjustment were put in place helping to reduce inflation. Furthermore, in the 1990s, excess supply of money in circulation with increased spending caused inflation to increase and further led to implementation of real exchange rate policies. Meanwhile, due to persistently high fiscal deficit in 1992, there was an increase in money printing in order to finance the deficit and the exchange rate depreciated. In the period 1994 – 1996, price stability gradually improved and inflation declined from its high levels of 1993.

Session J4
Public policy
Schumann 204

Devon Windvogel, Transformation: Selective history to legitamise policy in Post-Apartheid South Africa Abstract: Attempts to transform South Africa since 1994 has been characterised by constant efforts to legitimise public policy by employing particular aspects of the country’s history. Segregation policies under Apartheid are easily blamed for gross inequalities. Nearly all social, economic and political ills are similarly traced back to Apartheid and colonialism. Policies purportedly aimed at integration and equality is easily accepted, often without much debate, because they appear to be noble attempts to rectify the injustices of the past. This paper argues that this notion of transformation has provided authorities with a powerful teleological framework in which Apartheid fulfils the role of an axiom and equality that of a telos. Arguments outside of this framework are easily countered as being heretic. The paper examines the following: • The nature of the framework • Weaknesses with the historical foundations of the framework • Impact of these weaknesses on policy formulation • The framework’s impact on institutions • The framework and reality

Rashaad Amra, Do Social Norms Matter for Economic Policy? : An Application to South Africa Abstract: South Africa has over the last 5 years since the launch of ASGISA in 2007 renewed and augmented its commitment to a Developmental State. ASGISA, the National Industrial Policy Framework and more recently the ambitious New Growth Path are all predicated on greater cooperative and strategic interaction between the 3 spheres of Capital, Labour and the State. This paper investigates the relationship between social norms and Developmentalist economic policy. It seeks to determine whether Developmentalist economic policy, such as implemented by the Asian Miracle economies and the Corporatist approach of Scandinavia, is more efficacious in countries that exhibit higher degrees of economic trust and social capital. The findings of this investigation are then considered within the context of South Africa with implications for its current and future economic policy.

Ramos Mabugu, Véronique Robichaud, Margaret Chitiga and Héléne Maisonnave, Fiscal Imbalances and Intertemporal CGE Modelling Abstract: Economic growth in South Africa has not translated into sufficient job creation. This has prompted government to come up with the New Growth Path. Intensified utilization of expansionary fiscal strategies envisaged raises critical policy questions such as composition of spending and how much does it matter whether expanded spending are financed by reductions in government expenditure, or by increases in government’s budget deficit or by increased taxation? This paper builds and uses an intertemporal CGE model to address these questions. The model not only takes into account intertemporal dynamics but also a richer production disaggregation. A key contribution is made to existing literature on the transmission mechanism of fiscal policy in African economies where to best of our knowledge, no published study has empirically analyzed macroeconomic effects of fiscal policy in the context of an open, middle-income sub-Saharan African economy like South Africa’s using an integrated intertemporal model with such disaggregated production structure. Results show that an expansive fiscal policy would have short run positive impact on GDP but would translate into a greater debt-to-GDP ratio. Financing increased spending through taxation, direct or indirect, would mitigate this impact but would also have negative short run impact on macroeconomic variables. Increased investment spending would improve long run GDP, under any financing scheme, and would decrease debt-to-GDP ratio as well as deficit-to-GDP ratio. This outcome is driven by the positive impact infrastructure has on total factor productivity. Although the positive impact of infrastructure on growth is well documented, less is known about the impact current expenditures on education and health on total factor productivity. Econometric work on how these spending affect economic growth would allow a better modelling of public spending and thus a better understanding of their impact on the economy.

Session J5
International
trade

Schumann 205

Carl Veller, The Terms of Trade and the Resource Curse Abstract: Resource-abundant countries tend to perform poorly in terms of economic growth, an observation for which numerous explanations have been offered. One of the least studied of these explanations is that the inherent volatility of resource prices, and possibly some characteristics of their level, might be problematic for growth. This paper seeks to characterise and explore one of the channels through which the terms of trade might affect economic growth, that of `savings under uncertainty'. The terms of trade are incorporated in a stochastic neoclassical growth model, the optimal savings rate for which can be expressed in closed form. Assuming a lognormal distributional form for the terms of trade allows us to isolate the effects of their level and volatility on savings and ultimately economic growth. From this, we derive the conditions under which the characteristics typical of the terms of trade of resource-abundant countries negatively affect growth, and thus contribute to the `resource curse'. Our results suggest that the effects on economic growth of volatility and level trends of the terms of trade depend crucially on the level of risk aversion. If risk aversion is sufficiently low, increased volatility and a secularly declining trend in the terms of trade both negatively affect growth, in line with the traditional terms-of-trade explanation of the resource curse. On the other hand, if risk aversion is sufficiently high, these factors have a positive effect on growth, a result at odds with conventional thought on the subject.

Nilanjan Banik and C. A. Yoonus, Trade as an Answer to Sustainable Economic Growth – The ECOWAS story Abstract: Trade is an important component of growth. Because of recent global economic crisis trade flow has been adversely affected. This is especially true for countries in Africa trading mostly with countries outside Africa. We consider the case of Economic Community of West African States (ECOWAS) which is one of the largest free trade areas in Africa. We try to see whether the ECOWAS member countries have favorable economic characteristics to undertake deeper economic integration, that is, moving towards an economic union status. Under favorable condition, policy makers in the ECOWAS region can be persuaded to implement deeper economic integration. An increase in trade (resulting from deeper economic integration) in the ECOWAS region can compensate for fall in trade because of global economic crisis. This is important as global economic crisis has adversely affected regional macro economic variables: trade balance, current account balance, fiscal balance, investment and domestic credit. Poor state of macroeconomic variables has a direct impact in reducing mean income of the region, and indirectly might affect income distribution. Increase in trade in the ECOWAS is expected to generate resources to increase aggregate demand, and to meet regional development expenditures.

Vanessa Tang, Trade Openness and Economic Growth: An Empirical Investigation of Mauritius Abstract: The relationship between trade openness and growth remains a highly debated topic in the growth and development literature. Whilst empirical evidence in general favours the notion that openness to trade is positively related to growth, there is gradually however, an increasing number of scholars that have contended this positive generalization. In the light of this, this paper uses two datasets of openness (measures of trade volumes and trade policy) to investigate whether for the period 1970-2009 there is a robust empirical association between openness to trade and growth in the case of Mauritius, a dynamic industrializing economy often hailed as a poster model of growth in the developing world. Our estimation results show that contrary to expectations, for both groups of trade openness measures there is a negative association between openness to trade and economic growth.

Session J6
Economics of
education

Schumann 208

Robert Garlick, The effect of school fees on enrollment in South Africa Abstract: There is a long-standing debate amongst economists and other social scientists over the effects of school fees on enrollment and participation in the education system. Fees have been criticized as creating a financial barrier to enrollment for learners from low-income households and potentially entrenching intergenerational inequality. However, other economists have argued that the elasticity of enrollment with respect to fees is relatively low and that small fees are an effective means of funding education without significant detriments. However, there is little high quality evidence on the causal effect of fees on enrollment. I add to this literature by studying a series of school fee reforms in South Africa over the past five years. All electoral wards were ranked on a multidimensional poverty index and in 2007, schools located in the poorest two quintiles of the distribution of wards were required to abolish fees. In 2010, the abolition of school fees was extended to the third quintile. The structure of the reforms allows me to identify the causal effect of school fees on enrollment using two strategies. First, a difference-in-differences estimator that compares year-on-year changes in enrollment at schools that do and do not abolish fees and second, a regression discontinuity estimator that compares enrollment at schools on either side of the poverty cutoff at which fees were abolished. I go on to develop a tractable theoretical model of enrollment decisions by credit-constrained households. I use this model to identify conditions under which the observed changes in enrollment identify the Walrasian (uncompensated) demand for education. The model illustrates conditions under which the school fee reform enhances social welfare by alleviating credit constraints that lead to sub-optimal enrollment decisions.

Duncan Lishman, Perceptions and Signals: Education Reform and its Impact on Labour Market Outcomes in the new South Africa Abstract: Education plays a key role in labour market outcomes. It increases worker productivity and serves as an important signal to employers of potential employee ability. This signalling function is important given that interaction in the labour market is typified by asymmetric information. This information problem is aggravated in South African by the unequal provision of, and access to, educational resources and labour market opportunities during apartheid. This paper posits that post-apartheid education reforms, which were ostensibly intended to rectify these imbalances, have had adverse effects on the prospects of individuals entering the labour force. Specifically, there has been a clear, negative impact on employer perceptions towards qualifications produced by the education system, especially for a school-leaving matriculation certificate. Using job market signalling theory and econometric analysis of cross-sectional data from Labour Force Surveys, this paper investigates the changes in these employer perceptions and their corresponding impact on labour market outcomes. At a disaggregated level, the data indicate that the signalling quality of education qualifications has changed in a distinct manner. Whilst a matriculation certificate has improved the employment prospects of qualification-holders, the returns for newly-qualified matriculants have fallen substantially relative to their predecessors. Conversely, newly-qualified individuals from tertiary institutions have seen sharp rises in their earnings and persistently higher probabilities of finding employment. These findings highlight the fractious nature of the South African labour market, and the severe impact that changes in education signals can have on employment outcomes. Furthermore, they reinforce previous literature on the potentially perverse incentives that exist for further educational attainment in South Africa.

Ivor Abramowitz, Neil Rankin, Volker Schöer and Corné van Walbeek, Risk Aversion and the Gender Differential in Academic Performance Abstract: This paper estimates the gender differential in academic performance when assessment is based on a multiple-choice format examination with a penalty for incorrect guesses. The paper uses a unique dataset, collected at the University of Witwatersrand, in Johannesburg, South Africa. Two measures of risk are included in the analysis in order to measure the effect of risk preferences on the gender differential in academic performance. The first is an individual-specific time-invariant measure of risk aversion and the second is a question-specific importance variable. This paper argues that pre-market selection is an important determinant of academic achievement. Women are, at an upper bound, 11 percent less likely to attempt a multiple choice question with such a format. Given that they do attempt it, they are 9 percent less likely than males to answer it correctly. There remains a performance differential for black students, independent of pre-market selection. The results suggest that, for females, learning experience as well as preferences for risk determine market participation and by implication, academic performance.

Session J7
Agricultural
economics and
the resource
curse

Schumann 207B

Nicolaas van der Wath, Tools for analysing the SA maize market Abstract: Market participants such as traders and farmers sometimes have to make decisions in the heat of the moment. They do not always have the time or skill to model what the market will do given certain conditions. They can benefit from a few useful rules of thumb. For this reason I developed some practical graphic tools and price elasticities in the analysis of South Africa’s maize market. Decision makers can use these tools to estimate the area planted to maize, export levels and substitution effects. In the end, a list of four basic rules of thumb was identified. To do this, historical data series on import parities and expected profit levels had to be constructed. They were used to describe the evolution of South Africa’s maize market in terms of XY-plots and to uncover the underlying correlations between prices and incentives. A look was taken at the trading arbitrage strategies and some causalities were uncovered. The conclusion is that the maize market reacts rationally to global as well as domestic conditions. The next step for further research is to identify and model the variation that is not currently explained by the presented elasticities.

Nthambeleni Ramavhona, Does access to basic municipal services affect tax compliance behaviour? Abstract: One of the greatest challenges faced by South African municipalities is dealing with service delivery backlogs while making sure that costs of rendering the services are recovered. There have been numerous service delivery protests in many municipalities in South Africa with most of these protests triggered by lack of delivery of municipal services. The question that comes to mind is, are these residents ready to pay for the services they are demanding be provided? This paper sought answers to this question. The research examines the causes / reasons for nonpayment of municipal service in the Thulamela Municipality. A questionnaire was design to collect the data. A sample of 201 residents (113 females and 88 males) was randomly selected from the four areas of the municipality. Results from the survey were analyzed using statistics such as Cross Tabulations and Chi-Squire to determine if nonpayment of municipal bills is dependent on factors such as access to municipal services such as water, sewage waste removal and street lighting. Major findings of the survey were: Contrary to the findings of many studies on services delivery and payment of municipal service such as Franzoni(1999)and Fjelstad( 2003) this study reveals that residents are willing to pay for basic municipal services if the services are rendered efficiently and reliably. Based on the survey findings the following recommendations were made: It was then concluded that in order to create a culture of payment of municipal services, the municipality should provide the services in line with community priorities. Most rural communities, specifically residing in the areas surveyed, rank water as their priority number one, followed by, waste removal, street lighting and road maintenance respectively.

Omoyeni Ajetomobi, Kalu Ukpai Ifegwu and Joshua Olusegun Ajetomobi, Hedonic analysis of consumers' preference in the choice of cowpea in Nigeria Abstract: The study examined consumers’ preference in the choice of cowpea in Osun state, Nigeria. Five cowpea species were purchased in six major food markets over a period of 6 months. In the market, price of grain and gender of seller were noted. In the laboratory, size of grain, skin colour, skin texture and damage levels were recorded. A hedonic pricing regression model was used to analyze data collected. Results indicate that colour was the most important determinant of cowpea market prices. Cowpeas with brown colour command a clear premium in all but one market. The consumers discount prices for insect damage in most markets. In general, this study signals the need for cowpea breeders to identify cost effective ways of breeding for brown coloured cowpea (Ife-brown species) which is the most preferred by consumers

Wednesday11:20 - 12:20
Schumann 104
Presidential Address
Wednesday12:20 - 13:00
Schumann 104
ESSA AGM
Wednesday13:00 - 14:00
V V H Neelsie
Lunch