AN ANALYSIS OF INVENTORY INVESTMENT IN SOUTH AFRICA

This paper describes the evolution of inventory investment in South Africa over the past two decades, and identifies the factors influencing inventory investment over this period. An econometric model of inventory investment in South Africa, based on the production smoothing approach, is constructed. The results of the model indicate that actual sales, production, unfilled orders, price levels, interest rates and expected sales have an influence on the evolution of inventory investment. These variables are directly or indirectly influenced by macroeconomic policy decisions and through their influence on inventory investment they also influence changes in gross domestic product. Therefore, prior information on the factors that influence inventory investment contributes to explaining changes in gross domestic product and may help to prepare more accurate short‐term forecasts of overall economic activity.     

THE ROLE OF COMMODITY PRICES IN MACROECONOMIC POLICY IN SOUTH AFRICA

This paper examines whether commodity prices can be used as signal for informing macroeconomic policy in South Africa using the new approach for testing Granger causality developed by Toda and Yamamoto (1995 ). Evidence of causality from average gold price to interest rate, money, exchange rate and the consumer price index was observed. Again, evidence of causality was observed from metals price index to interest rate, money and exchange rate. The results suggest there is merit in using South Africa's average gold price and the metals price index of the International Monetary Fund as informational variables in setting monetary policy.     

MACROECONOMIC UNCERTAINTY AND AGGREGATE PRIVATE INVESTMENT IN SOUTH AFRICA

This paper investigates the effects of time varying uncertainty on aggregate private fixed investment in South Africa. The GARCH generated measures of volatility of selected macroeconomic variables indicating five measures of uncertainty are used in the analysis. These are output growth uncertainty, uncertainty about changes in the real effective exchange rate, uncertainty about changes in the real interest rate, producer inflation uncertainty, and terms of trade uncertainty. The results of the estimation by an empirical ECM model of conventional investment determinants controlling for the effects of uncertainty indicated that, over all, time varying macroeconomic uncertainty significantly reduces private fixed investment.     

FOREIGN INVESTMENT AND THE ROLE OF JOINT VENTURES

Foreign investment in developing countries and in economies in transition may be discouraged by fluctuations in the value of local currencies, particularly when risk sharing markets, such as currency future markets are missing. International joint ventures can be regarded as an institution for risk sharing. We demonstrate that a properly designed joint venture between the foreign firm and a local partner makes foreign investment more likely. Furthermore, foreign investment may be increased by a joint venture.     

FOREIGN DIRECT INVESTMENT IN ZIMBABWE: THE ROLE OF INSTITUTIONAL AND MACROECONOMIC FACTORS

The purpose of our research is to examine the impact of property rights on foreign direct investment (FDI) in Zimbabwe for the period 1964‐2005. While the macroeconomic determinants of FDI have been analysed to a considerable extent in past empirical work, the role of institutional factors such as the protection of property rights and the efficiency of the legal system has been underexplored. Using a multivariate cointegration framework, we use a newly constructed de jure property rights index for Zimbabwe to determine the impact of property rights on FDI. The empirical evidence shows that property rights are consistently an important explanatory variable of FDI in Zimbabwe, even after controlling for periods when there are no significant new foreign capital inflows. Other significant explanatory variables of FDI in Zimbabwe are the real gross domestic product (GDP), capital intensity, the external debt to GDP ratio, political instability as well as the educational levels.     

GOVERNANCE INSTITUTIONS AND PRIVATE INVESTMENT: AN APPLICATION TO THE MIDDLE EAST AND NORTH AFRICA

This paper addresses the issue of the low level of private investment in the Middle East and North Africa (MENA) region, with special emphasis on the role of governance. Based on the existing published reports, we categorize what types of governance institutions are more detrimental to entrepreneurial investments. We then estimate a simultaneous model of private investment and governance quality where economic policies concurrently explain both variables. Our empirical results show that governance plays a significant role in private investment decisions. This result is particularly true in the case of “administrative quality” in the form of control of corruption, bureaucratic quality, investment‐friendly profile of administration, law and order, as well as for “political stability.” Evidence in favor of “public accountability” is also found. Our estimations also stress that structural reforms like financial development, trade openness, and human development affect private‐investment decisions directly, and/or through their positive effect on governance.     

MEASURING THE OPERATIONAL EFFICIENCY OF COMMERCIAL BANKS IN NAMIBIA

This paper examines the efficiency of commercial banks in Namibia using the standard econometric frontier approach. Although two aspects of efficiency (scale and scope) receive our attention, the emphasis is on the latter which pertains to whether a firm produces as efficiently as it possibly can, given its size. Our results indicate that substantial economies of scale exist in commercial banking in Namibia. This will tend to suggest that commercial banks in Namibia can increase their efficiency by increasing their current scale of operation. The results for scope economies show that the current level of input combination does not make for maximum efficiency as sufficient scope exists for a more efficient combination of inputs. We believe this will reduce operating costs in the industry and stimulate efficiency.     

FDI AND DOMESTIC INVESTMENT IN TAIWAN: AN ENDOGENOUS SWITCHING MODEL

The purpose of this paper is to examine the effect of the FDI decision on domestic investment in the case of Taiwanese manufacturing firms. In addition, we also consider the deferral effect of the FDI decision and the role of firm size. To this end, this paper takes advantage of an endogenous switching model from which consistent estimators are obtained after correcting for the self‐selection problem. The empirical results show that the effect of these manufacturing firms’ FDI decisions on domestic investment is significant within the firms. Furthermore, a crowding‐out effect of FDI on domestic investment is found when Taiwanese firms engage in defensive FDI. Finally, FDI is found to have a positive influence on the domestic investment of the larger firms, while the influence is negative in the case of the smaller firms.     

EXPLAINING THE MARKET POWER OF GHANAIAN BANKS1

A competitive banking system helps lower transaction costs and risks. It also helps make financial markets more efficient. In Ghana however, observers believe that the banking industry is not competitive and point to the huge spread between bank lending and borrowing rates as evidence. The Ghanaian banking industry is analysed for evidence of market power by computing the Lerner Index of banks using quarterly data from 2001 to 2006. The evidence is that Ghanaian banks possess market power. Factors that significantly explain the market power of Ghanaian banks are: bank size, efficiency of banks with respect to staff costs, the macroeconomic environment and time.     

THE EQUITY PREMIUM AND RISK-FREE RATE PUZZLES IN A TURBULENT ECONOMY: EVIDENCE FROM 105 YEARS OF DATA FROM SOUTH AFRICA

This paper presents a detailed empirical examination of the South African equity premium, and a quantitative theoretic exercise to test the canonical inter-temporal consumption-based asset-pricing model under power utility. Over the long run, the South African stock market produced average returns six to eight percentage points above bonds and cash, and at the 20-year horizon, an investor would not have experienced a single negative realised equity premium over the entire 105-year period we examine. Yet the maximum equity premium rationalised by the consumption-based model is 0.4%. The canonical macro-financial model closely matches the average risk-free rate, using realistic parameters for the coefficient of risk aversion and a positive rate of time preference.     

The effects of reconstruction finance corporation assistance on Michigan's banks' survival in the 1930s

We examine the effects of the Reconstruction Finance Corporation's (RFC) loan and preferred stock programs on bank failure rates in Michigan during the period 1932–1934, which includes the important Michigan banking crisis of early 1933 and its aftermath. Using a new database on Michigan banks, we employ probit and survival duration analysis to examine the effectiveness of the RFC's loan program (the policy tool employed before March 1933) and the RFC's preferred stock purchases (the policy tool employed after March 1933) on bank failure rates.     

LONG‐RUN DETERMINANTS OF SAVINGS RATES IN WAEMU COUNTRIES: AN EMPIRICAL ASSESSMENT FROM ARDL BOUNDS TESTING APPROACH

In this paper, we examine the long‐run determinants of savings rates for seven member countries of the West African Economic and Monetary Union over the period 1970–2006. We use the bounds testing approach to cointegration developed by Pesaran et al. This methodology has several advantages with respect to other cointegration tests. The long‐run determinants of savings rate vary across countries. Results reveal that the financial liberalization process undertaken at the end of 1989 and the existing monetary policy have not been effective to increase the domestic savings rates within the area.     

FURTHER EVIDENCE OF LONG MEMORY IN THE SOUTH AFRICAN STOCK MARKET

This paper expands and augments the results of the paper by Jefferis and Thupayagale ) and tests the efficiency of the South African stock market with Wavelet and Markov Switching Regime analyses of selected shares and the a ALSI 40 data. The Wavelet analysis indicated that most of the individual share prices and the share index time series are mean reverting over the long run and follow a long memory process, offering evidence against weak-form efficient market hypothesis (EMH). The Markov model modelled the financial and prevalent economic conditions accurately and established the presence of patterns in the historic time series, providing additional support against the weak-form EMH.     

THE INTRODUCTION OF COMPETITION POLICY IN AUSTRALIA: THE ROLE OF RON BANNERMAN

The 1965 legislation to curb restrictive trade practices has been widely regarded as weak. By contrast, the Trade Practices Act 1974 (Cth) has been considered as providing the platform for a more comprehensive competition policy. This paper argues that the 1965–67 and 1971 Acts were more effective than has been commonly recognised in raising awareness about the extent of restrictive trade practices, discrediting price agreements and laying the foundations for the 1974 Act. The role of Ron Bannerman, the sole Commissioner of Trade Practices, was critical to their success. This paper uses parliamentary debates, Bannerman's published works and an interview with him undertaken in early 2005.     

AN ANALYSIS OF ECONOMIC INFRASTRUCTURE INVESTMENT IN SOUTH AFRICA

This paper analyses long‐term trends in the development of South Africa's economic infrastructure and discusses their relationship with the country's long‐term economic growth. A database covering national accounts data, railways, roads, ports, air travel, phone lines and electricity was established for this purpose, and may facilitate further quantitative research. PSS (Pesaran, Shin and Smith, 1996, 2001) F‐tests are used to identify directions of association between economic infrastructure and economic growth. These indicate long‐run forcing relationships from public‐sector economic infrastructure investment and fixed capital stock to gross domestic product (GDP), from roads to GDP, and from GDP to a range of other types of infrastructure. There is also evidence of potential simultaneity between specific types of infrastructure and GDP. The evidence suggests three main findings. Firstly, the relationship between economic infrastructure and economic growth appears to run in both directions. Inadequate investment in infrastructure could create bottlenecks, and opportunities for promoting economic growth could be missed. Secondly, South Africa's stock of economic infrastructure has developed in phases. Policymakers should focus on choosing or encouraging the right type of infrastructure at the right time. Thirdly, the need for investment in economic infrastructure never goes away. The maintenance and expansion of infrastructure are important dimensions of supporting economic activity in a growing economy, provided that individual projects are chosen on the basis of appropriate cost‐benefit analyses.     

FINANCE AND GROWTH: NEW EVIDENCE ON THE ROLE OF INSURANCE

This paper provides new evidence that sheds light on the impact of insurance sector development on output growth, capital accumulation and productivity improvement, using data from 51 countries (developed and developing) during 1981‐2005. The dynamic panel data analysis results demonstrate that insurance sector development affects growth predominantly through productivity improvement in developed countries, while in developing countries it promotes capital accumulation.     

THE NATURE AND DEVELOPMENT OF THE GENERAL INSURANCE INDUSTRY IN AUSTRALIA TO 1973

The development of the insurance industry in Australia in the twentieth century was fundamentally shaped by a collusive code of conduct called the tariff. This arrangement, established to overcome problems of uncertainty, initially benefited both tariff and non-tariff firms by enhancing market stability. It also reduced competition. The collusive agreements gradually broke down, however, as new entrants and products entered the market in the 1950s. Self-regulation gradually gave way as the 'rules of the game' changed. The result was a period of instability before new competitive practices, and more direct and specific regulatory requirements emerged in the 1970s.     

THE ROLE OF COMMODITY TERMS OF TRADE IN THE DETERMINATION OF THE REAL EXCHANGE RATES OF THE MEDITERRANEAN COUNTRIES

The aim of this paper is to investigate whether there exists a long‐run relationship between the real exchange rate and the commodity terms of trade in the so‐called Mediterranean or MENA countries. These economies are good candidates for this type of formulation, as are commodity exporting countries. Using cointegration techniques, we find long‐run relationships linking the real exchange rate and a commodity‐based measure of the terms of trade. Therefore, commodity terms of trade are a potential explanation for the apparent nonstationarity of MENA countries’ real exchange rates previously found in the empirical literature.     

THE EFFICIENCY‐STABILITY TRADE‐OFF: THE CASE OF HIGH INTEREST RATE SPREADS IN VENEZUELA

This paper examines the determinants of the high intermediation spread observed in the Venezuelan banking sector during the 1990s (by far the largest in the Latin American region throughout the 1990s). We trace the evolution of the spread and its connection with other bank‐specific variables. A reduced‐form equation is estimated on the basis of a simple behavioral model for the banking firm previously developed by Shaffer and extended by Barajas, Steiner, and Salazar. Using different types of estimators for aggregate and pooled data of the financial system, we found that high spreads can be attributed to market power, high operating costs, and expected portfolio risk. The empirical results also suggest a trade‐off between assuring bank solvency and lowering profitability.     

EXPORT‐LED GROWTH IN CHILE: ASSESSING THE ROLE OF EXPORT COMPOSITION IN PRODUCTIVITY GROWTH

This study examines the export‐led growth hypothesis using annual time‐series data from Chile in a production function framework. It addresses the limitations of the existing literature and focuses on the impact of manufactured and primary exports on productivity growth. In order to investigate if and how manufactured and primary exports affect economic growth via increases in productivity, several single‐equation and system cointegration techniques are applied. The estimation results can be interpreted as evidence of productivity‐enhancing effects of manufactured exports and of productivity‐limiting effects of primary exports.