Financial development and economic growth in South Africa
- Authors: Mhango, Joseph
- Date: 2019
- Subjects: Finance -- South Africa , Economic development -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/41117 , vital:36358
- Description: Since the identification of financial development for economic growth by Schumpeter (1911), the importance of financial development has been emphasised. However, the nature of the relationship is unclear, whether financial development is demand-following, supply-leading, feedback relationship or no causal relationship with economic growth. The revolution of the relationship between finance and economic growth has left a void of the exact nature of the relationship and importance of financial development in literature and empirical evidence. In addition, the variation of the nexus between financial development and economic growth in developed and developing countries has left policy makers uncertain on the exact policy to employ. In awe of this, after the discovery of diamonds and gold in South Africa, policy makers have attempted to improve the access, depth and efficiency of the finance sector to spur economic growth. However, South Africa has been subject to apartheid, low economic growth, global financial crises, international sanctions, unemployment and other challenges to the finance sector. In light of this, this study aims to empirically investigate the relationship between financial development and economic growth in South Africa. The study used the recently developed financial institutions index and financial markets index by the International Monetary Fund to represent bank-based and market-based financial development. This study utilises annual data over the period 1980 to 2014. The study applied the Autoregressive Disturbed Lag (ARDL) bounds testing, Vector Error Correction Model (VECM) Granger – Causality, Impulse Response Function (IRF) and Variance Decomposition to uncover the relationship between financial development and economic growth in South Africa. The ARDL was selected over the Johansen Cointegration because the variables can be I (1) or I(0) before carrying out the bounds testing. It is more suitable to a small sample size. It uses a reduced form equation, and it provides unbiased estimates of the long-run model. Lastly, it can be transformed into an error correction model. The VECM Granger-Causality was chosen because it represents the short-run and long-run causalities. After selection of the optimal lag, the ARDL bounds testing shows that economic growth, bank-based financial development, market-based financial development, savings and investment have a long-run relationship in South Africa. However, after estimation of the coefficients, financial development has a positive relationship with economic growth, but insignificant and only savings and investment were significant in determining long-run economic growth. The VECM granger-causality results show that financial development (bank and market), savings and investment granger cause economic growth in the long-run. While, economic growth, market-based financial development, savings and investment granger cause bank-based financial development in the long-run. Therefore, a feedback relationship exists between bank-based financial development and economic growth in the long-run. In the short-run, it was clear that bank-based financial development positively causes economic growth. The causality results show that a feedback relationship exists between bank-based financial development and economic growth in South Africa in the short-run as well. The IRF shows that a shock in economic growth negatively and positively affects bank based and market-based financial development respectively. A shock in bank-based financial development causes a positive effect on economic growth. Lastly, a shock in market-based financial development causes a positive effect on economic growth. Whilst, the variance decomposition shows that fluctuations in economic growth are increasingly explained by financial development (bank and market). While, fluctuations in bank-based financial development are increasingly explained by market-based financial development, savings and investment. The fluctuations in market-based financial development are increasingly caused by economic growth, savings and investment. It is recommended that policy makers utilise bank-based financial development for economic growth and reduced unemployment, to increase savings for long-run economic growth. Furthermore, challenges against market-based financial development should be reduced in order to create a positive relationship between investment and economic growth in the long run.
- Full Text:
- Date Issued: 2019
- Authors: Mhango, Joseph
- Date: 2019
- Subjects: Finance -- South Africa , Economic development -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/41117 , vital:36358
- Description: Since the identification of financial development for economic growth by Schumpeter (1911), the importance of financial development has been emphasised. However, the nature of the relationship is unclear, whether financial development is demand-following, supply-leading, feedback relationship or no causal relationship with economic growth. The revolution of the relationship between finance and economic growth has left a void of the exact nature of the relationship and importance of financial development in literature and empirical evidence. In addition, the variation of the nexus between financial development and economic growth in developed and developing countries has left policy makers uncertain on the exact policy to employ. In awe of this, after the discovery of diamonds and gold in South Africa, policy makers have attempted to improve the access, depth and efficiency of the finance sector to spur economic growth. However, South Africa has been subject to apartheid, low economic growth, global financial crises, international sanctions, unemployment and other challenges to the finance sector. In light of this, this study aims to empirically investigate the relationship between financial development and economic growth in South Africa. The study used the recently developed financial institutions index and financial markets index by the International Monetary Fund to represent bank-based and market-based financial development. This study utilises annual data over the period 1980 to 2014. The study applied the Autoregressive Disturbed Lag (ARDL) bounds testing, Vector Error Correction Model (VECM) Granger – Causality, Impulse Response Function (IRF) and Variance Decomposition to uncover the relationship between financial development and economic growth in South Africa. The ARDL was selected over the Johansen Cointegration because the variables can be I (1) or I(0) before carrying out the bounds testing. It is more suitable to a small sample size. It uses a reduced form equation, and it provides unbiased estimates of the long-run model. Lastly, it can be transformed into an error correction model. The VECM Granger-Causality was chosen because it represents the short-run and long-run causalities. After selection of the optimal lag, the ARDL bounds testing shows that economic growth, bank-based financial development, market-based financial development, savings and investment have a long-run relationship in South Africa. However, after estimation of the coefficients, financial development has a positive relationship with economic growth, but insignificant and only savings and investment were significant in determining long-run economic growth. The VECM granger-causality results show that financial development (bank and market), savings and investment granger cause economic growth in the long-run. While, economic growth, market-based financial development, savings and investment granger cause bank-based financial development in the long-run. Therefore, a feedback relationship exists between bank-based financial development and economic growth in the long-run. In the short-run, it was clear that bank-based financial development positively causes economic growth. The causality results show that a feedback relationship exists between bank-based financial development and economic growth in South Africa in the short-run as well. The IRF shows that a shock in economic growth negatively and positively affects bank based and market-based financial development respectively. A shock in bank-based financial development causes a positive effect on economic growth. Lastly, a shock in market-based financial development causes a positive effect on economic growth. Whilst, the variance decomposition shows that fluctuations in economic growth are increasingly explained by financial development (bank and market). While, fluctuations in bank-based financial development are increasingly explained by market-based financial development, savings and investment. The fluctuations in market-based financial development are increasingly caused by economic growth, savings and investment. It is recommended that policy makers utilise bank-based financial development for economic growth and reduced unemployment, to increase savings for long-run economic growth. Furthermore, challenges against market-based financial development should be reduced in order to create a positive relationship between investment and economic growth in the long run.
- Full Text:
- Date Issued: 2019
The future of banking in South Africa towards 2055: disruptive innovation scenarios
- Authors: Koekemoer, Jonathan
- Date: 2019
- Subjects: Finance -- South Africa , Economic development -- South Africa , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Doctoral , DPhil
- Identifier: http://hdl.handle.net/10948/40577 , vital:36184
- Description: The research effort developed four possible scenarios for the future of banking in South Africa towards 2055. The scenarios sought to stimulate thought on the possible, probable, plausible and preferred effects of disruptive innovation and regulation in the South African banking sector. The scenarios were developed in strict accordance with the 5 stages, and 9 steps, of the scenario-based planning process of futures studies. A conceptual futures studies model for banking in South Africa was developed to guide and clarify the way in which the research on South African banking can be integrated into the body of existing futures studies theory. The research study began with a comprehensive environmental scan, where various megatrends and driving forces are identified. A PESTEL analysis provided a deeper understanding of the driving forces. A Real-Time Delphi study was conducted in order to validate and prioritise the megatrends and driving forces that emerged. As a result, the research study was able to present four plausible scenarios that provide a better understanding of the future of banking in South Africa over the decades to come. The research presents banking as a complex, multi-faceted sector that is heavily influenced by advances in technology. The Real-Time Delphi research allowed the aggregation of expert knowledge. This is used as a guide to assist decision-makers and industry leaders in the adoption of appropriate business models and strategies towards a preferred future state. The research defined the Integrated Vision as the preferred future state for the South African banking sector towards 2055. The study closes a research gap where current strategies deviate from proposed strategies that drive the achievement of the Integrated Vision by 2055. Finally, contextually aligned practical recommendations are provided to assist decision-makers, industry leaders and change agents to work towards a preferable future state. The proposed recommendations are placed into broad categories of innovation, financial inclusion and collaborative regulatory relationships. The research makes a meaningful contribution to the South African banking sector by introducing a forward-looking, systems-thinking approach to disruptive innovation and regulation in the South African context.
- Full Text:
- Date Issued: 2019
- Authors: Koekemoer, Jonathan
- Date: 2019
- Subjects: Finance -- South Africa , Economic development -- South Africa , Banks and banking -- South Africa
- Language: English
- Type: Thesis , Doctoral , DPhil
- Identifier: http://hdl.handle.net/10948/40577 , vital:36184
- Description: The research effort developed four possible scenarios for the future of banking in South Africa towards 2055. The scenarios sought to stimulate thought on the possible, probable, plausible and preferred effects of disruptive innovation and regulation in the South African banking sector. The scenarios were developed in strict accordance with the 5 stages, and 9 steps, of the scenario-based planning process of futures studies. A conceptual futures studies model for banking in South Africa was developed to guide and clarify the way in which the research on South African banking can be integrated into the body of existing futures studies theory. The research study began with a comprehensive environmental scan, where various megatrends and driving forces are identified. A PESTEL analysis provided a deeper understanding of the driving forces. A Real-Time Delphi study was conducted in order to validate and prioritise the megatrends and driving forces that emerged. As a result, the research study was able to present four plausible scenarios that provide a better understanding of the future of banking in South Africa over the decades to come. The research presents banking as a complex, multi-faceted sector that is heavily influenced by advances in technology. The Real-Time Delphi research allowed the aggregation of expert knowledge. This is used as a guide to assist decision-makers and industry leaders in the adoption of appropriate business models and strategies towards a preferred future state. The research defined the Integrated Vision as the preferred future state for the South African banking sector towards 2055. The study closes a research gap where current strategies deviate from proposed strategies that drive the achievement of the Integrated Vision by 2055. Finally, contextually aligned practical recommendations are provided to assist decision-makers, industry leaders and change agents to work towards a preferable future state. The proposed recommendations are placed into broad categories of innovation, financial inclusion and collaborative regulatory relationships. The research makes a meaningful contribution to the South African banking sector by introducing a forward-looking, systems-thinking approach to disruptive innovation and regulation in the South African context.
- Full Text:
- Date Issued: 2019
The term structure of interest rates and economic activity in South Africa
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
- Authors: Shelile, Teboho
- Date: 2007
- Subjects: Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:994 , http://hdl.handle.net/10962/d1002729 , Finance -- South Africa , Monetary policy -- South Africa , Interest rates -- South Africa , Economic development -- South Africa , South Africa -- Economic conditions -- 21st century
- Description: Many research papers have documented the positive relationship between the slope of the yield curve and future real economic activity in different countries and different time periods. One explanation of this link is based on monetary policy. The forecasting ability of the term spread on economic growth is based on the fact that interest rates reflect the expectations of investors about the future economic situation when deciding about their plans for consumption and investment. This thesis examined the predictive ability of the term structure of interest rates on economic activity, and the effects of different monetary policy regimes on the predictive ability of the term spread. The South African experience offers a unique opportunity to examine this issue, as the country has experienced numerous monetary policy frameworks since the 1970s. The study employed the Generalised Method Moments technique, since it is considered to be more efficient than Ordinary Least Squares. Results presented in this thesis established that the term structure successfully predicted real economic activity during the entire research period with the exception of the last sub-period (2000-2004) when using the multivariate model. In the periods of financial market liberalisation and interest rates deregulation the term structure was found to be a better predictor of economic activity in South Africa. These findings emphasise the importance of considering the prevailing economic environment in testing the term structure theory.
- Full Text:
- Date Issued: 2007
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