Electronic Theses and Dissertations (PhDs)

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Browsing Electronic Theses and Dissertations (PhDs) by Keyword "Developing and emerging market economies"

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    Measuring the Fiscal Space for South Africa to Support Economic Growth and Development
    (University of the Witwatersrand, Johannesburg, 2023) Motsepe, Dikgang; Pillay, Pundy
    A number of developing and emerging market economies are faced with economic challenges that will require governments to access additional resources in order to invest in their economies. This thesis seeks to answer two research questions: 1) Should governments increase fiscal spending or government debt to finance the investment in the productive capacity of the economy in order to support and drive economic growth? and 2) Will an increase in government debt reduce investment and economic growth? Time series data of emerging market economies were used from the period 1994 – 2017 to answer the research questions. The key findings from the emerging market economies analysis confirm the positive relationship between government debt and economic growth across all the identified countries. The research findings indicate that in the identified emerging market economies, economic growth was high, showing an average growth of 5.0% when debt levels were below the 90% ratio. For debt levels above 90% of GDP, economic growth was significantly low, averaging 0.5%. The study’s findings indicate that the emerging market economies showed an average public sector investment to GDP ratio of 23.6% at debt levels below 90% of GDP. For debt above 90% of GDP, public sector investment to GDP was slightly lower, averaging 15.3%. The key findings with regard to measuring debt sustainability using the debt limit of 68% to 97% to GDP as calculated by Ganiko, Melgarejo and Montoro (2016), is that all the emerging market economies have significant room to increase their debt levels, with South Africa obtaining an average debt ratio of 41% for the study period. The findings from the emerging market economies support the themes in the literature review that government debt can influence economic growth through the total factor productivity channel. This will entail increased government investment in infrastructure development, industrial development, education, health and nutrition. The thesis acknowledges that increases in debt levels will increase interest rates, thus reducing the fiscal space available to government. The increase in interest rates calls for a more effective utilisation of monetary policy instead of fiscal policy via the reduction of interest rates and purchasing of zero interest rate government bonds. To achieve this, this study calls for the increased role of monetary policy to use interest rates to achieve debt sustainability and to support economic growth. The thesis provides the policy direction for both fiscal and monetary policy on how to increase the ‘fiscal space’ available to government to raise additional resources to support economic growth and development. The study’s contribution to knowledge is the call for a change to the orthodox paradigm and narrative that debt is bad for economic growth and to promote the policy direction of using debt and increased spending to get economies to full employment. The policy directive seeks to support the use of government debt to fund structural reforms, to recapitalise State-Owned Entities, to support industrial development as well as to promote infrastructure and human capital development, with the objective to support economic growth. The thesis argues that debt is not harmful if directed towards the productive side of the economy. The paradigm is embedded within the Keynesian approach which is supported by the new growth theory, functional finance and modern monetary theory on fiscal stimulus and how to finance it. The paradigm shift also talks to moving away from conventional monetary policy and recommends that central banks decrease interest rates, monetise government debt, and create sovereign money in order to support government debt sustainability. The paradigm shift also seeks to change the conventional policy direction of central banks of increasing money supply indirectly using the banking sector, to directly increase money supply through fiscal policy in order to support economic growth. This will give central banks the tool to direct and influence spending in the economy to meet the objectives of economic growth and job creation. As argued by various economists, this can be achieved through better policy coordination between monetary and fiscal policy, and improved institutional arrangements which will ensure that the creation of money is directed towards economic growth and job creation