Faculty of Commerce, Law and Management (ETDs)

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    Impact analysis of institutional quality on foreign direct investment inflows into the Southern African Development Community (SADC) region
    (University of the Witwatersrand, Johannesburg, 2022) Malindini, Kholiswa; Pillay, Pundy
    The quality of governance has increasingly become a significant determinant of foreign direct investment inflows in recipient countries. Although extensive research has been conducted internationally to examine the role of institutional quality on foreign direct investment inflows, this concept has not been thoroughly interrogated in the Southern African Development Community (SADC) context. The region is poverty-stricken, unemployment rates are skyrocketing, economic growth is deteriorating, and the region only accounts for only one percent of global FDI. Thus, this study sought to examine three main objectives critically: first, the effect of institutional quality on foreign direct investment inflows into the SADC region; second, the influence of the financial development on the FDI-institutional quality nexus and thirdly, to assess whether countries’ income levels matter for attracting FDI inflows. FDI as a percentage of GDP was measured as a dependent variable, while institutional quality, financial development, natural resource availability, and GDP growth were the main explanatory variables. The study controlled for inflation rates, trade openness, and trade policy. An interaction term was generated to evaluate the effect of financial development on the FDI-institutional quality nexus in the SADC region. In order to achieve the research objectives, a mixed-methods approach was adopted, and a convergence research design was applied. Secondary data for other macroeconomic variables were drawn from the World Bank Development Indicators. In contrast, data for financial development were drawn from the International Monetary Fund’s Financial Development Index database, and data for governance indicators were drawn from the Worldwide Governance Indicators’ database. Primary data was collected through semi-structured interviews and survey questionnaires. Econometric models were developed to analyse panel data from 2011 – 2018 for 15 SADC member states to achieve the set objectives quantitatively. Specifically, the study adopted the Generalised System Methods of Moments (GMM) as the appropriate and efficient estimation technique for the analysis. Using a Pillar Integration Process, the data were integrated. The overall findings suggested that, while GDP growth, trade openness, and natural resources positively influence FDI inflows into the region and are statistically significant, institutional quality, inflation, trade policy and financial development are negatively and statistically significant coefficients towards FDI. The results revealed that a poor regulatory environment, the rule of law, and weak accountability are the main disincentives to improved quality of governance. The overall results indicated that weak institutional quality is still a significant challenge as far as inward FDI attraction is concerned; the lack of an enforcement mechanism directly impacts foreign investor property rights protection and eventually deters foreign investment inflows. Also, the unstable political framework that fails to sufficiently support economic institutions and ensure certainty, and the lack of political will, particularly by heads of government to implement and prioritize regional objectives over national interests, is a significant problem and stifles progress towards more profound integration. It also transpired that the financial markets and institutions within the region are not efficiently developed and are still fragmented, and this is attributed to macroeconomic instability and weak macroeconomic convergence. The findings also revealed that the countries’ income levels do not matter as far as FDI attraction is concerned. Based on these results, it may be necessary for SADC member states to adopt an institutional framework that promotes collaboration in the region and ensures effective and efficient implementation of the potential protocols. Given the dominance of national sovereignty over regional objectives, it may be worth examining the regimes that govern the member states; based on the view that sometimes non-compliance by member states emanates from the regime, which may sometimes not support regionalism. Convergent bilateral and multilateral arrangements are necessary for the region. The region needs to raise its export competitiveness by attracting domestic and foreign investments, and a rigorous trade integration process is a prerequisite. Policymakers in the region should focus on working together with institutions to promote development in the banking sector. Further, given the adverse effects of financial development on FDI inflows due to rising domestic credit by the banking sector, efforts should be made to maintain domestic credit levels to allow room for more FD
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    Oil prices, stock prices and the economy: examining volatility transmission in developing African countries
    (2021) Sibanyoni, Sylvia Lindiwe
    The dependency of stock prices on the oil price volatility has been found to be more prevalent in emerging market net-oil importing countries. Most African countries are net-oil importer and the effect of the oil price volatility has significant impact on their economies. To answer the objectives of this study, this research employs the diagonal BEKK GARCH model, GMM model and the VECM over data from selected African countries from July 2003 – November 2019. The results from the diagonal BEKK Model suggests a co-movement between oil price volatility and stock price volatility does not appear to be directly linked to geography or economic relations between the sample countries due to financial globalization and integration. There is evidence of increased volatility during and after the 2007/08 crisis financial, with volatility more pronounced in the after math of the crisis. In examining the effects of the oil price volatility on the economic growth, the GMM results show that oil price and stock prices volatility have negative impacts on the economic growth. The empirical findings from the VECM suggest that a significant negative long run relationship between oil price volatility and economic growth exists. Furthermore, the results also indicate that oil price volatility is transmitted to the economy through the exchange rates, real interest rates, consumer price indices (rate of inflation) and the volatility of stock market returns. Finally, the pairwise Granger causality test indicate a uni-directional cause and effect that runs from oil price volatility to economic growth through stock price volatility
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    Relationship between financial deepening and economic growth for selected countries in Africa
    (2020) Musiyazviriyo, Tafadzwa
    The financial sectors of African countries are still underdeveloped relative to other regions, and there is little academic research on how this can be improved. Given the potential for economic growth, fuelled by further financial sector development, the call is for African policymakers to prioritise financial deepening policies to stimulate economic growth. The purpose of the study was to investigate the relationship between financial deepening and economic growth in 51 African countries. This research sought to achieve three objectives: (i) whether financial depth for the African countries between 1993 and 2017 had a significant impact on economic growth; (ii) whether the effect is positive or negative; and (iii) determining the size of the effect. The assumption was that financial depth in the African countries positively influences economic growth. The study also sought to ascertain whether the direction of causality is unidirectional or bi-directional. This study assumed that the direction of causality is bi-directional. Using the two-step generalised methods of moments (GMM), the study assessed the relationship between financial deepening and economic growth in 51 African countries from 1993 to 2017. The findings reveal that there is a significant negative relationship between financial deepening and economic growth. The Granger causality tests applied further show that there is a bi-directional relationship between financial deepening and economic growth. The main conclusion from the study is that there is a multidimensional approach opportunity for African countries to develop their financial sectors further to stimulate economic growth. Possible interventions in policy can be to create an environment that aims to encourage either a demand-following and/or a supply-leading approach to financial sector development. Both strategies will result in financial deepening and may stimulate economic growth since there is a bi-directional relationship between financial deepening and economic growth.