Growth transitions and the balance-of-payments constraint

2019 ◽  
Vol 7 (4) ◽  
pp. 498-516 ◽  
Author(s):  
Excellent Mhlongo ◽  
Kevin S. Nell
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Growth Performance ◽  
Regression Models ◽  
Developing Economies ◽  
Balance Of Payments ◽  
Long Run ◽  
Depth Analysis ◽  
Rigorous Test ◽  
Growth Transitions

This paper re-evaluates the recent criticisms of ‘Thirlwall's law’ against the literature on growth transitions. The unpredictable nature of growth transitions in developing economies suggests that the evidence derived from single-regime regression models, on which critics have based most of their arguments, is only suggestive about the long-run causes of growth. A rigorous test of Thirlwall's law requires a more in-depth analysis of turning points in a developing country's growth performance, and whether the growth law accurately predicts the sustainability of growth transitions. These arguments are illustrated with an application to South Africa over the period 1960–2017. The results show that it is misleading to evaluate Thirlwall's law across a single regime. Once regime shifts are controlled for, the growth law accurately predicts South Africa's growth performance during 1977–2003, and sheds light on the sustainable and unsustainable nature of growth transitions across the sub-periods 1960–1976 and 2004–2017, respectively. Since the literature on growth transitions identifies a competitive exchange rate as an initiating source of growth, rather than an individual long-run determinant, the omission of the level of the real exchange rate from the original growth law should not be regarded as a major weakness.

Macroeconomic Determinants of Stock Market Prices in Nepal

2020 ◽  
Vol 2 (1) ◽  
pp. 56-65
Author(s):  
Bhim Prasad Panta
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Developing Economies ◽  
Annual Data ◽  
Economic Variables ◽  
Market Prices ◽  
Ardl Model ◽  
Long Run

Background: Stock market plays a crucial role in the financial system of a country. It can be viewed as a channel through which resources are properly channelized. It enables the governments and industry to raise long-term capital for financing new projects. The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc., when there is high demand on financial products, as a constituent of financial market, ultimately stock market needs to develop. Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic variables and thus, macro-economic variables tend to effect on stock market development. Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation, and exchange rate using ARDL model and to explain the behavior of the Nepal Stock Exchange Index. Methods: The ECM which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information. The analysis has been done by using 25 years' annual data from 1994 to 2019. Findings: The result suggests that the fluctuation of Nepse Index in long run is strongly associated with broad money supply, interest rate, inflation, and exchange rate. Conclusion: Though Nepalese stock market is in primitive stage, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal. So, policies and strategies should be made and directed taking these in to consideration. Implication: The findings of research can be helpful to understand the behavior of Nepalese stock market and develop policies for market stabilization.

The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

2018 ◽  
Vol 53 (4) ◽  
pp. 211-224 ◽  
Author(s):  
Gan-Ochir Doojav
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Developing Economies ◽  
Jel Classification ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

scholarly journals Is Socially Responsible Indices Weak Form of Efficient Market? Evidences from Developing Economies

2020 ◽  
Vol 16 (2) ◽  
pp. 55
Author(s):  
Sabyasachi Mondal ◽  
Ranjit Singh
Keyword(s):  
South Africa ◽  
Developing Economies ◽  
Weak Form ◽  
The Other ◽  
Socially Responsible ◽  
Long Run ◽  
Augmented Dickey Fuller ◽  
Short Run ◽  
Test Of Randomness ◽  
Daily Returns

The study is an attempt to identify the presence of randomness in the socially responsible indices (SRI) of the stock markets of developing countries. Five developing economies are considered for the test of randomness on daily, weekly, monthly, quarterly and semiannual return of socially responsible indices and their benchmark indices. Shapiro-Wilk test is used to test the normality of the data whereas Runs test and Augmented Dickey-Fuller test are used depending on the randomness of the data. It is observed that India, Arab and Egypt show non-randomness whereas Brazil and South Africa show randomness in daily returns. Weekly returns on the other hand are random in Brazil, Arab, South Africa, and non-random in India and Egypt. Monthly and quarterly returns show randomness in India, Arab, Egypt, South Africa and non-randomness in Brazil whereas semiannual returns show randomness for all economies. It is also observed that most socially responsible indices resonate the randomness patterns of their benchmark indices. Most of the non-randomness is seen in short-run indicating inefficiency in the market. However, in long-run, the market goes random or efficient which is an indication that more than average profit can be earned by resorting to technical trading in the short run. Moreover, the similarity in randomness between socially responsible indices and their benchmark indices indicates that similar trading strategy can be applied by traders in both these indices to garner profit.

scholarly journals An Econometric Analysis of the Relationship between Changes in Government Bonds, Exchange Rate and Inflation Dynamics in South Africa

2018 ◽  
Vol 10 (4(J)) ◽  
pp. 165-173
Author(s):  
Sanusi K A ◽  
Meyer D F
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Empirical Analysis ◽  
Inflation Rate ◽  
Series Data ◽  
Government Bond ◽  
Government Bonds ◽  
Depth Analysis ◽  
The Exchange Rate ◽  
The Empirical Analysis

The study examined the dynamic interaction between government bonds, exchange rate and inflation in South Africa. The study follows a quantitative research method, using monthly time series data from 2007 to 2017 within the framework of a Vector Autoregressive Analysis (VAR). Evidence from the empirical analysis shows that government bond accounts for significant variation in the exchange rate and inflation rate within the study period. The causality test also suggests the presence of uni-directional causal relationships from government bonds to exchange rate, and also to the inflation rate. The principal conclusion that emanates from the empirical analysis is that government bonds are an important policy instrument in the management of the exchange rate and the inflation rate in South Africa. The study recommends that the South African Reserve Bank is a coordinator of government bond and should carry out an in-depth analysis of the economic conditions before issuing the government bonds, taking into account its impeding effects on the exchange rate and inflation rate and many other macroeconomic variables. 

The Determinants of Long-run Real Exchange Rate in South Africa: A Fundamental Equilibrium Approach

2015 ◽  
Vol 15 (3) ◽  
pp. 319-336 ◽  
Author(s):  
Bernard Njindan Iyke ◽  
Nicholas M. Odhiambo
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Openness ◽  
Commodity Prices ◽  
Testing Procedure ◽  
Terms Of Trade ◽  
Bounds Testing ◽  
The Real ◽  
Long Run

In this paper, we identify the fundamental determinants of the long-run exchange rate in South Africa. We then estimate the equilibrium real exchange rate for this country using a dataset covering the period 1975–2012. In order to account for possible short-run fluctuations in the real exchange rate, we conducted a cointegration test using the ARDL bounds testing procedure. First, we found terms of trade, trade openness, government consumption, net foreign assets and real commodity prices to be the long-run determinants of the real exchange rate in South Africa. Second, we found that nearly 68.06% of the real exchange-rate disequilibrium is corrected annually. Overall, the estimated equilibrium rate indicates that the Rand has been depreciating in real terms over the years. Tightening trade openness is not an option, given international agreements; on the other hand, terms of trade and real commodity prices are determined by the world market. The obvious policy alternative is for South Africa to increase government spending and moderately decrease her net foreign asset position.

scholarly journals The Effect of Exchange Rate Movements and Economic Growth on Job Creation

2017 ◽  
Vol 62 (2) ◽  
pp. 20-41
Author(s):  
Chama Chipeta ◽  
Daniel Francois Meyer ◽  
Paul-Francois Muzindutsi
Keyword(s):  
Economic Growth ◽  
South Africa ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Job Creation ◽  
Vector Autoregressive ◽  
The Real ◽  
Long Run ◽  
Exchange Rate Shocks ◽  
The Impact

Abstract Job creation is at the centre of economic development and remains a source of sustenance for social and human relations. The creation of a job-enabling economic environment is imperative in promoting social and economic cohesiveness in the macro and microeconomic environment. Any shocks to the economy, particularly those of exchange rate shocks and changes in economic growth, may negatively affect the labour market and job creation. This study made use of quarterly observations, from the first quarter of 1995 to the fourth quarter of 2015, to investigate the effect of the real exchange rate and economic growth on South Africa’s employment status. South Africa, a developing country, was selected as a case study due to its high unemployment rate that is still increasing. The Vector Autoregressive (VAR) model and multivariate co-integration techniques were used in assessing the impact and responsiveness of employment to the real exchange rate and real economic growth in South Africa. Findings of this study revealed that employment responds positively to economic growth and negatively to the real exchange rate in the long-run. The short-run displays a positive relationship between real economic growth and employment, while the relationship between employment and the real exchange rate is also negative. However, the effect of economic growth in creating jobs is not significant enough in stimulating job creation in South Africa, as indicated by results in variance decomposition. Movements in the exchange rate exerted a significant short and long-run negative effect on employment dynamics; implying that a depreciation of the rand against the U.S. dollar is associated with decrease in overall employment. Exchange rate stability is thus important for economic growth and job creation in South Africa. The study provided further recommendations on promoting job creation in South Africa and other developing countries.

scholarly journals Triangular Causality and Controlling Parallel Exchange Market

2019 ◽  
Vol 3 (1) ◽  
pp. 20-32
Author(s):  
Bijan Bidabad
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Price Level ◽  
Balance Of Payments ◽  
Market Liquidity ◽  
Exchange Market ◽  
Long Run ◽  
Short Run ◽  
The Exchange Rate ◽  
The Relationship

In this paper, the triangular relationship of money, price, and foreign exchange in a causality context are studied. It is concluded that regulating the exchange rate by volume of liquidity in a period of less than a year is not possible, but in annual and biannual analyses we can regulate the exchange rate through controlling the liquidity. In other words, in the long run, the exchange rate is affected by liquidity and price level, but in the short run, the price level has only temporary effects on the exchange rate. The results of the study show that: liquidity affects the exchange rate in the long run; price affects the liquidity in the long run; in the long run, liquidity and exchange rate affect prices.  Our results show that injection of foreign exchange into the parallel exchange market with different lags has little effects with different directions on the exchange rate. The same result is true for the relationship between liquidity and dollar rate. In other words, in spite of the long run relationship between exchange rate and liquidity, we cannot justify this relationship in the short run. The same is true with the balance of payments position and exchange rate in the short run. By simulating the relationship between injecting (selling) foreign exchange in the parallel exchange market, liquidity and the cumulative balance of payments all with exchange rate, we can conclude that in the short run, regulating exchange rate by instruments such as selling exchange in the parallel market or controlling the liquidity is not possible, but in the long run, conducting foreign exchange sale policy and controlling the liquidity and the balance of payments position can control the exchange market.

scholarly journals Effects Of Exchange Rate Volatility On Real Estate Prices In Developing Economies, A Case Of Ghana

2019 ◽  
Vol 6 (11) ◽  
pp. 268-287
Author(s):  
John Kwame Adu Jack ◽  
Frimpong Okyere ◽  
Emmanuel K. S. Amoah
Keyword(s):  
Exchange Rate ◽  
Real Estate ◽  
Developing Economies ◽  
Negative Impact ◽  
House Prices ◽  
Housing Prices ◽  
Exchange Rate Volatility ◽  
Bounds Testing ◽  
Long Run ◽  
Real Estate Prices

This study aims to find out whether exchange rate volatility affects real estate domestic house prices in Ghana. To this end, a 32 years secondary data from World Development Indicators (WDI) and data from Real Estate Developers in Ghana are employed for the study. The study employs Autoregressive distributed lags (ARDL) bounds testing of cointegration t o test the null hypothesis that exchange rate volatility has n o impact on real estate housing prices. The study finds that real estate price is cointegrated with remittances, exchange rate and inflation. The long run equilibrium is stable and significant. Exchange rates d o not cause changes in real estate prices in both short and long run. Similarly past prices of real estate d o not have impact on current house prices.  Rather, remittances positively cause real estate prices. Inflation on its part has a negative impact on real estate prices. It is therefore concluded that, volatility in the exchange rate between the cedi and other trading currencies does not predict changes in real estate prices.

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