Research Articles (Economics)

Permanent URI for this collectionhttp://hdl.handle.net/2263/2391

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Investigating financial development and its direct and indirect environmental effects in South Africa : fresh policy insights
(Springer, 2024-04) Udeagha, Maxwell Chukwudi; Breitenbach, Marthinus Christoffel
Results on the connection between financial development and CO2 emissions are presented in contradicting ways in earlier research. In order to solve this conundrum, the Environmental Kuznets Curve (EKC) framework is used in this study to examine both the direct and indirect effects of financial development on environmental degradation. Our empirical analysis is supported by the cutting-edge dynamic ARDL simulations framework for the 1960–2020 time span in South Africa. The estimated results, which are based on five separate financial development indices, corroborate South Africa's claim that the country's financial development prevents pollution. For South Africa, we also confirm the validity of the EKC theory. The results of the indirect channels demonstrate that financial development also lessens the negative impacts of income, energy usage, trade openness, and foreign direct investment (FDI) on pollution emissions. A weak financial structure is also necessary for the viability of the polluted haven hypothesis (PHH), which is examined using trade openness and FDI variables. For each of these variables, PHH vanishes at a particular point in financial development. Last but not least, increased industrial value-added increases pollution emissions, whereas increased technical innovation decreases the former. On the basis of these findings, South Africa should offer financial incentives and tax breaks to attract green FDI and encourage investments that prioritize environmental sustainability. These incentives can include grants, subsidies, and preferential tax rates for FDI projects that align with South Africa's environmental goals. Providing a favourable investment climate for green projects can stimulate sustainable economic growth and attract responsible investors.
Moral disengagement and charitable giving : experimental evidence from South Africa
(Wiley, 2025) Chingwere, Fadzay; Nicholls, Nicky; Yitbarek, Eleni; nicky.nicholls@up.ac.za
Moral disengagement has been linked to harmful behaviour and reduced inclination to assist others. Charitable giving, a form of assistance to others, is an important form of domestic resource mobilization in middle-income countries. Moral disengagement can impact decisions regarding charitable giving by enabling individuals to rationalize less generous behaviour. We conducted a survey to investigate how moral disengagement varies across demographic groups and whether moral disengagement helps explain charitable giving. Because studies have shown that interventions can reduce moral disengagement, research highlighting groups demonstrating more moral disengagement can help to target such interventions. Understanding factors associated with moral disengagement can also show whether such interventions might be worthy of investment. We find higher moral disengagement for men and younger and less educated and unemployed respondents. Moral disengagement was a significant predictor of self-reported less frequent charitable giving but not of the amount donated in an incentivised giving task.
A news-based economic policy uncertainty index for Nigeria
(Springer, 2024-10) Salisu, Afees A.; Salisu, Sulaiman; Salisu, Subair
In this study, we develop the first daily news-based Economic Policy Uncertainty (EPU) index for Nigeria, which was previously not covered in recent EPU indices. The need to track economic uncertainties in Nigeria becomes crucial for investment and policy, especially with the renewed interest in the country as an important investment destination. To construct the EPU index, we use relevant keywords from articles in prominent newspapers in the country, covering the aftermath of the global financial crisis and the COVID pandemic, with a data scope of January 2010 to November 2022. We evaluate the predictability of the index by examining its connection with economic and financial variables like exchange rates, stock prices, and inflation in Nigeria. The results are robust to alternative model specifications, data frequencies, and multiple forecast horizons. We hope to extend this exercise to other useful indices, including Geopolitical Risk, Financial Stress Indicators, and Monetary Policy Uncertainty, which are not readily available for Africa, including Nigeria.
Forecasting international financial stress : the role of climate risks
(Elsevier, 2024-04) Del Fava, Santino; Gupta, Rangan; Pierdzioch, Christian; Rognone, Lavinia; rangan.gupta@up.ac.za
We study the predictive value of climate risks for subsequent financial stress in a sample of daily data running from October 2006 to December 2022 of thirteen countries, which include China, ten European Union (EU) countries, the United Kingdom (UK), and the United States (US). The climate risk indicators are the result of a text-based approach which combines the term frequency-inverse document frequency and the cosine-similarity techniques. Given the persistence of financial stress as well as the importance of spillover effects of financial stress from other countries, we use random forests, a machine-learning technique tailored to handle many predictors, to estimate our forecasting models. Our findings show that climate risks tend to have a moderate impact, albeit in several cases statistically significant, on predictive accuracy, which tends to be stronger, in our cross-section of countries, on a daily than at a weekly or monthly forecast horizon of financial stress. Furthermore, the predictive value of climate risks for financial stress is heterogeneous across the countries in our sample, implying that a univariate forecasting model appears to be better suited than a corresponding multivariate one. Finally, the predictive value of climate risks for financial stress appears to be stronger in several countries at the lower conditional quantiles of financial stress.
Profit shifting from Nigeria to Europe : the impact on human rights
(Public Library of Science, 2025-03) Etter-Phoya, Rachel; Murray, Stuart; Hall, Stephen George; Masiya, Michael; O'Hare, Bernadette
The United Nations Universal Declaration of Human Rights states that everyone is entitled to economic and social rights essential to survive and thrive (Articles 25 and 26) and everyone is entitled to a social and international order in which their rights and freedom can be realised (Article 28). These rights must be ensured through national efforts and international cooperation (Article 22), but many millions of people worldwide do not access their rights, including the right to clean drinking water, safe sanitation, healthcare, and education. Government revenue from taxes plays a crucial role in ensuring these rights. However, globally, 10% of corporate tax revenue is lost because multinational corporations shift their profits from where they operate. This study examines the impact of profit shifting on tax revenue in Nigeria, focussing on access to economic and social rights and governance. It estimates the impact of revenue gains made on profits shifted from Nigeria to European tax havens, using data on profits shifted published by Wier and Zucman in 2022 and the Government Revenue and Development Estimations (GRADE) model for the estimations. The findings reveal that if the Nigerian government had additional revenue equivalent to tax losses, an additional 500,000 Nigerians would have their right to drink clean water and nearly 800,000 their right to use basic sanitation each day, 150,000 children would have their right to education, and 11 children would have their right to survive each day (amounting to 4,063 children each year). Increased revenue would also improve governance. In contrast, the gains European tax havens make as destinations for shifted profits in terms of rights are almost negligible, given that almost all Europeans have those economic and social rights discussed in this paper fulfilled. The tax reforms championed by the Organisation for Economic Co-operation and Development (OECD), including 27 European member nations, to tackle aggressive corporate tax avoidance and tax evasion—in short, tax abuse—fall short of ensuring a suitable international order for rights to be achieved. To remedy this, all European countries must support negotiations on international tax cooperation at the United Nations. This should include reforms on regulating multinational corporations, particularly through unitary taxation with formulary apportionment. In the short- and medium-term, interim measures to mitigate the harmful impacts of profit shifting are necessary. Countries must take steps to raise the global minimum corporate tax rate, introduce unilateral measures to tax multinational corporations, improve tax transparency and information sharing with lower-income countries, and strengthen anti-avoidance rules.
Policymaking in periods of structural changes and structural breaks : rolling windows revisited
(Wiley, 2025-04) Giannellis, Nikolaos; Hall, Stephen George; Kouretas, Georgios P.; Tavlas, George S.; Wang, Yongli
Early studies that used rolling windows found it to be a useful forecasting technique. These studies were, by-and-large, based on pre-2000 data, which were nonstationary. Subsequent work, based on stationary data from the mid-1990s to 2020, has not been able to confirm that finding. However, this latter result may reflect the fact that there was relatively little structural instability between the mid-1990s and 2020: The data had become stationary. Following the series of shocks of the early 2020s, this is no longer the case because the shocks produced nonstationarity in the macroeconomic data, such as inflation. Consequently, rolling windows may again be a sensible way forward. The present study assesses this conjecture.
Fast two-stage variational Bayesian approach to estimating panel spatial autoregressive models with unrestricted spatial weights matrices
(Taylor and Francis, 2025) Gefang, Deborah; Hall, Stephen George; Tavlas, George S.
We propose a fast two-stage variational Bayesian (VB) algorithm to estimate unrestricted panel spatial autoregressive models. Using Dirichlet–Laplace shrinkage priors, we uncover the spatial relationships between cross-sectional units without imposing any a priori restrictions. Monte Carlo experiments show that our approach works well for both long and short panels. We are also the first in the literature to develop VB methods to estimate large covariance matrices with unrestricted sparsity patterns, which are useful for popular large data models such as Bayesian vector autoregressions. In empirical applications, we examine the spatial interdependence between euro area sovereign bond ratings and spreads.
Does one size fit all? The country-specific effects of ECB monetary policy
(Elsevier, 2025-06) Gefang, Deborah; Hall, Stephen George; Tavlas, George S.; Wang, Yongli
We investigate the way that a change in the ECB's monetary policy affects the members of the euro area in terms of the main macroeconomic aggregates – including inflation and output. Our data set consists of sixteen countries and covers the period from 2009 to 2023. We introduce a spatial VAR, which allows us to decouple the direct effects of a policy change from the spillover effects of the change. In contrast to standard spatial models, which use a predetermined spatial matrix, we estimate the spatial matrix endogenously, thus providing increased accuracy. We find generally symmetric reactions in inflation, output and the other main macro aggregates both in terms of the timing and the magnitude of shocks, and in the effects of shocks on the decomposition between direct and indirect (spillover) effects although there are occasional exceptions. We find that the indirect effects (spillover) effects are generally smaller than the direct effects but that in all cases they reinforce the direct effects.
Can AIDS education reduce HIV stigma? Evidence from Zimbabwe
(Taylor and Francis, 2025-01) Njokwe, Getrude; Kijima, Yoko; getrude.njokwe@up.ac.za
HIV stigma remains a barrier to HIV prevention, testing, and treatment in sub-Saharan Africa. This study uses Zimbabwe Demographic and Health Survey data to examine how education reduces HIV stigma, focusing on two key initiatives: the 1992 AIDS Action Program, which enhanced HIV awareness, and the 1980 education reform, which expanded schooling access. By addressing gaps in the literature on external HIV stigma, the study highlights education’s long-term impact on attitudes toward people living with HIV. Our findings show that the 1980 reform is associated with a 1.19-year increase in educational attainment and a 42.6% rise in secondary school attendance for children aged 2–7 years in 1980 compared to those aged 16 and older. Furthermore, each additional year of schooling after the AIDS Action Program is associated with a 12.1% reduction in the likelihood of stigmatizing people with HIV and a 12.8% increase in HIV knowledge. Stigma reduction is more pronounced among rural residents (13.3%) and women (5.9%) but is insignificant for men and urban dwellers. These results underscore the role of schools in improving public health knowledge and reducing HIV stigma, offering valuable insights for future educational and health strategies.
Who saves more, the naive or the sophisticated agent?
(Elsevier, 2024-07) Groneck, Max; Ludwig, Alexander; Zimper, Alexander; alexander.zimper@up.ac.za
This paper studies discrete time finite horizon life-cycle models with arbitrary discount functions and iso-elastic per period power utility with concavity parameter. We distinguish between the savings behavior of a sophisticated versus a naive agent. Although both agent types have identical preferences, they solve different utility maximization problems whenever the model is dynamically inconsistent. Pollak (1968) shows that the savings behavior of both agent types is nevertheless identical for logarithmic utility ( = 1). We generalize this result by showing that the sophisticated agent saves in every period a greater fraction of her wealth than the naive agent if and only if ≥ 1. While this result goes through for model extensions that preserve linearity of the consumption policy function, it breaks down for non-linear model extensions.
The impact of the digital economy and institutional quality in promoting low-carbon energy transition
(Elsevier, 2025-01) Hwang, Young Kyu; Venter, Alanda
Given the threat of climate change, the renewable energy transition will play a pivotal role in reaching net-zero goals. The digital economy and institutional quality are considered key enablers of the rapid deployment of renewable energy because they can strengthen the reliability and security of energy systems. This study examines the impacts of the digital economy and institutional quality on renewable energy deployment across 85 countries from 2003 to 2021 using a Two-Step System GMM. The selection of a dynamic panel model is motivated by the path-dependent nature of renewable energy deployment. Sub-sample analyses are conducted to account for the diversity of the dataset in terms of energy mixes, levels of economic development, digital infrastructures, and institutional qualities. A dynamic threshold regression analysis is then conducted to determine the non-linearity of fossil fuel dependence on the impact of the digital economy and institutional quality on renewable energy deployment. The estimates reveal that the digital economy promotes renewable energy deployment, whereas institutional quality has an ambiguous effect. Additionally, depending on the degree of fossil fuel dependency, the impacts of both the digital economy and institutional quality vary significantly and exhibit non-linear and asymmetric features.
A causal analysis between exports, imports and GDP per capita in the southern African customs union countries
(Routledge, 2024) Molepo, Event P.; Jordaan, Andre Cillie; andre.jordaan@up.ac.za
This study investigates the direction of causality between exports, imports and GDP per capita in the SACU countries: Botswana, Lesotho, Namibia, South Africa and Eswatini (Swaziland). The TodaYamamoto augmented Granger no-causality approach is applied. The study finds mixed causality results between exports, imports, and GDP per capita for the different countries. The export-led growth hypothesis is supported for Botswana and Eswatini, while import-led growth hypothesis is only confirmed in Namibia. Results suggest that a bi-directional Granger causality between exports and growth for Botswana and bi-directional Granger causality between imports and growth for Lesotho and South Africa exist. There is therefore no clear time-precedence. Finally, there is evidence of growth-led export hypothesis for Botswana, Lesotho, and South Africa. These mixed findings indicate that SACU countries should not solely dedicate their available resources to pursuing trade openness in promoting economic development but also address domestic economic reform strategies.
Herding behaviour and monetary policy : evidence from the ZAR market
(Elsevier, 2024-06) Sibande, Xolani
We investigated the presence of herding and its interactions with monetary policy in the ZAR market. We achieved this using both the standard herding tests and Sim and Zhou’s (2015) quantile-on-quantiles regressions. Similar to previous results in other markets, we found that extreme market events mainly drove herding behaviour in the ZAR market. This result was also significant in the presence of monetary policy announcements. However, herding in the ZAR markets was not related to market fads. It, therefore, was, in the main, a rational response to public information, indicating central bank credibility. This credibility gives scope to the central bank to improve communication in periods of market crisis to dampen potential volatility. Further studies on the herding of specific ZAR market participants can be invaluable.
Forecasting the realized volatility of agricultural commodity prices : does sentiment matter?
(Wiley, 2024-09) Bonato, Matteo; Cepni, Oguzhan; Gupta, Rangan; Pierdzioch, Christian
We analyze the out-of-sample predictive power of sentiment for the realized volatility of agricultural commodity price returns. We use high-frequency intra-day data covering the period from 2009 to 2020 to estimate realized volatility. Our baseline forecasting model is a heterogeneous autoregressive (HAR) model, which we extend to include sentiment. We further enhance this model by incorporating various key realized moments such as leverage, realized skewness, realized kurtosis, realized upside (“good”) volatility, realized downside (“bad”) volatility, realized jumps, realized upside tail risk, and realized downside tail risk. In order to setup a forecasting model, we use (i) forward and backward stepwise predictor selection and (ii) a model-based averaging algorithm. The forecasting models constructed through these algorithms outperform both the baseline HAR-RV model and the HAR-RV-sentiment model. We conclude that, for the agricultural commodities studied in our research, realized moments play a more significant role in forecasting realized volatility compared to sentiment.
Gold market volatility and REITs' returns during tranquil and turbulent episodes
(Elsevier, 2024-10) Salisu, Afees A.; Akinsomi, Omokolade; Ametefe, Frank Kwakutse; Hammed, Yinka S.
We analyze the predictability of REIT returns based on gold market volatility for 11 sectors and five regions. Our findings show higher gains during volatile gold market conditions, but results vary in tranquil and turbulent periods. We observe sector-specific investment behavior in the REITs market during the pre-GFC, but the post- GFC and COVID periods show otherwise. REITs offer a safe haven ability for gold, but their hedging power is sector-specific. For sensitivity analysis, stock market volatility is used in lieu of gold market volatility, and the outcome provides the expected counterfactual evidence with the REITs market. Our study has numerous policy implications for global financial market stakeholders.
Migration and inflation nexus under high and low interest rate environments : some panel data evidence
(Wiley, 2024-12) Salisu, Afees A.; Muhammad, Rabia Abdul; Saliu, Mojeed O.
This study analyzes the relationship between migration and inflation as well as the intervening role of interest rates in selected OECD countries from 1995 to 2020, covering periods of turbulence and tranquillity. The study finds that migration increases inflation in the short run but lowers it in the long run. In other words, the inflationary effect of migration is a long-run phenomenon. Additionally, we find that the high interest rates help mitigate the inflationary effect of migration in the short run relative to the low interest rates. Moreover, additional analysis using the panel threshold technique further lends credence to the mediating role of interest rates in the nexus, thus making our results robust to alternative estimation techniques. These findings have significant implications for policymakers responsible for managing inflation.
Professor Martin Wittenberg, 1962-2024
(Wiley, 2025) Dinkelman, Taryn; Kerr, Andrew; Naidoo, Jesse; jesse.naidoo@up.ac.za
Martin Wittenberg was born in Bethel, Germany, in 1962; he died in Cape Town in 2024. He made major contributions to the intellectual life of South Africa through his scholarship, mentorship and public service. The three of us have known him as students, as coauthors, and colleagues, and we write here to express gratitude for that privilege. Below, we discuss some of his intellectual contributions in four areas: (1) building public goods that serve the research community and securing the foundations of empirical research for public policy, (2) data quality and measurement issues, (3) the economics of households and the labour market in South Africa, and (4) mentorship and teaching. Our discussion is not exhaustive. Nor do we aim to minimise his achievements as an anti-apartheid activist (having served as a secretary of the United Democratic Front in KwaZulu-Natal in the 1980s) or his personal qualities as a friend and as a father—but those aspects of his life are best described by others.
The effect of temperature on household hourly electricity consumption : evidence from South Africa
(Elsevier, 2025-03) Ye, Yuxiang; Koch, Steven F.; Ye, Xianming; steve.koch@up.ac.za
Climate change is expected to negatively affect Africa, possibly leading to increased energy needs. However, meeting that need could prove problematic; more than a decade of load-shedding in South Africa is suggestive in that regard. In this research we examine the effect of temperature on electricity consumption, focusing on mainly rural households in South Africa. We apply a series of fixed effects panel models to hourly temperature and electricity consumption data across eight months and twelve locations in the country. We find limited evidence that increased temperatures drive increased electricity use; rather, electricity use increases as temperatures decline, although at temperatures below 10 °C, the gradient is approximately level. Given that few of our study’s households own cooling or heating appliances, the result is not entirely surprising. However, without such appliances, poor rural households will not be able to cope with rising temperatures.
A note on climate change and growth dynamics
(Elsevier, 2024-12) Gupta, Rangan; Nandnaba, Sarah; Jiang, Wei; rangan.gupta@up.ac.za
Climate change is, perhaps, the most important of challenges currently facing humankind, with the potential to have health and welfare implications by imposing a sizeable aggregate risk to the economy. Given this, and in the wake of an ever-burgeoning literature on the nexus between climate change and economic growth, we develop an overlapping generations endogenous growth model characterized by climate change, with the latter being specified as a fraction of output lost due to changes in temperature anomalies. We show that growth dynamics arise in this model when changes in temperature anomalies are a positive function of current economic growth, i.e., considered to be endogenous unlike existing theoretical models on this topic, with this theoretical specification motivated through extensive empirical analyses involving 167 countries over a long span of historical data covering 1851 to 2018. In particular, two distinct oscillatory growth dynamics emerge: one convergent and the other divergent, contingent on the strength of the response of global warming, i.e., changes in temperature anomalies to current economic growth. Our theoretical results suggest that policymakers should be cognizant that unless economic growth is “green”, rapid global warming can put economies in a fluctuating, divergent, balanced growth.
Sectoral corporate profits and long-run stock return volatility in the United States : a GARCH-MIDAS approach
(Wiley, 2025-03) Salisu, Afees A.; Isah, Kazeem O.; Ogbonna, Ahamuefula Ephraim; afees.salisu@up.ac.za
This study aims to examine the usefulness of corporate profits in predicting the return volatility of sectoral stocks in the United States. We use a GARCH-MIDAS approach to keep the datasets in their original frequencies. The results show a consistently positive slope coefficient across various sectoral stocks. This implies that higher profits lead to increased trading of stocks and, subsequently, a higher volatility in the long run than usual. Furthermore, the analysis also extends to predictability beyond the in-sample. We find strong evidence that corporate profits can predict the out-of-sample long-run return volatility of sectoral stocks in the United States. These findings are significant for investors and portfolio managers.

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