Waldo Krugell

Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data

This article uses a cross-country econometric approach to identify the determinants for foreign direct investment (FDI) in Africa. The contribution is 3-fold. Firstly, we recognize that the estimation techniques used elsewhere, such as ordinary least squares, may be flawed. We therefore use a dynamic one-step generalized method of moments (GMM) estimator due to Arellano and Bond (1991). The GMM-estimates identified a number of robust determinants of FDI, namely government consumption, inflation rate, investment, governance (political stability, accountability, regulatory burden, rule of law) and initial literacy. It is concluded that geography does not seem to have a direct influence on FDI flows to Africa. Neither market-seeking nor re-exporting motives of FDI seem to dominate, with different policy instruments being significant in the different specifications. This does not discount the importance of good policies, but probably indicates the importance of good policies made by good institutions. Institutions, in the form of political stability showed up as a significant determinant of FDI.

Measuring the export capability of South African regions

Recent research has identified what determines local exports and what policies might make them grow. Regions with higher Gross Domestic Product per capita, faster population growth, higher levels of skills, greater export diversification and shorter distances to ports have experienced faster export growth. However, the results of regression models apply to a theoretical representative region and do not allow one to establish where policy interventions will be most effective. This article constructs an index to identify the regions in South Africa that can export manufactured goods. It draws on the literature of the determinants of exports for indicators of the capability (or potential) to export across 354 magisterial districts in 1996 and 2001. The results show a positive relationship between export capability and export performance. The article identifies a number of front-runner magisterial districts along with those of high capability but low performance that stand to benefit most from industrial policy interventions.

The impact of tourism on poverty in South Africa

This paper evaluates the potential impact of tourism on poverty in South Africa on the basis of recent survey data on international tourism spending patterns. It looks at three scenarios, using an applied general equilibrium model. The main finding is that the poor benefit very little in the short term from additional tourism income. A further finding is that domestic and international tourist expenditure affect the economy differently; both markets are therefore important. In essence, the research confirms that tourism receipts can be used as a tool to alleviate poverty, but in South Africa this must be supported by policies that focus on the labour market and human resource development.

Regional Income Evolution in South Africa after Apartheid

South Africa is one of the wealthiest countries on the African continent. The high national level (and growth) of GDP per capita, however, masks significant differences in economic performance across South Africas regions. This paper uses (spatial) Markov chain techniques to describe the evolution of the entire cross-section regional income distribution in terms of its intra-distributional characteristics during the post-Apartheid period. The results indicate a heavily diverging regional income distribution. Relatively poor regions are likely to remain poor or become even poorer and the richest regions will maintain their lead in terms of income levels. Explicitly taking account of space furthermore shows that these high-income regions are acting as local growth poles, absorbing economic activity from their immediate surroundings. Location, trade, education, and the variable fortune of the gold mining industry seem to be important determinants of the observed evolution.

African Economic Growth: Wrong to Rely on Small Businesses?*

Abstract Most firms, including manufacturing firms in Sub-Saharan Africa are small firms. Indeed, even the large manufacturing firms in Africa are not very large when compared to large firms in industrialised countries. A defining feature of Africas poor economic growth performance over the past 50 years has been the lack of private sector to grow fast enough, create sufficient numbers of jobs and generate growing exports to the rest of the world. Africas economic failure is thus argued in this paper to be to a failure of small business. However, given that small businesses have played a positive role in economic development in many developed as well as developing regions (most notably South East and East Asia and the economies in transition) the paper attempts to identify the reasons why small businesses may not be an adequate engine of economic growth and development in Africa. Evidence from various firm-level surveys in Africa is analyzed and possible mechanism for the bootstrapping of economic growth and development in Africa identified.

Can South Africa sustain and diversify its exports

The aim of this paper is to examine the diversification of South Africa’s exports over the period 1994 to 2012. A decomposition of export growth shows that exports of non-fuel primary commodities as well as medium-skill and technology-intensive manufactured products increased. The largest decrease was in the export of resource-intensive manufactures. These changes reflect South Africa’s endowment of relatively low levels of physical and human capital. The analysis shows that export products that are further from the country’s comparative advantage, make smaller contributions to growth in the intensive margin. It clearly shows the challenge of sustainably diversifying the export basket.

The Spatial Persistence of Population and Wealth During Apartheid: Comparing the 1911 and 2011 Censuses

ABSTRACT This article examines the spatial distribution of people and wealth in South Africa over the period 1911 to 2011. Economic development is typically characterized by agglomeration, but Apartheid policies tried to separate people and disperse economic activity. Zipfs Law is used to examine the balance of these forces. The results show that Apartheids interventions could not stop agglomeration, which seems to have continued to the point of over-concentration today. Wealth has become increasingly concentrated in places of initial white settlement and the large urban agglomerations.

Globalization and Local Economic Growth in South Africa

The relationship between globalization1 and economic development is a topical and controversial one. Many economists see the benefits of globalization outweighing its disadvantages, and ascribe the rise in living standards, especially in Asia to the openness of trade brought on by globalization. Dissenting voices however, point to globalization as a contributing force to global inequalities and for locking poor countries into disadvantageous positions relative to richer countries (see for instance the summary in Wade, 2004). Following the financial crisis of 2008, many are arguing that financial integration and openness has gone too far, and that it is in the interest of developing countries to delay or roll back financial openness (for example, Obstfeld, 2008).