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1 – 7 of 7South African public debt has recently increased significantly and has reached worrying levels. This study aims to examine the debt threshold effects on economic growth in South…
Abstract
Purpose
South African public debt has recently increased significantly and has reached worrying levels. This study aims to examine the debt threshold effects on economic growth in South Africa, with an objective of suggesting a debt threshold as South African policymakers will seek to reduce debt to a sustainable level in the coming years.
Design/methodology/approach
The study applies a recent novel methodology advanced by Hansen (2017) that allows modelling a regression kink with an unknown threshold.
Findings
The findings of this study indicate a robust debt threshold of 37% of gross domestic product (GDP). Below this threshold, debt is growth-enhancing, but above 37% of GDP, debt is harmful to growth in South Africa.
Practical implications
Among other things, to reduce the debt-to-GDP ratio, South Africa will need a fiscal consolidation policy by undertaking reforms to state-owned companies to reduce their reliance on public funds, as well as putting in place economic measures to boost long-term growth. The country should also improve tax collection in order to realize additional tax revenue through enhancing compliance and other revenue collection measures.
Originality/value
Most of the existing studies on debt threshold effects in Africa are panel data studies, which assume parameter homogeneity, by determining a single debt threshold value applicable to all countries. This can be misleading as the debt-growth nexus is country-specific, being conditional on several factors, such as institutional quality. The present study applies a recent novel methodology, which allows to model a regression kink with an unknown threshold, for the case of South Africa. The methodology endogenously determines the debt threshold while also allowing a country-specific analysis.
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The purpose of this study is to seek to re-examine the threshold effects of public debt on economic growth in Africa.
Abstract
Purpose
The purpose of this study is to seek to re-examine the threshold effects of public debt on economic growth in Africa.
Design/methodology/approach
This study applies panel smooth transition regression approach advanced by González et al. (2017). The method allows for both heterogeneity as well as a smooth change of regression coefficients from one regime to another.
Findings
A debt threshold in the range of 62–66% is estimated for the whole sample. Low debt is found to be growth neutral but higher public debt is growth detrimental. For middle-income and resource-intensive countries, a debt threshold in the range of 58–63% is estimated. As part of robustness checks, a dynamic panel threshold model was also applied to deal with the endogeneity of debt, and a much higher debt threshold was estimated, at 74.3%. While low public debt is found to be either growth neutral or growth enhancing, high public debt is consistently detrimental to growth.
Research limitations/implications
The findings of this study show that there is no single debt threshold applicable to all African countries, and confirm that the debt threshold level is sensitive to modeling choices. While further analysis is still needed to suggest a policy, the findings of this study show that high debt is detrimental to growth.
Originality/value
The novelty of this study is twofold. Contrary to previous studies on Africa, this study applies a different estimation technique which allows for heterogeneity and a smooth change of regression coefficients from one regime to another. Another novelty distinct from the previous studies is that, for robustness checks, this study divides the sample into low- and middle-income countries, and into resource- and nonresource intensive countries, as debt experience can differ among country groups. Further, as part of robustness checks, another estimation method is also applied in which the threshold variable (debt) is allowed to be endogenous.
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This study aims to examine the illicit capital movement through trade misinvoicing in Burundi, at disaggregated levels by major trading partners and by major export and import…
Abstract
Purpose
This study aims to examine the illicit capital movement through trade misinvoicing in Burundi, at disaggregated levels by major trading partners and by major export and import commodities.
Design/methodology/approach
Trade misinvoicing is estimated by comparing the trade values declared by Burundi with those declared by trading partners in a bilateral international transaction, after adjusting for the cost of freight and insurance. Disaggregated trade misinvoicing by major trading partners is computed using the Direction of Trade Statistics database of the International Monetary Fund over the period 1970–2019. Disaggregated trade misinvoicing by major trading commodities is computed using the UN-COMTRADE database over the period 1993–2019.
Findings
Exports of Burundi to most of its major trading partners are found to be underinvoiced. The top destinations for export underinvoicing are United Arab Emirates, Belgium and Germany. However, exports to UK and Switzerland are found to be overinvoiced. The major export commodities considered, coffee and gold, are found to be affected by trade misinvoicing to a great extent. On the import side, the estimation results indicate that imports of Burundi from its major trading partners are in general overinvoiced. High import overinvoicing is observed in the trade with Saudi Arabia, China and Japan. At commodity level, for the top 6 commodities considered, imports were to a great extent found to be overinvoiced. Cases of illicit capital outflows and inflows through trade misinvoicing are highlighted.
Practical implications
Some policy implications are drawn from this study. First, in collaboration with its development partners, the Government of Burundi should put in place measures to reduce the trade misinvoicing phenomenon, which undermines poverty reduction efforts. The study has shown which trade partners are involved and which commodities are mostly affected. Policy efforts could then be focused in that regard. Investigations at the company and transaction levels can be made to identify the mechanisms of trade misinvoicing. Second, more effort is needed in ensuring systematic and transparent reporting of international trade transactions. To fight trade misinvoicing, transparency in international trade is key, through coordinated enforcement of reporting rules.
Originality/value
Previous studies analyzed the problem of trade misinvoicing at an aggregated level. However, this leaves out essential information on trading partners involved in the phenomenon as well as trading commodities affected. This study investigates trade misinvoicing at disaggregated levels, at product level and by trading partner.
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This study reexamines fiscal deficit sustainability in South Africa.
Abstract
Purpose
This study reexamines fiscal deficit sustainability in South Africa.
Design/methodology/approach
The study applies three cointegration testing approaches, namely testing for multiple structural changes in a cointegrated regression model, time-varying cointegration test and asymmetric cointegration test.
Findings
The results point to the existence of a level relationship between government revenue and spending. In addition, the long-run equilibrium relationship between government revenue and spending in South Africa is found to be characterized by breaks. As such, assuming a constant cointegrating slope may be misleading. Results from time-varying cointegration and an estimation of a cointegrated two-break model indicate that cointegrating coefficient has been time-varying but has remained less than 1 for the entire study period, indicating that fiscal deficits have been weakly sustainable. This finding is also confirmed by the results from an estimated asymmetric error correction model.
Practical implications
In view of the findings, authorities should put in place policies to improve the fiscal budgetary stance and reinforce the sustainability of the fiscal deficits in South Africa. Among other things, South Africa could undertake reforms to state-owned companies to reduce their reliance on public funds, slow down the pace of the public sector wage growth and devise effective economic measures to boost long-term growth. In addition, tax compliance and other revenue collection measures should be enhanced for additional tax revenue.
Originality/value
The contribution of this study is twofold; first, the study uses a long series of annual data spanning over a century, from 1913 to 2020. Indeed, cointegration is better modeled using long spans of time series data. Second, to examine the existence of a level relationship between spending and revenue, the study uses cointegration tests which allow capturing time-variation in the cointegrating slope coefficient, and accounting for asymmetries in the relationship between government spending and revenue. It is important to allow for time-variation in the cointegrating slope coefficient, especially when it has been hardly treated in the empirical literature on fiscal deficit sustainability. Allowing for time-variation in the cointegrating slope coefficient helps us to analyze fiscal deficit sustainability by periods of time. Indeed, the degree of fiscal sustainability can change from one time period to another.
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This study aims to undertake an institutional analysis of capital flight and examine the drivers of capital flight from Burundi.
Abstract
Purpose
This study aims to undertake an institutional analysis of capital flight and examine the drivers of capital flight from Burundi.
Design/methodology/approach
Given the episodes of political instability and poor governance which have characterized Burundi’s landscape in the past decades, coupled with macroeconomic instability which has been prevailing, political, economic and institutional factors are used to explain the trend and magnitude of capital flight which were recorded. An econometric analysis using robust least squares is also used to examine the determinants of capital flight from Burundi.
Findings
The estimation results seem to be sensitive to capital flight measurement used, but in general, they suggest that external debt, political instability and wars, as well as exports, are the main drivers of capital flight from Burundi.
Research limitations/implications
The findings of this study imply that to discourage capital flight, the government of Burundi should promote peace and political stability. In addition, more responsibility, more transparency and accountability are required from the government of Burundi in managing resources from external debt. Moreover, some actions are needed to fight trade misinvoicing, which was seen to be a major channel of capital flight from Burundi. It is however to be acknowledged that our econometric analysis results might not be robust because of data limitations related to data availability on capital flight for only the period 1985-2013.
Originality/value
This study contributes to the existing capital flight literature in two ways. First, by undertaking the first ever country-specific study focusing on Burundi, and second, by undertaking an institutional analysis of capital flight to understand the political, economic and institutional issues behind capital flight from Burundi. The focus in this study is on Burundi because of the burden that capital flight imposes on the country already impoverished.
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This study reexamines the sustainability of fiscal policy in Sweden.
Abstract
Purpose
This study reexamines the sustainability of fiscal policy in Sweden.
Design/methodology/approach
To test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).
Findings
Using the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.
Research limitations/implications
A number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.
Originality/value
The contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).
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Janna Besamusca and Kea Tijdens
The purpose of this paper is to fill several knowledge gaps regarding the contents of collective agreements, using a new online database. The authors analyse 249 collective…
Abstract
Purpose
The purpose of this paper is to fill several knowledge gaps regarding the contents of collective agreements, using a new online database. The authors analyse 249 collective agreements from 11 countries – Benin, Brazil, Ghana, Indonesia, Kenya, Madagascar, Peru, Senegal, Tanzania, Togo, Uganda. The authors research to what extent wage and other remuneration-related clauses, working hours, paid leave arrangements and work-family arrangements are included in collective agreements and whether bargaining topics cluster within agreements.
Design/methodology/approach
The authors use the web-based WageIndicator Collective Bargaining Agreement Database with uniformly coded agreements, that are both collected and made accessible online. The authors present a quantitative multi-country comparison of the inclusion and contents of the clauses in the agreements.
Findings
The authors find that 98 per cent of the collective agreements include clauses on wages, but that only few agreements specify wage levels. Up to 71 per cent have clauses on social security, 89 per cent on working hours and 84 per cent of work-family arrangements. The authors also find that collective agreements including one of these four clauses, are also more likely to include the other three and conclude that no trade off exists between their inclusion on the bargaining agenda.
Research limitations/implications
Being one of the first multi-country analyses of collective agreements, the analysis is primarily explorative, aiming to establish a factual baseline with regard to the contents of collective agreements.
Originality/value
This study is unique because of its focus on the content of collective bargaining agreements. The authors are the first to be able to show empirically which clauses are included in existing collective agreements in developing countries.
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