Showing papers in "South African Journal of Economics in 2016"

Institutional Quality and CO2 Emission–Trade Relations: Evidence from Sub-Saharan Africa

Abstract: This paper examines the roles of trade, institutional quality and their interactions in explaining carbon dioxide emissions in a panel sample of 40 Sub-Sahara African countries using the system generalised method of moments. We find that institutional reforms are unequivocally environmental improving. Meanwhile, the impacts of trade on the environment tend to depend on the institutional setting of a country. More specifically, trade openness is harmful to the environment in countries with low institutional quality and beneficial to the environment in countries with high institutional quality. This means that institutional reforms are a perquisite for the countries with low institutional quality to actualise the beneficial environment effect of trade. As for the countries with adequate institutional quality, trade and institutions are reinforcing each other in bringing down pollution. From these results, we conclude that trade openness implemented in a sound institutional setting potentially brings better trade, more growth and better environment.

The Effects of Remittances on Output per Worker in Sub‐Saharan Africa: A Production Function Approach

Abstract: This paper uses a production function to examine the channels through which remittances affect output per worker in 31 Sub-Saharan Africa (SSA) countries from 1980-2010. We find that remittances directly increase output per worker if complemented with education. The indirect effects vary with the economic characteristics of the recipient nations: while remittances have increased human capital among the low-income nations, among the upper-middle-income nations, they have mostly increased total factor productivity, but are still inversely related to factor inputs among the lower-middle-income nations of SSA. Finally, remittances are more effective when institutional risk is reducing.

Total Factor Productivity in South African Manufacturing Firms

Abstract: The manufacturing sector is an important source of productivity growth and exports. Manufacturing firms are generally more productive than firms in the agricultural or services sectors and are an important source of job creation. Little is known about the productivity performance of the sector and its drivers in South Africa. The recent availability of firm-level tax administration data has made it possible to measure and analyse the productivity of manufacturing firms in South Africa for the first time. In this paper, we use firm-level data for the period 2010–13 to estimate total factor productivity in the South African manufacturing sector. We examine differences in the level and growth of productivity across manufacturing sub-sectors and examine the heterogeneity in productivity levels within sectors. Our analysis paves the way for future research into the factors driving productivity growth of manufacturing firms that will contribute to the evidence base of the reasons for the significant heterogeneity in measured firm performance, even within narrowly defined sectors and size groups.

Introduction to the South African Revenue Service and National Treasury Firm‐Level Panel

Abstract: The South African Revenue Service and National Treasury Firm-Level Panel is an unbalanced panel data set created by merging several sources of administrative tax data received during 2015. The four data sources that constitute the panel are: (i) company income tax from registered firms who submit tax forms; (ii) employee data from employee income tax certificates submitted by employers; (iii) value-added tax data from registered firms; and (iv) customs records from traders. These data sets constitute a significant and unique source for the study of firm-level behaviour in post-apartheid South Africa. We review the key data sources used to construct the panel, highlight some important questions that arise as a result of panel construction, discuss the biases in the resulting data, compare key aggregates in the panel to other data sources, and provide a descriptive overview of the tax records.

Job Flows, Worker Flows and Churning in South Africa

Abstract: How large are worker flows in a country where only 43% of the working age population are in employment? Rather surprisingly, the answer is that worker flows in South Africa are relatively large. In this paper, worker and job flows are estimated using anonymised IRP5 tax certificate data from the South African Revenue Service. The data used in this paper is from the 2011–2014 tax years and contains information on more than 12 million individuals and nearly 300,000 firms. The main finding of the paper is that worker flows are substantial, around 53% per year, or 58% when employers classified as engaged in “public administration” are excluded. One interpretation of this finding, as well as the patterns of separations and hires by firm growth rates, is that the labour market is not as rigid as had previously been thought. Worker flows are declining in firm size and in median earnings in the firm, they vary substantially by industry and are very low in the public sector. There is heterogeneity in worker experiences – while flows are high on average there are many workers that have very stable employment but those workers in the bottom quintile have worker flows more than three times those in the top quintile. Heterogeneity and persistence in worker flows and churning in firms are important – some firms have high levels of churning whilst others have much lower levels. Measurement error in the data about period employed from the IRP5 tax certificates is a concern but as far as can be ascertained this does not seem to be responsible for creating higher worker and job flows.

Public Debt, Economic Growth, and Inflation in African Economies

Abstract: We analyse the implications of public debt on economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt affect economic growth and exhibit negatively, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. The highest average rates of real and per capita growth are achieved when public debt reaches 60% of the real GDP and an average inflation rate of 8.2%. When this ratio falls between 60-90%, the average rate of economic growth drops by up to 1.32 p.p. and continues dropping by up to 1.64 p.p. when the ratio exceeds 90%. Briefly, the high levels of public debt are reflected in reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the GDP and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. Identical behaviour of the GDP growth rates and inflation also appears in Sub-Saharan countries until the third interval (60-90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30-60%). For SADC countries, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. The high level of public debt is reflected in reduced rates of economic Growth and increasing inflation rates.

Stock Returns and Exchange Rate Nexus in Ghana: A Bayesian Quantile Regression Approach

Abstract: This paper presents analysis of the relationship and dependence structure between stock returns and exchange rates in Ghana using data of daily periodicity from January 4, 2011 to July 31, 2014 Analyses are conducted by means of Bayesian quantile regression (QR) technique and multiple causality tests Our findings suggest high dependence of the equity market on the foreign exchange market in Ghana, and that the link between the two markets follows the international trade-oriented model more than the portfolio balance theory We report that among the six exchange rates used, only the cedi–dollar registers instantaneous effect on the equity market

Tax evasion and the business environment in Uganda

Abstract: This paper examines the interaction between the different indicators of the business environment and tax evasion. First, we develop a simple theoretical model linking tax evasion to the business environment. Second, we test the model predictions using the World Bank Enterprise Survey data for Uganda. Findings indicate that the extent of tax evasion is associated with bureaucratic bribery, the quality and efficiency of the legal systems, and the inadequate provision of public capital. Our results are robust to alternative estimation strategy, choice of instruments, treatment of outliers, and missing data.

The Effect of Land Restitution on Poverty Reduction among the Khomani San “Bushmen” in South Africa

Abstract: This paper looks at the impact of land restitution involving the Khomani San “bushmen” in the Kgalagadi area of South Africa. It seeks to investigate the effect of land restitution on poverty reduction among the beneficiaries. We run two-stage least squares models of access to nature, per capita income and poverty status on the use of restituted land, among other variables. Our results suggest that the Khomani San beneficiaries have gotten more access to natural resources but that the use of restituted land has neither increased per capita income nor reduced poverty. In fact, the use of restituted land has contributed to increased poverty. Therefore, land restitution should become part of a broader, carefully crafted rural developmental strategy for it to be effective in reducing poverty. Otherwise, land restitution risks enabling indigenous communities to continue with their “traditional” way of life, and in fact thereby keep them poor.

The Political Economy of Middle‐Income Traps: Is South Africa in a Long‐Run Growth Trap? The Path to “Bounded Populism”

Abstract: The current literature on middle-income traps has been dominated by economists who have relied on economic explanations mainly around stages of development and the structural transformation of economies. But there is an equally vigorous literature from political science which speaks to the political economy of transitions. We look at the dynamics of how economic modernisation triggers structural changes with winners and losers and how this is reflected in the polarisation of the political sphere amongst middle-income countries. This paper asks the question of whether South Africa is an archetypical example of a country stuck in a trap and how this has affected the policy choices that it has made. South Africa needs to move up the value chain with a viable value proposition, and this requires a very different policy set and human capital plan.

Estimating the Short Run Effects of South Africa's Employment Tax Incentive on Youth Employment Probabilities using A Difference-in-Differences Approach

Abstract: What effect did the introduction of the Employment Tax Incentive (ETI) have on youth employment probabilities in South Africa in the short run? The ETI came into effect on the 1st of January 2014. Its purpose is to stimulate youth employment levels and ease the challenges that many youth experience in finding their first jobs. Under the ETI, firms that employ youth are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilize nationally representative Quarterly Labour Force Survey (QLFS) data for the period from January 2011 to June 2014, and implement a difference-in-differences methodology at the individual level to identify the effects of the ETI on youth employment probabilities. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is -0.005 and the 95% confidence interval is from -0.017 to 0.006. We thus obtain a fairly precisely estimated 'zero effect'. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. What our results imply is that any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed most of these youth even in the absence of the ETI. We conclude with a discussion of some of the policy implications of our findings.

Markups and Concentration in South African Manufacturing Sectors: An Analysis with Administrative Data

Abstract: This paper uses newly available firm-level tax data to evaluate the market structure in South African manufacturing sectors in the period 2010-2012. To describe the market structure, we compute markups for South African manufacturing firms and concentration indexes for 4-digit manufacturing sectors. We find both significant markups and significant concentration across most sectors. We compare computed markups and concentration with early estimates in South Africa and with other international benchmark countries. We then examine the market structure based on the concentration, firms size and entry and exit dynamics to rule out some potential explanations for relatively high markups. We find that the relationships are not monotonic and point to the importance of specific barriers to entry in explaining the relationship between these three characteristics.

Predicting Efficiency in Angolan Banks: A Two-Stage TOPSIS and Neural Networks Approach

Abstract: This paper presents an efficiency assessment of the Angolan banks using Technique for Order Preference by Similarity to the Ideal Solution (TOPSIS). TOPSIS is a multi-criteria decision-making technique similar to data envelopment analysis, which ranks a finite set of units based on the minimisation of distance from an ideal point and the maximisation of distance from an anti-ideal point. In this research, TOPSIS is used first in a two-stage approach to assess the relative efficiency of Angolan banks using the most frequent indicators adopted by the literature. Then, in the second stage, neural networks are combined with TOPSIS results as part of an attempt to produce a model for banking performance with effective predictive ability. The results reveal that variables related to cost structure have a prominent negative impact on efficiency. Findings also indicate that the Angolan banking market would benefit from higher level of competition between institutions.

Food Demand Characteristics in Uganda: Estimation and Policy Relevance

Abstract: Uganda was highly successful in reducing poverty over the past two decades but made little progress towards household food security. This underlines the need for designing food security interventions customised for household-specific needs and behaviours. This study estimates Ugandan household demand behaviour with a focus on food consumption paying particular attention to household-specific characteristics. The results show that preferences to increase calorie-dense staple consumption, likely associated with food energy deficiency, extend far beyond the percentage of rural Ugandans officially deemed poor. Price elasticities indicate that poor rural households are largely well positioned to compensate staple price increases by substitution as long as they are not already concentrated on the cheapest foods. This flexibility applies less to urban households. The estimated demand elasticities generally vary widely between rural and urban households and depend on expenditure levels. Household-specific characteristics have significant, sometimes pronounced, influences on demand, as do seasons and regions. The results reflect highly differentiated demand behaviour, which can be utilised to improve the design and evaluation of food security interventions.

Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda

Abstract: This paper highlights some mismatches in sectoral GDP contributions to overall tax revenue performance in Uganda. Employing ARDL bounds testing techniques, we show that growth in the agricultural sector holds the biggest potential to improve tax revenue performance in the long run. The industrial sector also exhibits a positive long run relationship with tax performance. However, the services sector, which has been the major driver of growth in Uganda, has demonstrated a negative long-run relationship with tax revenue performance. We attribute this negative relationship to revenue losses arising from, among others: tax evasion, informality, and tax exemptions. On the expenditure side, there is a positive long run relationship between tax revenue performance and both development and recurrent expenditures, albeit insignificant for the development expenditures. In addition, we demonstrate that aid grants depress tax revenue performance in the long run. Moreover, there is some scope for improving tax revenue performance by exploiting trade opportunities through measures that enhance the openness of the economy. We propose policies to support the growth of the agricultural and industrial sectors while emphasizing the need to control tax evasion, widen the tax base, review tax exemptions, and improve the productivity of public expenditure.

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Abstract: Emerging market economies (EMEs) have persistently experienced different waves of commodity terms of trade disturbances, generating macroeconomic instabilities. The adoption of inflation targeting (IT) by many EMEs has raised questions about its relative suitability in dealing with these shocks compared with other monetary policy regimes. This paper tests the robustness of IT compared with monetary targeting and exchange rate targeting regimes in coping with commodity terms of trade shocks using the panel vector autoregressive technique. The results show that in general, IT countries respond better to commodity terms of trade shocks especially with respect to inflation and output gap. However, exchange rates are more volatile in IT countries than in exchange rate targeting countries. The results suggest that EME countries can reduce the adverse effects of commodity terms of trade fluctuations when they adopt IT, but they also need to pay attention to exchange rate movements.

The Political Economy of Public Expenditures in Agriculture: Applications of Concepts to Mozambique

Abstract: This paper undertakes an investigation of agricultural public investments in Mozambique, drawing on insights from qualitative field interviews conducted in Mozambique, secondary data analysis and examination of the existing empirical literature, and by situating these insights within a political economy conceptual framework. We explore the driving factors behind the amount and allocation of public funds to agriculture, and behind the differential attention that various types of public investments receive in the process of making decisions on resource allocation. Agricultural public investments are more likely to be made that have two key features: higher attributability to politicians and donors of the output of public spending, and a shorter lag time between expenditures incurred and outputs produced. Evidence on geographical targeting of agricultural public funds corresponds more closely with theories suggesting that resources are used to sway communities opposed to the ruling party, rather than to reward political supporters. Examination of the effect of actors' and organisations' incentives and constraints on resource allocation in agriculture points to the importance of not treating “government,” “the ruling party” and other institutions as monolithic bodies; the paper instead highlights how differentiated interests within seemingly coherent institutions drive what gets public expenditure attention in the agricultural sector.

How does a Change in the Excise Tax on Beer Impact Beer Retail Prices in South Africa

Abstract: This article uses price data, collected by Statistics South Africa, to estimate the effect of a change in the excise tax on the retail price of beer. We find strong evidence that the excise tax on beer is overshifted to consumers. The pass-through coefficient is estimated at 4.83 (95% CI: 4.02; 5.64) for lager, and at 4.77 (95% CI: 4.04; 5.50) for all beer (which includes dark beer). This implies that for every R1/unit increase in the excise tax, the retail price increases by about R4.80/unit. Of the 23 brand-packaging combinations considered, the pass-through coefficients vary between 2.39 and 10.05 (median = 5.30). The majority of the price change in response to a tax change occurs immediately, and prices have fully adjusted two months after the excise tax increase becomes effective. Pass-through differs substantially across packaging types. The pass-through coefficient on 750 ml bottles is substantially lower than that of 330 ml (or 340 ml) cans and 6 × 330 ml (or 6 × 340 ml) “six-packs.” The overshifting of the excise tax has positive implications for public health policy, since they increase the effectiveness of alcohol taxes as a tool to reduce the (excessive) consumption of beer.

South African exporters and the global crisis: intensive margin shock, extensive margin hangover

Abstract: This paper examines how changes at the intensive (established exporters exporting existing products to established markets) and the extensive (new exporters, products or markets) margins contribute to South African export growth and how this was affected by the global financial crisis. We find that the intensive margin is the more important contributor to export growth, contributing more than three quarters of observed growth. The intensive margin contracted significantly during the global financial crisis of 2009 but bounced back to pre-crisis levels quickly. However, the impacts on the extensive margin persisted after the crisis with lower levels of entry of firms, new products and new destinations. The short-term impact of the crisis was mitigated by the concentration of South African exports among larger, more productive super-exporters. However, the fall in entry of new firms, products and destinations as a result of the crisis may mean that this concentration persists, and, at least over the next few years, South Africa does not diversify and broaden its exports.

A Diagnostic on the West African Monetary Union

Abstract: Deploying the classical optimum currency areas (OCA) theory and recent developments in the monetary literature, this paper evaluates the appropriateness of West African Monetary Union (WAEMU) as a monetary zone. Nine macroeconomic dimensions are investigated under which the first four items are quantified against a reference economy, namely the United States, the eurozone or China, while the rest are measured in absolute terms for time periods before and after the 2008-2009 global financial crisis. Results could signify relative dominance of the three world's largest economies to the West African region. In addition to inherent asymmetries across the union, findings suggest the emerging Chinese yuan as an alternative to the euro as the monetary anchor.

Fiscal Consolidation and the Public Sector Balance Sheet in South Africa

Abstract: Between 1994 and 2008 the South African government reduced its debt/GDP ratio from almost 50% to 27%. Unfortunately this reduction was accompanied by a significant decrease in government's fixed capital/GDP ratio from 90% to 55% – fiscal sustainability might have been restored, but government's balance sheet did not improve. A similar story can be told for State Owned Enterprises. Since the Great Recession the fiscal situation worsened markedly – the public debt ratio again approaches 50%. To restore fiscal sustainability this article suggests that the government faces two options: (1) to create room for future countercyclical policy, the government must cut current expenditure and reduce the public debt/GDP ratio to its pre-crisis level, or (2) substitute much-needed infrastructure capital expenditure for current expenditure while stabilising the debt/GDP ratio at its post-crisis level. Given that the much lower fixed capital/GDP ratio inhibits economic growth, the latter option might be more sensible.

Measuring the Real and Financial Connectedness of Selected African Economies with the Global Economy

Abstract: We examine the real and financial connectedness of selected African economies with the global economy using a network approach. We find that the connectedness of African economies with the global economy is quite sizable, with the global financial crisis increasing the connectedness measures above their pre-crisis levels. The results show that U.S., EU and Canada dominate Africa's equity markets, while China, India and Japan dominate Africa's real activities. Our results suggest that African economies are predominantly small open economies, deeply interconnected but systemically unimportant and vulnerable to headwinds emanating from the dominant economies in the overall global economy.

Measuring Persistence in Inflation: Evidence For angola

Abstract: Understanding inflation persistence in Angola is crucial because National Bank of Angola has approved in 2012 a new monetary policy operational framework which upgrades and expands the set of instruments to achieve its monetary goals. The purpose of this paper is to measure the degree of persistence of the headline, food, energy, underlying and 10% trimmed core inflations for Angola and to identify its implications for decision-making. Using both a traditional univariate method and non-parametric approach, our results suggest the presence of a statistically significant level of persistence in five inflation indicators for Angola. Moreover, the degree of persistence is similar both across the five inflation indicators and also across the sample period. Finally, our results also confirm that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original. These results have important implications for the design, the implementations and the effectiveness of the monetary policy, specialty when under an inflation targeting regime. First, since shocks tend to temporarily deviate inflation from its trend value a permanent policy stance is required. Secondly, a low degree of persistence means that monetary policy aiming price stability can only be implemented in a favorable setting with a permanent policy stance. Moreover, a low degree of persistence means that inflation can be stabilized in a short period time following a shock. Finally results are also relevant for prediction and modeling purposes.

The Short Term Economic Impact of Levying E-Tolls on Industries

Abstract: TERM is used to analyse the short-term regional economic impact of an increase in industries' transport costs when paying E-Tolls. Market-clearing and accounting equations allow regional economies to be represented as an integrated framework, labour adjusts to accommodate increasing transportation costs, and investments change to accommodate capital that is fixed.1 We concluded that costs from levying E-Tolls on industries are small in comparison to total transport costs, and the impact on economic aggregates and most industries are marginal: investments (−0.404%), gross domestic product (GDP) (−0.01) and consumer price inflation (−0.10%). This is true even when considering costs and benefits on industries as well as consumers. Industries that experienced the greatest decline in output were transport, construction and gold. Provinces that are closer to Gauteng and have a greater share of severely impacted industries experienced larger GDP and real income reductions. Mpumalanga's decrease in GDP was 17% greater than Gauteng's.

Current Account Deficit in Mauritius: Risks and Prospects

Abstract: Mauritius is often cited by international institutions, including the International Monetary Fund and World Bank, as a success story in economic development. The island has, since the early 1970s, adopted an export-led growth strategy to power its economy. However, a constant decline over the last decade in the exports to gross domestic product (GDP) ratio has resulted in a worsening current account to GDP ratio, which is now a cause for concern. Using a three-regime, self-exciting threshold autoregressive (SETAR) model, this paper finds that the Mauritian economy may converge to either of two current account equilibria, namely a deficit of 9% or a surplus of 2.5% on a seasonally adjusted basis. A dynamic simulation exercise suggests that the Mauritian current account is more likely to switch from surplus to deficit equilibrium than from deficit to surplus equilibrium. Given that the prevailing deficit is in the vicinity of the deficit equilibrium, structural policies aiming to boost productivity and efficiency are indispensable for pulling Mauritius out of the “deficit trap,” the more so since the island has been experiencing a continuous erosion of trade preferences, which formerly enabled it to have privileged access for its exports to the EU market.

What Are the Drivers of Fiscal Performance Gaps between Anglophone and Francophone Africa? A Blinder–Oaxaca Decomposition

Abstract: In this paper, we make use of the Blinder–Oaxaca decomposition to examine how the quality of budget institutions affects fiscal performance – primary balance and public debt – in sub-Saharan Africa. To organise our approach, we categorise sub-Saharan Africa countries according to the two main systems of budgetary institutions: the English-based system and the French-based system. The quality of budget institutions is measured through five criteria: centralisation, comprehensiveness, fiscal and procedural rules, sustainability and credibility, and transparency. Our findings show that, on average, Anglophone Africa countries have better budgetary institutions than their Francophone counterparts, and this difference is the main determinant of the fiscal performance gaps between the two groups. These performance gaps are mostly due to the characteristics effect, meaning that the relative poor fiscal performance of Francophone countries is not due to the French-based system itself but rather to the environment in which it operates. The budget process and procedures in these countries are relatively less comprehensive, sustainable and transparent and that adversely affects their fiscal performance.

Revisiting Growth‐Poverty Relationship: A Medium‐Term Causality Approach

Abstract: This article examines the potential medium-term causal relationship between changes in Gross Domestic Product (GDP) per capita and poverty in developing countries during the 1970s–1990s. For this purpose, we use panel data model evaluation techniques to test the out-of-sample forecasting performance of competing models. We conclude that the evidence supports the hypothesis that increases in GDP per capita cause unidirectional poverty reduction, measured by the $1/day poverty rate, in the period 1970s–1980s. The results are similar when analysing low- and middle-income countries and mid-high- and very high-inequality countries separately. However, in the period 1980s–1990s, it is only statistically significant for low-income countries.

On Determinacy and Learnability in a New Keynesian Model with Unemployment

Abstract: We analyze determinacy and stability under learning (E-stability) of rational expectations equilibria in the Blanchard and Gali (2006, 2008) New-Keynesian model of inflation and unemployment, where labor market frictions due to costs of hiring workers play an important role. We derive results for alternative specifications of monetary policy rules and alternative values of hiring costs as a percentage of GDP. Under low hiring costs – a typical part of the U.S. calibration – for policy rules based on current period inflation and unemployment our results are similar to those of Bullard and Mitra (2002). However, we find that the region of indeterminacy and E-instability in the policy space increases with the hiring costs. So, higher hiring costs – consistent with the European 'sclerotic' labor market institutions – seem to play an important part in explaining unemployment instability. Under lagged data based rules the area where monetary policy delivers both determinacy and E-stability shrinks. These rules perform worse according to these two dimensions when hiring costs go up. Finally, under expectations-based rules – unlike Bullard and Mitra (2002) – an additional explosive region is introduced. Here also the scope for determinacy and E-stability oriented monetary policy decreases. Interestingly – under the same rule and European 'sclerotic' labor market institutions – we find that responding too much to expected inflation and too little to expected unemployment may very well be self-defeating. When hiring costs are large, a central bank that follows such a policy rule could very easily end up in the worst-case scenario of both indeterminacy and E-instability.

Major international information flows across the Safex wheat market.

Abstract: We study information flows across four wheat futures markets on four continents: Zhengzhou Commodity Exchange (ZCE), South African Futures Exchange (SAFEX), Euronext/Liffe and Kansas City Board of Trade (KCBT). Three approaches for studying information flows among non-synchronous markets are applied: cointegration techniques, vector autoregressive analysis and multiple regression proposed. Although comparable underlying assets are traded in the four markets, our results indicate that no long-run links exist among them. ZCE is by far the most endogenous market, and Euronext/Liffe is the most exogenous one. Finally, the model points to KCBT as the most influential and sensitive wheat market. Our findings indicate that the relative openness of the SAFEX wheat market supports information flows and linkages from KCBT and Euronext/Liffe. Therefore, our results suggest that more supportive policies to incentivise higher wheat production in South Africa are required to mitigate the impact of price shocks emanating from the global wheat markets.