- Olivier Basdevant, Andrew Jonelis, Borislava Mircheva, and Slavi Slavov
- Published Date:
- June 2014
South Africa has strong ties with its neighbors in the region. Thus, it is reasonable to expect that South Africa’s business cycle and trend growth rate will affect those of neighboring countries. While there are multiple linkages (trade, investment, financial, and institutional) that are quantitatively important, formal econometric analysis in this paper and in the rest of the literature has not been able to detect a clear impact after 1994, once global shocks are controlled for. Moreover, we find no evidence of real spillovers from South Africa to the rest of the continent over the same period. Plausible explanations include the limited extent of integration, the continent’s growth acceleration from the mid-1990s, the fact that South Africa’s growth impact may have become impossible to detect separately from global growth after South Africa reintegrated into the world economy with the end of sanctions, and the possibility that the multiple spillover channels pull in opposite directions. These stories are yet to be formally tested—a possible future extension of this paper. However, our gut feeling is that the decoupling in the mid-1990s and lagging integration are likely to turn out to be the main drivers behind our results.
The negative results of this paper are surprising and indeed counterintuitive. It is important not to exaggerate their significance. The econometric estimates are based on historical data (whose quality is uneven). Given how fast the region and the continent are changing, the finding of no evidence of spillovers could change. The future might look quite different from the past.
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For constructive comments and ideas, we are grateful to Emre Alper, Alfredo Cuevas, Domenico Fanizza, Sebnem Kalemli-Ozcan, Dirk Muir, as well as our colleagues in the Southern II division of the IMF’s African Department. We are particularly indebted to Lamin Leigh and Laura Papi for their overall guidance and support.
Botswana’s monetary authorities also monitor the country’s real effective exchange rate as a guide to exchange rate policy.
South Africa produces ½ percent of global GDP, while Swaziland produces 0.005 percent.
See Kumhof and others (2010) for a more general and detailed presentation of GIMF.
Arora and Vamvakidis (2010) extend the analysis to 2007, but do not test for a structural break in 1994.
These results are not reported here but are available upon request.
Fiechter and others (2011) discuss the differences between branches and subsidiaries. An important caveat they make is that while those differences might appear stark on paper, in reality they tend to be more nuanced. For example, as illustrated during the Argentina crisis of 2001–2002, while subsidiaries might in theory be easier than branches for the parent to walk away from in a crisis, reputational risks and confidence effects might blur the distinction in practice.