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ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR

Year 2020, Volume: 12 Issue: 1, 66 - 83, 19.02.2020

Abstract

Globalisation has become one of the most profound processes to influence both developed and developing regions. No more so has this been evident than in the South African economy. The country’s democratic transition attributed the adoption of a less protectionist and liberal economic orthodoxy aimed to facilitate social and economic development. While the introduction of trade agreements and an influx of FDI has contributed to enhanced infrastructure, the impact of globalisation on the role of the state has raised several questions. Some suggest that economic globalisation spurs on fiscal growth by increasing social expenditure (compensation hypothesis). Others theorise that mobile capital in a more competitive financial environment has limited the role of the state (efficiency hypothesis). In light of this debate and concerns of unstainable fiscal growth in South Africa, the study’s primary objective was to analyse the relationship between economic globalisation, social expenditure and tax revenue in the South African economy. Secondary annual time series data from 1995 to 2018 were used. Two ARDL models were employed to test the long-run relationships, while the ECM assisted in estimating the short-run dynamics. Results for both the short- and long-run together with the causality analysis provide evidence that refutes the notion that a more integrated South African economy induces external shocks. The findings rather support the efficiency view. In this regard, competitive financial markets coupled with a high tax burden and fiscal debt concerns have reduced the state’s revenue capacity, limiting the potential to further social development. In addressing these concerns, government needs to proliferate strategies that advance fiscal consolidation and policy certainty, and implement structural reforms that facilitate inclusive growth.

References

  • Al-Rodhan, N.R. & Stoudmann, G. (2006). Definitions of Globalization: A Comprehensive Overview and a Proposed Definition. Geneva: GCSP. Amavilah, V., Asongu, S.A. & Andrés, A.R. (2017). Effects of globalization on peace and stability: implications for governance and the knowledge economy of African countries. Technological Forecasting and Social Change, 122(1), 91-103. Bayat, T., Tasar, I. & Kayhan, S. (2017). The validity of efficiency and compensation hypothesis for G7 countries. Ecoforum Journal, 6(2), 1-7. Blackmon, P. (2006). The state: back in the centre of the globalisation debate. International Studies Review 8(1), 116– 119. Bond, P. & Malikane, C. (2019). Inequality caused by macro-economic policies during an era of durable over accumulation crisis. Johannesburg: University of Johannesburg. Borcherding, T.E. (1977). Budgets and Bureaucrats. Durham: Duke University Press. Bostan, I., Toderascu, C. & Firtescu, B.N. (2018). Exchange rate effects on international trade competitiveness. Journal of Risk and Financial Management, 11(2), 1-19. Carmody, P. (2002). Between globalisation and (post) apartheid: The political economy of restructuring in South Africa. Journal of Southern African Studies, 28(2), 255-275. Deininger, M., 2014. Global Pentecostalism: An Inquiry into The Cultural Dimensions of Globalization. Hamburg: Anchor Academic Publishing. Donaldson, A. (2018). Fiscal policy since the great recession. The Journal of the Helen Suzman Foundation, 82(1), 27-32. Eugster, J., Ho, G. & Piazza, R. (2018). How knowledge spreads. Finance and Development, 2018(1), 52 – 55. Fanta, A.B., Berkowitz, B., Khumalo, J., Mutsonziwa, K., Maposa, O. & Ramsamy, P. (2017). Digitization of Social Grant Payments and Financial Inclusion of Grant Recipients in South Africa – Evidence from Finscope Surveys. Midrand: FinMark Trust. Friedman, M. (1942). The inflationary gap: II. Discussion of the inflationary gap. The American Economic Review, 32(2), 314-320. Garrett, G. & Mitchell, D. (2001). Globalization and the welfare state: Income transfers in industrialised democracies. European Journal of Political Research, 39(1), 145–77 Gözgör, G., Bilgin, M.H. & Zimmermann, K.F. (2019). Public employment decline in developing countries in the 21st century. Maastricht: Global Labor Organisation. Grębosz, M. & Hak, A. (2015). Multidimensional character of globalisation. Organizacja I Zarzj\Dzanie, 59(1), 69-82. Gunter, B.G. & Van der Hoeven, R. (2004). The social dimension of globalization: A review of the literature. International Labour Review, 143(1), 7-43. Gygli, S., Haelg, F., Potrafke, N. & Sturm, J.E. (2019). The KOF globalisation index–Revisited. The Review of International Organizations, 1(1), 1-32. Kang, J.W. & Dagli, S. (2018). International trade and exchange rates. Journal of Applied Economics, 21(1), 84-105. Katona, K., Árva, L. & Schlett, A. (2013). Stages of globalisation: Alternative ways from eastern Europe and the far east. Bratislava: Kalligram. Kaufman, R.R. & Segura-Ubiergo, A. (2001). Globalization, domestic politics, and social spending in Latin America: 1973–97. World Politics, 53(4), 553-587. Kim, T.K. & Zurlo, K. (2009). How does economic globalisation affect the welfare state? International Journal of Social Welfare, 18(2), 130-141. Kishan, P.K.V. (2018). Globalization and Inequality – A Pathway Through Education. Ahmedabad: Indian Institute of Management. Koster, F. (2009). The welfare state and globalisation: Down and out or too tough to die? International Journal of Social Welfare, 18(2), 153-162. Lammers, I., van Gerven-Haanpää, M.M. & Treib, O. (2018). Efficiency or compensation? The global economic crisis and the development of the European Union’s social policy. Global social policy, 18(3), 304-322. Larsson, T. (2001). The Race to The Top: The Real Story of Globalization. Washington, D.C.: Cato Institute. Mishra, R. (1999). Globalization and the Welfare State. Cheltenham: Edward Elgar. Mtantato, S. & Ngozo, T. (2018). SA’s ‘welfare state’ is in trouble. https://mg.co.za/ article/2018-09-28-00-sas-welfare-state-is-in-trouble. Accessed: 2019/07/21. Ngondo, M. & Khobai, H. (2018). The impact of exchange rate on exports in South Africa. Port Elizabeth: Nelson Mandela University. OECD (Organisation for Economic Co-Operation and Development). (2017). Making Globalisation Work: Better Lives for All. Paris: OECD Publishing. Olawole, K. & Adebayo, T. (2017). Openness and Government Size: The Compensation and Efficiency Hypotheses Considered for Nigeria. Ile-Ife: Obafemi Awolowo University. Pannilage, U. (2017). An introduction to the theoretical perspectives of globalisation. Journal of Humanities and Social Sciences, 7(1), 1-18. Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. Potrafke, N. (2018). The globalisation-welfare state nexus: Evidence from Asia. IFO Working Papers 272. Munich: University of Munich. Rodrik, D. (1998). Has globalization gone too far? Challenge, 41(2), 81-94. Sebake, B.K. (2017). Neoliberalism in the South African post-apartheid regime. https://pdfs.semanticscholar.org/0008/9cde9a89a1842e95be82e3d682ad8d8e2343.pdf Accessed 2019/07/12. Stiglitz, J. (2003). Globalization and the economic role of the state in the new millennium. Industrial and Corporate Change, 12(1), 3-26. Walter, S. (2010). Globalization and the welfare state: Testing the micro-foundations of the compensation hypothesis. International Studies Quarterly, 54(2), 403-426.
Year 2020, Volume: 12 Issue: 1, 66 - 83, 19.02.2020

Abstract

References

  • Al-Rodhan, N.R. & Stoudmann, G. (2006). Definitions of Globalization: A Comprehensive Overview and a Proposed Definition. Geneva: GCSP. Amavilah, V., Asongu, S.A. & Andrés, A.R. (2017). Effects of globalization on peace and stability: implications for governance and the knowledge economy of African countries. Technological Forecasting and Social Change, 122(1), 91-103. Bayat, T., Tasar, I. & Kayhan, S. (2017). The validity of efficiency and compensation hypothesis for G7 countries. Ecoforum Journal, 6(2), 1-7. Blackmon, P. (2006). The state: back in the centre of the globalisation debate. International Studies Review 8(1), 116– 119. Bond, P. & Malikane, C. (2019). Inequality caused by macro-economic policies during an era of durable over accumulation crisis. Johannesburg: University of Johannesburg. Borcherding, T.E. (1977). Budgets and Bureaucrats. Durham: Duke University Press. Bostan, I., Toderascu, C. & Firtescu, B.N. (2018). Exchange rate effects on international trade competitiveness. Journal of Risk and Financial Management, 11(2), 1-19. Carmody, P. (2002). Between globalisation and (post) apartheid: The political economy of restructuring in South Africa. Journal of Southern African Studies, 28(2), 255-275. Deininger, M., 2014. Global Pentecostalism: An Inquiry into The Cultural Dimensions of Globalization. Hamburg: Anchor Academic Publishing. Donaldson, A. (2018). Fiscal policy since the great recession. The Journal of the Helen Suzman Foundation, 82(1), 27-32. Eugster, J., Ho, G. & Piazza, R. (2018). How knowledge spreads. Finance and Development, 2018(1), 52 – 55. Fanta, A.B., Berkowitz, B., Khumalo, J., Mutsonziwa, K., Maposa, O. & Ramsamy, P. (2017). Digitization of Social Grant Payments and Financial Inclusion of Grant Recipients in South Africa – Evidence from Finscope Surveys. Midrand: FinMark Trust. Friedman, M. (1942). The inflationary gap: II. Discussion of the inflationary gap. The American Economic Review, 32(2), 314-320. Garrett, G. & Mitchell, D. (2001). Globalization and the welfare state: Income transfers in industrialised democracies. European Journal of Political Research, 39(1), 145–77 Gözgör, G., Bilgin, M.H. & Zimmermann, K.F. (2019). Public employment decline in developing countries in the 21st century. Maastricht: Global Labor Organisation. Grębosz, M. & Hak, A. (2015). Multidimensional character of globalisation. Organizacja I Zarzj\Dzanie, 59(1), 69-82. Gunter, B.G. & Van der Hoeven, R. (2004). The social dimension of globalization: A review of the literature. International Labour Review, 143(1), 7-43. Gygli, S., Haelg, F., Potrafke, N. & Sturm, J.E. (2019). The KOF globalisation index–Revisited. The Review of International Organizations, 1(1), 1-32. Kang, J.W. & Dagli, S. (2018). International trade and exchange rates. Journal of Applied Economics, 21(1), 84-105. Katona, K., Árva, L. & Schlett, A. (2013). Stages of globalisation: Alternative ways from eastern Europe and the far east. Bratislava: Kalligram. Kaufman, R.R. & Segura-Ubiergo, A. (2001). Globalization, domestic politics, and social spending in Latin America: 1973–97. World Politics, 53(4), 553-587. Kim, T.K. & Zurlo, K. (2009). How does economic globalisation affect the welfare state? International Journal of Social Welfare, 18(2), 130-141. Kishan, P.K.V. (2018). Globalization and Inequality – A Pathway Through Education. Ahmedabad: Indian Institute of Management. Koster, F. (2009). The welfare state and globalisation: Down and out or too tough to die? International Journal of Social Welfare, 18(2), 153-162. Lammers, I., van Gerven-Haanpää, M.M. & Treib, O. (2018). Efficiency or compensation? The global economic crisis and the development of the European Union’s social policy. Global social policy, 18(3), 304-322. Larsson, T. (2001). The Race to The Top: The Real Story of Globalization. Washington, D.C.: Cato Institute. Mishra, R. (1999). Globalization and the Welfare State. Cheltenham: Edward Elgar. Mtantato, S. & Ngozo, T. (2018). SA’s ‘welfare state’ is in trouble. https://mg.co.za/ article/2018-09-28-00-sas-welfare-state-is-in-trouble. Accessed: 2019/07/21. Ngondo, M. & Khobai, H. (2018). The impact of exchange rate on exports in South Africa. Port Elizabeth: Nelson Mandela University. OECD (Organisation for Economic Co-Operation and Development). (2017). Making Globalisation Work: Better Lives for All. Paris: OECD Publishing. Olawole, K. & Adebayo, T. (2017). Openness and Government Size: The Compensation and Efficiency Hypotheses Considered for Nigeria. Ile-Ife: Obafemi Awolowo University. Pannilage, U. (2017). An introduction to the theoretical perspectives of globalisation. Journal of Humanities and Social Sciences, 7(1), 1-18. Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. Potrafke, N. (2018). The globalisation-welfare state nexus: Evidence from Asia. IFO Working Papers 272. Munich: University of Munich. Rodrik, D. (1998). Has globalization gone too far? Challenge, 41(2), 81-94. Sebake, B.K. (2017). Neoliberalism in the South African post-apartheid regime. https://pdfs.semanticscholar.org/0008/9cde9a89a1842e95be82e3d682ad8d8e2343.pdf Accessed 2019/07/12. Stiglitz, J. (2003). Globalization and the economic role of the state in the new millennium. Industrial and Corporate Change, 12(1), 3-26. Walter, S. (2010). Globalization and the welfare state: Testing the micro-foundations of the compensation hypothesis. International Studies Quarterly, 54(2), 403-426.
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Details

Primary Language English
Subjects Economics
Journal Section Research Article
Authors

Jacques De Jongh This is me

Publication Date February 19, 2020
Published in Issue Year 2020 Volume: 12 Issue: 1

Cite

APA De Jongh, J. (2020). ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR. International Journal of Business and Management Studies, 12(1), 66-83.
AMA De Jongh J. ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR. IJBMS. February 2020;12(1):66-83.
Chicago De Jongh, Jacques. “ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR”. International Journal of Business and Management Studies 12, no. 1 (February 2020): 66-83.
EndNote De Jongh J (February 1, 2020) ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR. International Journal of Business and Management Studies 12 1 66–83.
IEEE J. De Jongh, “ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR”, IJBMS, vol. 12, no. 1, pp. 66–83, 2020.
ISNAD De Jongh, Jacques. “ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR”. International Journal of Business and Management Studies 12/1 (February 2020), 66-83.
JAMA De Jongh J. ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR. IJBMS. 2020;12:66–83.
MLA De Jongh, Jacques. “ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR”. International Journal of Business and Management Studies, vol. 12, no. 1, 2020, pp. 66-83.
Vancouver De Jongh J. ECONOMIC GLOBALISATION AND GOVERNMENT SIZE: TESTING THE COMPENSATION HYPOTHESIS IN SOUTH AFRICA’S PUBLIC SECTOR. IJBMS. 2020;12(1):66-83.