Research Article
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Year 2018, Volume: 10 Issue: 1, 115 - 133, 01.01.2018

Abstract

References

  • Abdulmumini, B.A & Tukur, G. (2012). The relationship between domestic investment and economic growth in Nigeria. International Journal of Research in Social Sciences, 2(3), 256-279.
  • Adhikary, B.K. (2011). FDI, trade openness, capital formation and economic growth in Bangladesh: A linkage analysis. International Journal of Business and Management, 6(1), 17-27.
  • Amir, Z., Zaman, T. & Ali, M. (2012). The macroeconomic determinants of investment: Empirical evidence from Bangladesh. International Journal of Scientific & Engineering Research, 3(9), 1-13.
  • Anwer, M. & Sampath, R.K. (1999). Investment and economic growth. Paper presented at Western Agricultural Economics Association Annual Meeting, July 11-14, 1999. Fargo, ND.
  • Bakari, S. (2017). The impact of domestic investment on economic growth: New evidence from Malaysia. MPRA Paper No. 79436. German: MPR.
  • Banerjee, R., Kearns, J. & Lombardi, M. (2015). (Why) is investment weak? BIS Quarterly Review, March 2015.
  • Barsky, R.B. & Sims, E.R. (2012). Information, animal spirits, and the meaning of innovations in consumer confidence. American Economic Review, 102(4), 1343-77.
  • Beaudry, P. & Portier, F. (2006). Stock prices, news, and economic fluctuations. American Economic Review 96(4), 1293–1307.
  • Blomstrom, M., Lipsey, R. & Zejan, M. (1994). What Explains the Developing Countries Growth? United Kingdom: Oxford University Press.
  • Bruno, G., Crosilla, L. & Margani, P. (2016). Inspecting The Relationship Between Business Confidence and Industrial Production: Evidence Based On Italian Survey Data. Rome: ISTAT.
  • Carruth, A., Dickerson, D. & Henley, A. (2002). What do we know about investment under uncertainty? Journal of Economic Surveys, 14(2), 119-153.
  • Chirinko, R.S. (1986). Tobin's Q and financial policy. NBER Working Paper 2082. Massachusetts: NBER.
  • Cushman, D.O. (1985). Real exchange rate risk, expectations, and the level of direct investment. The Review of Economics and Statistics, 67(2), 297-308.
  • De Jager, M. (2017). Understanding The Relationship Between Business Failure and Macroeconomic Business Cycles: A Focus On South African Businesses. Masters Dissertation. Johannesburg: University of Witwatersrand.
  • Den Haan, W. & Kaltenbrunner, G. (2009). Anticipated growth and business cycles in matching models. Journal of Monetary Economics 56(3), 309–327.
  • Demirel, S.K. & Artan, S. (2017). The causality relationships between economic confidence and fundamental macroeconomic indicators: Empirical evidence from selected European Union countries. International Journal of Economics and Financial Issues, 7(5), 417-424.
  • Driver, C. & Moreton, D. (1992). Investment, Expectations and Uncertainty. Oxford: Blackwell.
  • ECB (European Central Bank). (2013). Confidence Indicators and Economic Developments. Frankfurt: European Central Bank.
  • Ermolina, A. (2015). Business environment and economic growth: Is there a link? In I. Vrdoljak Raguž. & Z. Krželj-Čolović (Eds). Innovation, Leadership & Entrepreneurship Challenges of Modern Economy (pp.330-347). Dubrovnik: University of Dubrovnik.
  • Gennaioli, N., Ma, Y. & Shleifer, A. (2015). Expectations and investment. NBER Macroeconomics Annual, 30(2015), 379-442.
  • Ghali, K. & Ahmed, A. (1999). The intertemporal causal dynamics between fixed capital formation and economic growth in the group-of-seven countries. International Economic Journal, 13(2), 31-37.
  • Grasso, A. & Ropele, T. (2016). Business investment plans and inflation expectations. Paper presented at CESifo Conference on Macroeconomics Survey Data, 2-3 December.
  • Guiso, L. & Parigi, G. (1999). Investment and demand uncertainty. The Quarterly Journal of Economics, 114(1), 185-227.
  • Kellogg, R. (2014). The effect of uncertainty on investment: Evidence from Texas oil drilling. American Economic Review, 104(6), 1698–1734.
  • Kendrick, J.W. (1973). National Productivity and Economic Growth. http://www.nber. org/chapters/c3574 Accessed 29/06/2018
  • Laubscher, P. (2003). The value of two survey-based indicators in South Africa: The RMB/BER business confidence index and the Investec/BER PMI. Prepared for the Joint European Commission-OECD Workshop on International Development of Business and Consumer Tendency Surveys, 20-21 November 2003.
  • Lean, H.H & Tan, B.W. (2011). Linkages between foreign direct investment, domestic investment and economic growth in Malaysia. Journal of Economic Cooperation and Development, 32(4), 75-96.
  • Leduc, S. (2010). Confidence and the business cycle. FRBSF Economic Letter 35. San Francisco: FRBSF.
  • Leduc, S. & Sill, K. (2010). Expectations and economic fluctuations: An analysis using survey data. FRBSF Working Paper 2010-09. San Francisco: FRBSF.
  • Leigh, N.G. & Blakely, E.J. (2016). Planning Local Economic Development:Theory and Practice. Sage Publications.
  • Luong, K.V. & Vixathep, S. (2016). Business confidence index: A reflection of business sentiment in Vietnam. Journal of International Cooperation Studies, 23(2), 1-27.
  • Masayuki, M. (2016). Business uncertainty and investment: Evidence from Japanese companies. RIETI Discussion Paper Series 16-E-014. Tokyo: The Research Institute of Economy, Trade and Industry.
  • Mavrotas, G. & Kelly, R. (2001). Old wine in new bottle: Testing causality between savings and growth. The Manchester School Supplement, 69(S1), 97–105.
  • Meinen, P. & Roehe, O. (2017). On measuring uncertainty and its impact on investment: Cross-country evidence from the euro area. European Economic Review, 92(C), 161-179.
  • Mukhtar, T. & Rasheed, S. (2010). Testing a long run relationship between exports and imports: Evidence from Pakistan. Journal of Economic Cooperation and Development, 31(1), 41-58.
  • National Treasury. (2018). Budget Review: 2018. Pretoria: Government Printer.
  • Ncanywa, T. & Makhenyane, L. (2016). Can investment activities in the form of capital formation influence economic growth in South Africa? In M.P. Sebola & J.P. Tsheola (Eds). SAAPAM Limpopo Chapter 5th Annual Conference Proceedings 2016 (pp.270-279). Hatfield: SAAPM Limpopo Charter.
  • OECD (Organisation for Economic Cooperation and Development). (2017). Economic Surveys: South Africa. Paris: OECD Publishing.
  • Omri, A. & Kahouli, B. (2014). The nexus between foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, 68(3), 257-263.
  • Parkins, M. (1990). Macroeconomics. Massachusetts: Addison-Wesley.
  • 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.
  • Pigou, A. (1927). Industrial Fluctuations. Macmillan, London.
  • Qin, D., Cagas, M.A. Quising, P. & He, X.H. (2006). How much does investment drive economic growth in China? Journal of Policy Modelling, 28(7), 751-774.
  • Romer, D. (2001). Advanced Macroeconomics. 2nd ed. Boston: McGraw- Hill.
  • Sharpe, S. A. & Suarez, G. A. (2013). The insensitivity of investment to interest rates: Evidence from a survey of CFOs. Finance and Economics Discussion Series 2014-2. Washington, D.C.: Federal Reserve.
  • Van der Walt, J. & De Wet, G. (1995). The Prospects for Foreign Investment in South Africa. Pretoria: University of Pretoria.
  • World Bank. (2018). Global Economic Prospects: Sub-Saharan Africa. Washington, D.C.: World Bank.

AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA

Year 2018, Volume: 10 Issue: 1, 115 - 133, 01.01.2018

Abstract

Over the last decade, the South African economy has endured lacklustre economic growth. Prevailing economic conditions have been characterised by a weak level of consumer demand, falling business investment and significant policy uncertainty. Although various factors have an underlining effect on this environment, the significance of low business confidence has recently come to the fore. The primary objective of the paper was to analyse the relationships between business confidence, investment and economic growth in the South African economy. A quantitative research approach using quarterly time series data from 1995Q1 to 2017Q4 was used. An autoregressive distributed lag (ARDL) model was employed in order to determine the long- and short-run effects of business confidence and investment on economic growth in the country. The results of the paper reveal a significant long-run relationship between economic growth levels in the South African economy and the independent variables. Results suggest that a one percent increase in confidence levels could lead to a 0.23 percent increase in growth, while a one percent increase in investment could contribute 0.34 percent towards economic expansion. Short-run coefficients indicate that growth levels are significantly positively affected by current business confidence levels as well as lagged investment activity. Results from the Toda-Yamamoto (T-Y) approach of Granger causality further confirmed that the BCI acts as a key leading indicator for investment and growth in the economy. Based on the findings, key strategies directed towards the promotion of growth and investment must revolve around the creation of an enabling environment for both firms and investors alike.

References

  • Abdulmumini, B.A & Tukur, G. (2012). The relationship between domestic investment and economic growth in Nigeria. International Journal of Research in Social Sciences, 2(3), 256-279.
  • Adhikary, B.K. (2011). FDI, trade openness, capital formation and economic growth in Bangladesh: A linkage analysis. International Journal of Business and Management, 6(1), 17-27.
  • Amir, Z., Zaman, T. & Ali, M. (2012). The macroeconomic determinants of investment: Empirical evidence from Bangladesh. International Journal of Scientific & Engineering Research, 3(9), 1-13.
  • Anwer, M. & Sampath, R.K. (1999). Investment and economic growth. Paper presented at Western Agricultural Economics Association Annual Meeting, July 11-14, 1999. Fargo, ND.
  • Bakari, S. (2017). The impact of domestic investment on economic growth: New evidence from Malaysia. MPRA Paper No. 79436. German: MPR.
  • Banerjee, R., Kearns, J. & Lombardi, M. (2015). (Why) is investment weak? BIS Quarterly Review, March 2015.
  • Barsky, R.B. & Sims, E.R. (2012). Information, animal spirits, and the meaning of innovations in consumer confidence. American Economic Review, 102(4), 1343-77.
  • Beaudry, P. & Portier, F. (2006). Stock prices, news, and economic fluctuations. American Economic Review 96(4), 1293–1307.
  • Blomstrom, M., Lipsey, R. & Zejan, M. (1994). What Explains the Developing Countries Growth? United Kingdom: Oxford University Press.
  • Bruno, G., Crosilla, L. & Margani, P. (2016). Inspecting The Relationship Between Business Confidence and Industrial Production: Evidence Based On Italian Survey Data. Rome: ISTAT.
  • Carruth, A., Dickerson, D. & Henley, A. (2002). What do we know about investment under uncertainty? Journal of Economic Surveys, 14(2), 119-153.
  • Chirinko, R.S. (1986). Tobin's Q and financial policy. NBER Working Paper 2082. Massachusetts: NBER.
  • Cushman, D.O. (1985). Real exchange rate risk, expectations, and the level of direct investment. The Review of Economics and Statistics, 67(2), 297-308.
  • De Jager, M. (2017). Understanding The Relationship Between Business Failure and Macroeconomic Business Cycles: A Focus On South African Businesses. Masters Dissertation. Johannesburg: University of Witwatersrand.
  • Den Haan, W. & Kaltenbrunner, G. (2009). Anticipated growth and business cycles in matching models. Journal of Monetary Economics 56(3), 309–327.
  • Demirel, S.K. & Artan, S. (2017). The causality relationships between economic confidence and fundamental macroeconomic indicators: Empirical evidence from selected European Union countries. International Journal of Economics and Financial Issues, 7(5), 417-424.
  • Driver, C. & Moreton, D. (1992). Investment, Expectations and Uncertainty. Oxford: Blackwell.
  • ECB (European Central Bank). (2013). Confidence Indicators and Economic Developments. Frankfurt: European Central Bank.
  • Ermolina, A. (2015). Business environment and economic growth: Is there a link? In I. Vrdoljak Raguž. & Z. Krželj-Čolović (Eds). Innovation, Leadership & Entrepreneurship Challenges of Modern Economy (pp.330-347). Dubrovnik: University of Dubrovnik.
  • Gennaioli, N., Ma, Y. & Shleifer, A. (2015). Expectations and investment. NBER Macroeconomics Annual, 30(2015), 379-442.
  • Ghali, K. & Ahmed, A. (1999). The intertemporal causal dynamics between fixed capital formation and economic growth in the group-of-seven countries. International Economic Journal, 13(2), 31-37.
  • Grasso, A. & Ropele, T. (2016). Business investment plans and inflation expectations. Paper presented at CESifo Conference on Macroeconomics Survey Data, 2-3 December.
  • Guiso, L. & Parigi, G. (1999). Investment and demand uncertainty. The Quarterly Journal of Economics, 114(1), 185-227.
  • Kellogg, R. (2014). The effect of uncertainty on investment: Evidence from Texas oil drilling. American Economic Review, 104(6), 1698–1734.
  • Kendrick, J.W. (1973). National Productivity and Economic Growth. http://www.nber. org/chapters/c3574 Accessed 29/06/2018
  • Laubscher, P. (2003). The value of two survey-based indicators in South Africa: The RMB/BER business confidence index and the Investec/BER PMI. Prepared for the Joint European Commission-OECD Workshop on International Development of Business and Consumer Tendency Surveys, 20-21 November 2003.
  • Lean, H.H & Tan, B.W. (2011). Linkages between foreign direct investment, domestic investment and economic growth in Malaysia. Journal of Economic Cooperation and Development, 32(4), 75-96.
  • Leduc, S. (2010). Confidence and the business cycle. FRBSF Economic Letter 35. San Francisco: FRBSF.
  • Leduc, S. & Sill, K. (2010). Expectations and economic fluctuations: An analysis using survey data. FRBSF Working Paper 2010-09. San Francisco: FRBSF.
  • Leigh, N.G. & Blakely, E.J. (2016). Planning Local Economic Development:Theory and Practice. Sage Publications.
  • Luong, K.V. & Vixathep, S. (2016). Business confidence index: A reflection of business sentiment in Vietnam. Journal of International Cooperation Studies, 23(2), 1-27.
  • Masayuki, M. (2016). Business uncertainty and investment: Evidence from Japanese companies. RIETI Discussion Paper Series 16-E-014. Tokyo: The Research Institute of Economy, Trade and Industry.
  • Mavrotas, G. & Kelly, R. (2001). Old wine in new bottle: Testing causality between savings and growth. The Manchester School Supplement, 69(S1), 97–105.
  • Meinen, P. & Roehe, O. (2017). On measuring uncertainty and its impact on investment: Cross-country evidence from the euro area. European Economic Review, 92(C), 161-179.
  • Mukhtar, T. & Rasheed, S. (2010). Testing a long run relationship between exports and imports: Evidence from Pakistan. Journal of Economic Cooperation and Development, 31(1), 41-58.
  • National Treasury. (2018). Budget Review: 2018. Pretoria: Government Printer.
  • Ncanywa, T. & Makhenyane, L. (2016). Can investment activities in the form of capital formation influence economic growth in South Africa? In M.P. Sebola & J.P. Tsheola (Eds). SAAPAM Limpopo Chapter 5th Annual Conference Proceedings 2016 (pp.270-279). Hatfield: SAAPM Limpopo Charter.
  • OECD (Organisation for Economic Cooperation and Development). (2017). Economic Surveys: South Africa. Paris: OECD Publishing.
  • Omri, A. & Kahouli, B. (2014). The nexus between foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, 68(3), 257-263.
  • Parkins, M. (1990). Macroeconomics. Massachusetts: Addison-Wesley.
  • 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.
  • Pigou, A. (1927). Industrial Fluctuations. Macmillan, London.
  • Qin, D., Cagas, M.A. Quising, P. & He, X.H. (2006). How much does investment drive economic growth in China? Journal of Policy Modelling, 28(7), 751-774.
  • Romer, D. (2001). Advanced Macroeconomics. 2nd ed. Boston: McGraw- Hill.
  • Sharpe, S. A. & Suarez, G. A. (2013). The insensitivity of investment to interest rates: Evidence from a survey of CFOs. Finance and Economics Discussion Series 2014-2. Washington, D.C.: Federal Reserve.
  • Van der Walt, J. & De Wet, G. (1995). The Prospects for Foreign Investment in South Africa. Pretoria: University of Pretoria.
  • World Bank. (2018). Global Economic Prospects: Sub-Saharan Africa. Washington, D.C.: World Bank.
There are 47 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Article
Authors

Jacques De Jongh This is me

Precious Mncayi This is me

Publication Date January 1, 2018
Published in Issue Year 2018 Volume: 10 Issue: 1

Cite

APA De Jongh, J., & Mncayi, P. (2018). AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA. International Journal of Economics and Finance Studies, 10(1), 115-133.
AMA De Jongh J, Mncayi P. AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA. IJEFS. January 2018;10(1):115-133.
Chicago De Jongh, Jacques, and Precious Mncayi. “AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA”. International Journal of Economics and Finance Studies 10, no. 1 (January 2018): 115-33.
EndNote De Jongh J, Mncayi P (January 1, 2018) AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA. International Journal of Economics and Finance Studies 10 1 115–133.
IEEE J. De Jongh and P. Mncayi, “AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA”, IJEFS, vol. 10, no. 1, pp. 115–133, 2018.
ISNAD De Jongh, Jacques - Mncayi, Precious. “AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA”. International Journal of Economics and Finance Studies 10/1 (January 2018), 115-133.
JAMA De Jongh J, Mncayi P. AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA. IJEFS. 2018;10:115–133.
MLA De Jongh, Jacques and Precious Mncayi. “AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA”. International Journal of Economics and Finance Studies, vol. 10, no. 1, 2018, pp. 115-33.
Vancouver De Jongh J, Mncayi P. AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA. IJEFS. 2018;10(1):115-33.