Abstract
D.Phil. (Economics)
This thesis presents a discussion of the economic integration between South Africa
and the economies of Brazil, Russia, India and China, the so called BRICs. The thesis analyses four channels of interdependence: trade, investment, business cycle and the increasing importance of shocks originating from China. It makes significant and original contributions to the empirical literature by employing several econometric techniques.
In the first two cases, a global vector autoregressive (global VAR) model is used
to analyse the trade and foreign direct investment (FDI) linkages between South
Africa and the BRIC countries over the period 1995-2009. The results show
trade linkages between these economies whose magnitude differs between countries.
Shocks from each BRIC country are shown to have considerable impact on South
African real imports and output. However, there is no evidence of FDI linkages
between these economies. This shows that the notable performance of the BRIC
economies are not transmitted to the South African economy by FDI flows, but
rather through the exchange rates for some countries and trade for the others.
In the third application, the nature of co-movement between South Africa and the
BRIC countries is examined by applying the dynamic factor model to a set of 307
macroeconomic series over the 1995-2009 period. Particularly, the extent of
co-movement between the cyclical component of real output across South Africa and
the BRICs is assessed. The results show significant degree of co-movement between South Africa and the BRICs over the business cycle and the long-run, although the magnitude of the co-movement differs with each country. In terms of the lead and lag relationships across South Africa and the BRIC countries, the study ends that only India leads South Africa over the cyclical period. The findings suggest that the first two factors are BRICS (Brazil, Russia, India, China and South Africa) factorswhile the third factor can be considered a United States factor.
The last application investigates, using a factor model estimated with quarterly
data from 1995 to 2009, how China’s shocks are transmitted to BRIS (Brazil,
Russia, India and South Africa). The results show that China’s supply shocks are
more important than its demand shocks. Supply shocks produce positive and significant output responses in all BRIS countries. However, their extent is significant only for short horizon in India. Positive demand shocks from China have positive and significant extent on Brazil’s and South Africa’s output only. The intensity of economic relationship and channels of transmission of shocks are different between China and BRIS. The results based on the variance share of the common component suggest that South Africa and Russia are linked intensively to China, while Brazil and India have only moderate linkages with China. International trade is an important channel for the transmission of shocks across China and BRIS countries indicating that supply and demand shocks in China do not have similar extent on the BRIS countries and therefore they require different policy responses.