Working Paper Series
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Abstract: The objective of this study is to assess whether the formation of the Southern African Development Community (SADC) in 1992 has led to (i) convergence in real income or “catch- up” growth across the countries within the region or higher growth in the region as compared to advanced economies over the past two decades; and (ii) convergence in indicators of macroeconomic stability and/or the harmonization of macroeconomic policies within the region.
The paper investigates convergence in real per capita GDP and macroeconomic policy and stability indicators within the SADC, using primarily the concepts of beta and sigma convergence and common stochastic trends. Empirical tests for the period 1992-2009 showed no evidence of absolute beta and sigma convergence in real per capita GDP among the SADC economies. Although, absence of convergence does not necessarily imply lack of economic growth, further empirical assessment of possible conditional beta convergence did not reveal any tendency of convergence to own steady states. On an individual level, however, ADF unit root test indicated that Botswana and South Africa’s real per capita GDP converged to a common stochastic trend while the rest were characterized by a boundless drift.
With regard to the SADC macroeconomic convergence goals set for 2012, the findings indicate that most of the economies of the member states have shown a tendency of macroeconomic divergence in 2009 in monetary policy, fiscal policy, and foreign exchange reserve ratios. Since member countries are at varied levels of economic development, the goals themselves must be conditional on the level of convergence in economic structure and hence macroeconomic convergence may not be attainable. Furthermore, achieving the targets may be neither necessary nor sufficient to achieve good macroeconomic outcomes. We made further attempt to identify possible club convergence within SADC free trade area using Common Monetary Area criterion, including South Africa, Lesotho, Namibia and Swaziland. The result indicates that the real per capita GDP level of the CMA economies did not converge to the South African real GDP per capita level during the 18 years under consideration. The crucial implications of the above results are that the establishment of regional trading block did not enhance economic performance in the poorer member states in SADC during the 18 years under consideration. Poor member states failed to catch up with the more developed countries within the region. The same countries that were richer 18 years ago are richer today and the poorer countries remained largely poorer. This is not to suggest that regional trade agreements and economic blocks do not promote economic performance and help poor countries to catch up. It is rather the way member countries implement the regional integration agreements that matter most. Duplication of membership among the several Regional Economic Communities, low savings and investment, shortages of high level skills, high level of unemployment, inadequate and substandard infrastructure, and insignificant production and manufacturing capability all contributed to slow economic growth and lack of convergence in real per capita GDP. Regional economies need to urgently address these challenges in order to achieve deeper economic integration and catch up with the more developed economies in the sub region and the rest of the world. Macroeconomic policy strategies should also be designed conditional on the actual degree of convergence in the economic structure.
Abstract: The study involves a micro-level analysis of the effect of growth on inequality and poverty in two Southern African countries, Mauritius over the period 2001-2006 and South Africa over the period 1995-2005. Given that poverty reduction has become a fundamental objective of development as established in the Millennium Development Goals, it is important to ask whether growth is a necessary and/or sufficient condition to achieve that objective. A comparative assessment of the pro-poor growth path of South Africa and Mauritius could allow for a better general understanding of growth and redistribution effects on poverty as well as for drawing some policy recommendations towards reducing poverty in these two countries, given that South Africa is one of the least equal countries in the developing world while inequality in Mauritius is relatively low in comparison to other African countries. In the literature on the linkages between growth poverty and inequality, there is often a tension between macro and microanalysis and both a relative and an absolute approach have been proposed to define growth pro-poorness. In the absolute approach, growth is defined as pro-poor if it reduces absolute poverty. In the relative approach, growth is pro-poor if it reduces inequality and relative poverty, meaning that growth must benefit the poor proportionately more than the non-poor. As both approaches should be of concern to analysts interested in the impact of growth, the authors considered the impact of growth both on absolute poverty and on inequality. The authors used two recent household survey data separated by 5 and 10-year intervals from the Mauritius’ Central Statistics Office and Statistics South Africa, to assess the evolution of poverty and inequality and to evaluate the pro-poorness of growth (absolutely and relatively speaking). To compare poverty across countries and time, the authors computed PPP consumption and analyzed the consumption distribution in both Mauritius and South Africa.
Sensitivity tests were performed to check for the robustness of results. The authors used the FGT (Foster-Greer-Thorbecke) class of poverty indices to measure poverty incidence and intensity, growth incidence curves to show the growth rates of income over different parts of the population, as well as Gini indices and Lorenz curves to assess inequality. The analysis further discerns the development disparities across rural and urban areas, across districts and provinces, and across schooling achievements and gender of the household head. In the case of South Africa, the authors were also able to monitor the evolution of racial disparities. In both Mauritius and South Africa, privatization and trade liberalization were promoted as policies to spur growth. However, while Mauritius has focused its poverty reduction strategy on education and health services and has targeted in most vulnerable segment of the population through improved social safety nets, South Africa’s more recent policy towards fighting deprivation has not succeeded yet in developing skills and providing quality health care and education services across the entire country. The results in terms of growth pro-poorness have been quite different in the two countries. Although South Africa experienced the strongest positive growth, inequalities have increased significantly over the period and growth has been anti-poor relatively speaking, improving living standards only among the top third of the population while rural workers gained very little from growth and the unskilled and lower urban earners often lost from it. Conversely, growth was absolutely pro-poor in Mauritius over the period 2001-2006. In the two countries, there are important development disparities across rural and urban areas. Poverty is initially larger in rural than in urban areas; it is substantially more so in South Africa. There is also an urbanization of poverty in South Africa. Given that the share of rural population has fallen significantly, this supports the view that the migration from rural to urban areas has been associated with difficulties of the urban migrants to take full part in urban labor markets and benefit from the urban growth that is evident in the data. Mauritius and South Africa have experienced very different effects of growth on poverty and inequality. This shows that the pro-poorness of growth can be quite heterogeneous across countries. If poverty reduction is the overriding objective, then policies designed to spur growth must take into account the possible impact of growth on inequality. Although poverty is mostly a rural than urban phenomenon, policy should also be increasingly balanced in favor of urban areas as well in order to alleviate the effect of migration and rural/urban demographic pressure on urban poverty.
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