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The effects of capital inflows on South Africa's economy

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  • Sean Joss Gossel
  • Nicholas Biekpe

Abstract

This article investigates the effects of capital inflows on South Africa's macroeconomy and on the transmission mechanisms of credit extension, asset prices and household consumption expenditure. We find that the capital inflows have varied macroeconomic effects. Furthermore, we establish that the central bank uses a strategy of ongoing sterilisation for portfolio inflows and Foreign Direct Investment (FDI), but does not sterilise other inflows. With regard to the impacts of the capital inflows on the transmission mechanisms, the results indicate that only portfolio inflows have a positive impact on private sector credit extension, mortgage extensions and credit card expenditure. In addition, the results confirm that portfolio and other inflows have more of a positive impact on asset prices than FDI. Finally, we establish that FDI and portfolio inflows lead to increased household consumption expenditure on durables while other inflows have a negative effect on all forms of household consumption.

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  • Sean Joss Gossel & Nicholas Biekpe, 2012. "The effects of capital inflows on South Africa's economy," Applied Financial Economics, Taylor & Francis Journals, vol. 22(11), pages 923-938, June.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:11:p:923-938
    DOI: 10.1080/09603107.2011.629982
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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    2. Bilge Bakin & Gozde Gurgun, 2014. "Portfolio Investments and Asset Prices Relationship in Turkey," Proceedings of International Academic Conferences 0201138, International Institute of Social and Economic Sciences.

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