Browsing by Author "Mainardi, Stefano."

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An analysis of real exchange rate disequilibrium in developing countries, with an empirical focus on South Africa.
(1999) Tembo, George.; Mainardi, Stefano.
Since the early 1970s, exchange rate fluctuations have characterised the behaviour of the external value of many currencies in both high- and low-income countries. Up-and-down movements in real exchange rates have been observed under fixed as well as flexible arrangements. This is in spite of the fact that many less developing countries (until the 1980s), unlike the major industrialised countries, opted to retain relatively rigid exchange rate systems after the collapse of the Bretton Woods system. Exchange rate volatility has been a subject of much concern in government, business and academic circles because it has been associated with negative effects on the performance of developing economies. Consequences of these large swings in exchange rates have included uncertainty and delays in business decisions, resource misallocation, interest rate volatility and real exchange rate misalignments. For the period, from 1970 to 1996, this study investigates the phenomenon of real exchange rate disequilibrium in developing countries, with an empirical and econometric examination of South African data. Using the ordinary least squares and the EngleGranger cointegration techniques, this investigation found that government consumption of nontradables, the price of gold in rand, the overall terms of trade and the rate of depreciation are important determinants of the short-run behaviour of the real effective exchange rate in South Africa. With regard to the long-run the permanent componen1ts ofthe fundamentals - namely, technological or productivity improvement, trade policy, governm1ent consumption of nontradables, disposable income, capital flows, the terms of trade excluding gold and the rand price of gold, were found to be significantly related to the equilibrium conduct of the real effective exchange rate. Instances of real exchange rate misalignment were found in both periods of fixed and flexible exchange rate management.
An empirical analysis of the pricing behaviour of selected 3-digit sectors in the South African manufacturing industry (1965-1990).
(1996) Fuzile, Lungisa.; Fedderke, Johannes Wolfgang.; Mainardi, Stefano.
While conventional economic theory posits that price is determined by the interplay between the forces of supply and demand, review of literature reveals that the findings of industrial surveys and empirical studies of the pricing behaviour of firms have cast doubts on the validity of this hypothesis. A close scrutiny of the literature shows that there are two main hypotheses of pricing, namely, the excess demand hypothesis and the mark-up hypothesis. The former is associated with the conventional view that price is determined by the interaction of demand and supply, while the latter hypothesis is often associated with business practice in the real world. A majority of empirical studies lends support to the mark-up hypothesis. However, there is also a sizable number of studies that lend support to the excess demand hypothesis. This study uses data for the South African manufacturing sector to test the validity and the explanatory power of these hypotheses. The difference between this study and most of the previous studies is the fact that in the present study an attempt is made to use disaggregated data in the actual testing of the hypotheses. While the results of this study demonstrate overwhelming support for the mark-up hypothesis, they also demonstrate that the role played by demand can not be dismissed.
Mineral commodity exports, exchange rates and growth: a case study of gold and other minerals in South Africa.
(1995) Mainardi, Stefano.; Holden, Merle Gwendoline.
This thesis aims at assessing the role of mineral exports for a developing economy, with a focus on commodity prices and supply, exchange rates, and growth. The study is especially concerned with the case of gold in South Africa, which is considered within a broader theoretical and empirical framework, encompassing other minerals and countries. The contradictory alternatively seen as effects of a a blessing or large mining sector, a curse for economic development and policy-making (or, rather, as a mixed blessing), provide the thread underlying the study. A growth model of a mineral developing economy is initially proposed, and tested over a 25-year period. A double weak-convergence equilibrium, and related differences across countries, are found to be partly explained by the performance of international prices of the main export minerals. A literature review draws attention to other development issues, with emphasis on exchange rate analysis. The picture ii one of controversial hypotheses and empirical findings, which are largely explained by objective differences in such aspects as mineral, country, and period analysed. Within this context, the thesis subsequently evaluates the role of the gold price for the South African real and nominal exchange rates in the 1980s and early 1990s. Results, based on econometric techniques applied to monthly observations, point to the gold price as a determinant of both exchange rates in South Africa, even if with some variation over the sample period. A recursive equation model is constructed to link South African gold mining to a macroeconomic framework. This model allows reconsideration of the above results with a new approach, employing a different time period and observation frequency (1970- 1994 annual data), and draws implications in terms of real exchange rate misalignment and economic growth. The results highlight the potential for a moderate recovery in gold mining and the need for adequate development strategies for the mining sector in South Africa, in view of the challenging requirements of the near future. The last part of the study turns to examine company-level statistics for gold and other minerals, so as to test hypotheses on the supply behaviour of mines which are ignored, or at best presumed, by studies exclusively relying on macro data. Results, based on pooled data, suggest the relevance of microeconomic, geological and, in some cases, institutional factors to account for different mineral supply responsiveness.