Abstract
What is the impact of commodity price booms and capital flows surges episodes on the manufacturing sector? We find that a positive shock to the commodity price boom and a capital flows surge episode result in an increase in the manufacturing sector output growth, employment growth, investment growth, labour participation and absorption rates. On the contrary, a sudden stop capital flows shock results in a decline in the manufacturing sector output growth, employment growth, investment growth, labour participation and absorption rates. The counterfactual analysis shows that the capital flows surge episode channel amplifies the responses of the manufacturing sector output growth, employment growth, investment growth, labour participation and absorption rates to a commodity price boom episode. This indicates that a capital flows surges shock on its own does not lead to a sustained increase in the manufacturing sector output, employment growth, investment growth and labour productivity growth. Rather, it amplifies the positive shock effects of the commodity price boom episode. Between 2005Q1 and 2008Q3 the commodity price boom and the capital flows surge shocks contributed to the sustained increase in the manufacturing sector output growth and employment growth. In the absence of the commodity price boom the manufacturing sector output and employment growth would have been much lower. Thus, the concurrence of these shocks contributed to the performance of employment growth in the manufacturing sector.
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Notes
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Asset prices such as house and equity prices. Furthermore, Ndou et al. (2017) show that the economic sectors reflect heterogeneous responses to the REER appreciation shock. The manufacturing sector is highly sensitive to REER movements and declines following the REER appreciation shock. This reflects the dominating impact between the expenditure switching effects and the production costs hypothesis. These effects may be associated with trade exposure of the manufacturing sector to low cost imports and competitors as opposed the dominance of the benefits of reduced input costs of imported input materials in this sector.
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Gumata, N., & Ndou, E. (2019). Capital Flows, Credit Markets and Growth in South Africa: The Role of Global Economic Growth, Policy Shifts and Uncertainties. Palgrave Mcmillan. ISBN 978-3-030-30888-9.
Ndou. E., Gumata, N., & Ncube, M. (2017). Global Economic Uncertainties and Exchange Rate Shocks: Transmission Channels to the South African Economy. ISBN 978-3-319-62280-4
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Gumata, N., Ndou, E. (2020). What Is the Impact of Commodity Price Booms and Capital Flows Surges Episodes on the Manufacturing Sector?. In: The Secular Decline of the South African Manufacturing Sector. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-55148-3_11
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DOI: https://doi.org/10.1007/978-3-030-55148-3_11
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