The depth of financial integration and its effects on financial development and economic performance of the SACU countries
Abstract
English: The study investigates the relationship between financial integration, financial
development and economic growth in the SACU countries. The empirical analysis
commenced with an examination of the degree of financial integration in each of the
SACU countries using a battery of tests. Overall, the results provide overwhelming
evidence that shows that individually the financial sectors of the SACU countries are
highly integrated and are becoming increasingly more so. The indicators also highlight a
clear asymmetry in the capital flows among the banks in the SACU countries with the
capital flows significantly favouring South Africa and Namibia more than the other
countries, which is attributed to the underlying characteristics of these countries,
especially their weak institutional development.
The results further confirm the dominant role of South Africa among the SACU.
Furthermore, the interest rates analyses unambiguously indicate a hierarchy of integration
of the financial systems of each member state with that of South Africa, with Namibia at
the top, followed by Swaziland, Lesotho and Botswana in that order. Moreover, the
results suggest that the prevailing integration between the financial systems stems from
both policy convergence and market convergence. However, apart from Namibia, the
evidence suggests limited arbitrage activities between the countries, which might result
from both weak institutional development and limited investment opportunities and
inability of investors to explore such opportunities in the smaller countries.
The empirical analyses of the relationships between financial development, financial
integration and economic performance based on cointegration and error correction
modelling techniques using the Johansen approach produce mixed results among the
SACU countries. On the relationship between financial development and output growth,
the results vary from country to country and depend on the measure of financial
development used. Overall, the results lend some support for supply-leading finance as
proposed by Patrick (1966) across the SACU countries. On the effects of FD, the weight
of evidence suggests a negative long-run causal effect of financial development,
especially using the credit indicator, on output level in the SACU countries. The tests for
the effect of the deposit indicator on the output level were largely inconclusive, with the
exception of Swaziland, where a robust positive effect was found. The weak effect of
financial development on economic growth is attributed to inefficiencies in the credit allocation mechanism due to weak regulations, banking supervision and underdeveloped
financial systems as well as political, institutional and structural problems in some of the
countries.
The results further confirm a long-run relationship between financial development and
financial integration across the SACU countries. The results also confirm a strong
feedback relationship between financial development and financial integration across the
countries. Overall, the effect of financial integration on financial development and vice
versa is ambiguous and varies across the SACU countries. In addition to the variation
across the countries, the evidence depends on the kinds of stock of capital and measure of
financial development used. Hence, it is difficult to conclude in general whether financial
integration is a complement or substitute to domestic financial development across the
SACU.
Lastly, the results show that in the four countries, output is predominantly endogenous
while financial integration is mainly exogenous. This suggests a limited feedback relation
from output to financial integration. Regarding the effects of financial integration on the
output level, the results are mixed; the effects vary from country to country and depend
on the types of capital. The effect of FDI was negative in Botswana, positive in South
Africa but ambiguous in Swaziland. The ratio of foreign assets of banks has an
ambiguous effect in Botswana, Lesotho and South Africa while no effect was detected in
Swaziland. Lastly, the ratio of foreign liabilities of banks has a positive effect in Lesotho
and Swaziland and a negative effect in South Africa, while the effect is ambiguous in
Botswana. Afrikaans: Die studie ondersoek die verhouding tussen finansiële integrasie, finansiële ontwikkeling
en ekonomiese groei in die SADU lande. Die empiriese analise begin met 'n ondersoek na
die graad van finansiële integrasie in elk van die SADU lande, deur 'n battery van toetse
te gebruik. Die resultaat verskaf in alle opsigte oorweldigende bewyse wat aantoon dat
die finansiële sektore van die SADU lande individueel hoogs geïntegreer is en dat dit
toeneem. Die aanwysers beklemtoon ook 'n duidelike asimmetrie in die kapitaalvloei
tussen die banke en die SADU lande, met die kapitaalvloei betekenisvol ten gunste van
Suid-Afrika en Namibië in vergelyking met die ander lande. Dit word toegeskryf aan die
onderliggende eienskappe van hierdie lande, spesifiek hul swak institusionele
ontwikkeling.
Die resultate bevestig verder Suid-Afrika se dominante rol in die SADU. Die
rentekoersanalises dui ook ondubbelsinnig op 'n hiërargie van die integrasie van die
finansiële stelsels van elke lidstaat met die van Suid-Afrika. Namibië is bo-aan die lys,
gevolg deur Swaziland, Lesotho en Botswana, in daardie volgorde. Die resultate dui
verder ook aan dat die heersende integrasie tussen die finansiële stelsels voortspruit uit
beide beleidkonvergensie en markkonvergensie. Die resultate toon egter ook dat, behalwe
in Namibië, daar beperkte aktiwiteite tussen die lande bestaan, wat die gevolg kan wees
van beide swak institusionele ontwikkeling en beperkte beleggingsgeleenthede, en die
onvermoë van beleggers om sodanige geleenthede in die kleiner lande te verken.
Die empiriese analise van die verhouding tussen finansiële ontwikkeling, finansiële
integrasie en ekonomiese prestasie, wat gebaseer is op ko-integrasie en foutkorrigerende
modelleringstegnieke deur die Johansen-benadering te gebruik, verskaf gemengde
resultate tussen die SADU lande. By die verhouding tussen finansiële ontwikkeling en
uitsetgroei varieer die resultate van land tot land en hang dit van die maatstaf van
finansiële ontwikkeling wat gebruik is af. As ‘n geheel verleen die resultaat 'n mate van
ondersteuning aan aanbod-leidende finansies oor die SADU lande heen, soos voorgestel
deur Patrick (1966). Oor die effek van FO, dui die oorwig van die bewyse op 'n negatiewe
jare-lange oorsaaklike effek van finansiële ontwikkeling op die uitsetvlak in die SADU lande, veral as die kredietaanwyser gebruik word. Die toetse vir die effek van die
deposito-aanwyser op die uitsetvlak was grootliks onoortuigend, met die uitsondering van
Swaziland, waar 'n robuuste positiewe effek gevind is. Die swak effek van finansiële
ontwikkeling op ekonomiese groei word toegeskryf aan ondoeltreffendhede in die
kredietallokasiemeganisme, weens swak regulasies, banktoesighouding en
onderontwikkelde finansiële stelsels asook politieke, institusionele en strukturele
probleme in party van die lande.
Die resultate bevestig verder 'n langtermyn verhouding tussen finansiële ontwikkeling en
finansiële integrasie oor die SADU lande heen. Die resultate bevestig ook 'n sterk
terugvoer-verhouding tussen finansiële ontwikkeling en finansiële integrasie oor die
lande heen. In alle opsigte is die effek van finansiële integrasie op finansiële
ontwikkelinge en vice versa dubbelsinnig en dit varieer oor die SADU lande heen.
Bykomend tot die variasie oor die lande heen, hang die bewyse af van die soort
kapitaalvoorraad en die maatstaf wat vir finansiële ontwikkeling gebruik is. Dit is
derhalwe moeilik om in die algemeen te beslis of finansiële integrasie 'n aanvulling of
plaasvervanger vir finansiële ontwikkeling oor die SADU heen is.
Laastens toon die resultate aan dat uitset oorheersend endogeen in die vier lande is,
terwyl finansiële integrasie hoofsaaklik eksogeen is. Dit suggereer 'n beperkte
terugvoerverhouding vanaf uitsette na finansiële integrasie. Wat die effek van finansiële
integrasie op die uitsetvlak betref is die resultate gemeng; die effekte varieer van land tot
land en hang van die soort kapitaal af. Die effek van Direkte Buitelandse Investering was
negatief in Botswana, positief in Suid-Afrika, maar dubbelsinnig in Swaziland. Die
verhouding van buitelandse bates van banke het 'n dubbelsinnige effek in Botswana,
Lesotho en Suid-Afrika, terwyl geen effek in Swaziland bespeur is nie. Laastens het die
verhouding van buitelandse laste 'n positiewe effek in Lesotho en Swaziland, en 'n
negatiewe effek in Suid-Afrika, terwyl die effek in Botswana dubbelsinnig is.
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