ERSA’s Working Paper Series was established in 2004 with the first Working Paper being published in February of 2005. The Working Paper Series remains one of the central mechanisms through which ERSA supports the quantity, quality and relevance of economic research produced in South Africa.
Narrow Price Parity and Market Power in Digital Platforms
Firstly, this policy paper examines the competitive implications of Price Parity Obligations (“PPOs”) providing an argument for the wholesale removal of PPOs that have traditionally been applied by business-to-consumer (“B2C”) digital platforms. Secondly, it undertakes an impact assessment following Booking’s removal of PPOs agreed to in August 2024 which follows a finding by the Competition Commission of South Africa that PPOs impede competition resulting in a likely adverse effect. While wide PPOs are generally considered anticompetitive, this view is mixed for narrow PPOs. Using market power as lens to understand the impact of narrow PPOs, evidence and arguments against their use suggest they suppress price differentiation and price competition, resulting in higher average prices; they increase business user dependency on the platform which reinforces their market power; they can potentially exploit business users and restrict their flexibility to innovate and develop their own distribution channels and marketing strategies.
Copyright (c) 2026 https://creativecommons.org/licenses/by/4.0
Twenty-five years of inflation targeting and the new inflation target
This paper reviews South Africa’s experience with inflation targeting since its adoption in 2000 as the South African Reserve Bank (SARB) enters a new era, switching to a 3 percent target. The literature broadly concludes that the framework has succeeded in lowering inflation, reducing its volatility, and strengthening the credibility and transparency of the SARB. Empirical evidence shows declines in inflation persistence, a flattening of the Phillips curve, and a reduction in exchange rate pass-through over time, alongside a clearer and more rules-based monetary policy stance. This is an indication of well anchored inflation expectations which is vital for the credibility of the institutions. However, the review also highlights persistent structural constraints—high unemployment, weak potential growth, fiscal instability, and deep inequality—that have limited the broader developmental impact of the framework. Critics argue that inflation targeting may constrain policy space, though evidence suggests that these socioeconomic outcomes largely reflect structural rather than monetary factors. The paper concludes by examining current debates on lowering the inflation target and shows that future gains depend critically on fiscal coordination and progress on structural reforms, rather than on monetary policy adjustments alone.
Breaking the regravelling trap: A fiscal-federalism contract for upgrading South Africa’s unpaved roads
South Africa’s provincial and municipal road networks are dominated by low-volume gravel roads that are essential for service delivery and market access but are chronically under-upgraded. This paper argues that the persistence of repeated regravelling, reactive repairs, and post-disaster reinstatement is not primarily an engineering failure; it is an intergovernmental public investment problem. Responsibilities are decentralised across multiple principals and agents, benefits from upgrading are partly non-excludable and spill across jurisdictions, and budget holders face short-horizon fiscal constraints. The resulting wedge between national welfare and sub-national private incentives generates an underinvestment equilibrium in which economically justified upgrades are deferred and recurrent maintenance liabilities compound.
Institutional Quality: A hurdle or a catalyst to eliminating energy poverty in sub-Saharan Africa?
Energy poverty is considered a significant challenge in sub-Saharan Africa (SSA), significantly impeding economic growth and social development. This study examines the role of institutional quality in addressing energy poverty across 45 SSA countries from 2002 to 2022, focusing on two critical indicators: access to clean cooking technologies and fuels and access to electricity. This study explores six institutional quality indicators—Control of Corruption, Regulatory Quality, Government Effectiveness, Rule of Law, Voice and Accountability, and Political Stability—and finds that corruption control is a key factor in reducing energy poverty across various income groups. Political stability is also linked to lower access to clean cooking, while the rule of law supports electricity access. Additionally, urbanisation is identified as a crucial factor for improving electricity access. This study underscores the central role of institutional quality in addressing energy poverty in SSA and calls for further research that includes infrastructure investment, affordability, and sustainability to better understand the complexities of energy access challenges in SSA.
Copyright (c) 2025 https://creativecommons.org/licenses/by/4.0
Regulating digital platforms: A comparative analysis of Kenya and South Africa
Kenya, often referred to as Africa’s “Silicon Savannah”, has rapidly evolved to become the regional digital business hub in East Africa. While Kenya’s approach to regulation has led to some market-driven competition, it faces similar competition-related challenges that many jurisdictions around the world face in the constantly evolving digital markets landscape. There have been competition concerns raised by entrepreneurs and businesses with respect to accessing markets and competing against the large domestic and global players that have already entered and taken up lead positions in Kenya’s digital ecosystem. This led to the Competition Authority of Kenya (CAK) introducing the Competition Amendment Bill in 2024 which is targeted at addressing platform dominance in digital ecosystems. South Africa adopted a different approach to regulating the digital economy using market inquiries as the primary tool to address potential harm to competition. The market inquiries highlighted concerns surrounding platform dominance and barriers to entry in e-commerce, amongst other concerns.
Unlocking Manufacturing Growth in South Africa: Firm Productivity, Labour Mobility and Participation
This paper examines the sources of South Africa’s manufacturing underperformance through the lens of three interrelated mechanisms: within-firm productivity growth, the between-firm reallocation of resources, and labour mobility and participation. While manufacturing has historically played a central role in structural transformation by supporting productivity growth, export expansion, and relatively stable formal employment, its contribution to output and employment has declined steadily over the past two decades. The paper argues that this decline cannot be understood through aggregate trends alone. Instead, it reflects how distortions across firms and workers disrupt these mechanisms, constraining firm upgrading, weakening reallocation toward more productive producers, and limiting the extent to which labour mobility and participation translate into upward progression for workers and productivity growth for firms.
Trade under duress: Assessing South Africa’s trade diversification toward China in response to U.S. tariff actions
This paper examines the scope for South Africa (within SACU) to diversify its exports toward China in the context of rising global trade tensions and increased policy uncertainty, particularly following the imposition of tariffs by the United States. As traditional export markets become more volatile, the need for strategic diversification toward fast-growing economies has become more urgent. China, given its scale, sustained demand growth, and central role in global trade, presents a key opportunity for reorienting South Africa’s export strategy. Using a combination of descriptive trade analysis and a partial equilibrium (SMART) modelling framework, the paper assesses the potential trade effects of tariff liberalisation under a potential SACU–China free trade agreement (FTA). The results indicate that the aggregate export response is relatively modest, with SACU’s exports to China increasing by approximately 4%. This reflects the structure of existing trade, where the bulk of exports, primarily minerals and precious metals, already face low or zero tariffs, limiting scope for further expansion along the intensive margin.
Services-led growth in the context of de-industrialization: Opportunities for structural transformation and job creation in South Africa
South Africa’s persistent unemployment crisis, with the unemployment rate reaching 32.0 percent in 2024, has intensified debates about viable pathways for structural transformation, following the sustained decline of the manufacturing sector. This paper investigates whether services-led growth can replace the role of manufacturing and identifies which services subsectors hold the greatest potential for productivity enhancement and employment creation.
Towards an Integrated Agricultural Growth Path for South Africa
South Africa’s agricultural sector has delivered strong productivity growth and export performance over the past three decades, reflecting a growth path that is predominantly export-led, technology-enabled, and anchored in high-value value chains (notably horticulture and livestock). Yet this trajectory has been accompanied by persistent structural dualism, limited broad-based inclusion, and a weak transmission of growth into labour absorption in a context of chronically high unemployment. While the commercial core has deepened its competitiveness, a large share of rural households remains confined to low-productivity farming and survivalist self-employment, with limited integration into dynamic value chains. The paper argues that the core policy challenge is no longer whether the existing commercial sector can “grow”, but whether the growth path can be broadened to (i) expand labour-absorbing production, agro-processing, and allied rural services, (ii) diffuse technology, capabilities, and market access beyond the top tier of producers, and (iii) remove binding constraints (logistics, energy, biosecurity, and institutional capability) that increasingly threaten competitiveness. Building on evidence from South Africa’s recent policy architecture (notably the National Development Plan 2030 and the Agriculture and Agro-processing Master Plan), the paper proposes an integrated growth trajectory centred on bringing an additional 2.5 million hectares of state-held underutilised land into effective production, while strengthening pathways for smallholders and new farmers - including through self-employment and enterprise development - to participate in higher-value markets. This includes de-risked finance, targeted infrastructure, and capable market institutions. The paper further highlights the role of social enterprise models as platforms for skills formation, youth transitions, and the development of hybrid employment pathways spanning farming, agro-processing, and agricultural services. Kapuya, T. & Sihlobo, W. (2026). Towards an Integrated Agricultural Growth Path for South Africa (ERSA Policy Paper No. 49). Economic Research Southern Africa. https://doi.org/10.71587/8c04pq11
Poverty Reduction Under Structural Constraints: Growth, Inequality and Policy Trade-Offs in South Africa
South Africa faces the intertwined challenges of weak economic growth, persistently high poverty and extreme income inequality. This paper assesses what levels of poverty reduction and distributional change are realistically achievable over the next fifteen years under plausible growth scenarios, given binding structural and fiscal constraints. Using a stylised log-normal income distribution calibrated to 2023 data, the analysis simulates poverty outcomes under sustained per capita growth rates of 1–2 per cent (consistent with GDP growth of 2–3 per cent) and cumulative Gini reductions of 0, 2, 4 and 6 points. The results reveal a clear asymmetry. Moderate growth generates substantial reductions in poverty at both lower- and upper-bound poverty lines, while plausible medium-term reductions in inequality make a smaller incremental contribution. van der Berg, S. (2026). Poverty Reduction Under Structural Constraints: Growth, Inequality and Policy Trade-Offs in South Africa (ERSA Policy Paper No. 48). Economic Research Southern Africa. https://doi.org/10.71587/rr3y8746
Power, People, and Productivity: Skills Development for South Africa’s Just Energy Transition
Just over 60 million people call South Africa home; at the same time, the country faces an unemployment rate of 33.2%, alongside persistent inequality, entrenched poverty, and economic stagnation. The Just Energy Transition (JET) presents a critical opportunity to address some of these structural challenges. While the JET is not a panacea, it offers scope to simultaneously strengthen energy security, stimulate the economy and job creation, and address long-standing skills constraints. In what the International Energy Agency terms the “Age of Electricity”, global demand for clean energy is accelerating, and it will not wait for South Africa’s education and skills systems to adjust. Failure to proactively align human capital development with the energy transition risks entrenching existing inequalities and creating new ones, undermining long-term inclusive growth. This paper argues that skills debates surrounding the energy transition must place greater emphasis on basic education, alongside post-school education and training, despite its relative neglect in the existing literature. This paper employs a qualitative policy analysis and develops a conceptual framework linking basic education, skills formation, labour market outcomes, and the energy transition to economic growth. A constraint-based diagnostic approach is used to identify key bottlenecks in South Africa’s energy skills pipeline. As a result, this paper identifies four interlinked reform levers. First, it recommends a clearly mandated convening authority to align education, skills, energy, and labour-market policies. Second, it highlights basic education as a foundational constraint, calling for the integration of JET-relevant content to expand the future skills pipeline. Third, it points to misalignment in post-school education and training, motivating reforms to SETAs and deeper public-private collaboration. Finally, it emphasises the need for stronger and more decentralised industry participation in skills development. Together, these recommendations emerge from tracing how weaknesses in education, skills formation, and coordination shape employment outcomes, energy security, and long-run economic growth under the energy transition. Inglesi-Lotz, R., Kritzinger, W., Nkuna, V., & Nqosa, T. (2026). Power, people, and productivity: Skills development for South Africa’s just energy transition (ERSA Policy Paper No. 47). Economic Research Southern Africa. https://doi.org/10.71587/2tx4qz05
Firm Adaptation and Reallocation under Rationing: Evidence from South Africa
Rationing policies are frequently implemented due to equity concerns, yet whether equitable-exposure rules deliver equal economic impacts remains unclear. We study the 2021--2023 power crisis in South Africa, exploiting quasi-random variation in outage exposure and combining hour-level outage data with geocoded transactions from a leading payment platform. Although aggregate daily sales do not change on outage days, revenue is reallocated: below-median firms lose roughly eleven percent of daily revenue while above-median firms---able to invest in defensive technology---gain a similar share. These unequal effects are amplified when outages are anticipated, suggesting the impacts of rationing are not equal despite equitable exposure.
L11 (Production, Pricing, and Market Structure; Size Distribution of Firms)
O14 (Industrialization; Manufacturing and Service Industries; Choice of Technology)
L25 (Firm Performance: Size, Diversification, and Scope)
O12 (Microeconomic Analyses of Economic Development)
Fiscal r-star and macroeconomic coordination in South Africa
South Africa’s fiscal and monetary authorities now operate in a more difficult environment than they did a decade ago. Debt has risen, growth has disappointed, and sovereign risk premia have remained elevated. At the same time, inflation has fallen and the policy debate has shifted toward whether lower inflation can support growth. Our research shows that these developments are tightly connected. This brief is based on the ERSA working paper and a forthcoming South African Journal of Economics article, “Monetary-fiscal coordination in South Africa: Aligning the stars.” The paper introduces a new policy concept for South Africa: the fiscal-neutral real interest rate, or fiscal r-star. This is the real interest rate consistent with keeping the debt-to-GDP ratio stable for a given primary balance, growth rate, and debt stock. We compare this with the usual monetary r-star, the real interest rate consistent with inflation at target and output at potential.
The Structural Change Emergency in South Africa
In the decade up to 2019, South Africa underwent what may reasonably be described as a structural change emergency. Aggregate annual labour productivity growth was negative on average across the decade; this was accounted for by negative or negligible efficiency gains within all major sectors, and by growth-reducing structural change overall. Growth-reducing structural change implies that labour moved on average from more-to-less productive sectors. The underwhelming structural change and sectoral productivity growth performance of South Africa in this period stand out when compared with earlier periods in post-apartheid South Africa and in international comparison with Africa and the BRICS. Since 2020, there are green shoots of recovery, implying that the structural change emergency may be over. Nevertheless, this recovery is both non-transformative and highly unbalanced sectorally, although it is quite balanced geographically across the provinces of South Africa. The recovery is driven entirely by productivity growth or labour reallocation within, and reallocation of labour towards, the services sector. Recent evidence in the academic literature suggests that services can drive rapid growth through structural transformation, but the current situation in South Africa where non-services sectors are still acting as a drag on growth remains clearly sub-optimal. Hamilton, C., & Mensah, E. (2026). The structural change emergency in South Africa (ERSA Policy Paper No. 46). Economic Research Southern Africa. https://doi.org/10.71587/7tgeja02
Over the past decade, South Africa has experienced a pronounced and persistent decline in fixed investment, with real gross fixed capital formation contracting and capital stock growth slowing to near zero. Investment to GDP fell to 13.9% in 2025, excluding COVID the worst ratio since 1950. This paper documents the stylised facts of the investment slowdown and examines its underlying drivers. It argues that weak business confidence, elevated political and economic uncertainty, rising long-term real interest rates associated with fiscal deterioration, and unproductive public-sector investment have jointly constrained private capital formation. Using survey-based measures of sentiment and uncertainty, together with simple econometric tests, the paper finds evidence of a meaningful relationship between business confidence and private-sector investment, including indications of Granger causality and cointegration. At the same time, higher borrowing costs and limited evidence of fiscal crowding-in have further dampened capital deepening. The consequence has been stagnant capital accumulation, declining capital productivity, and subdued economic growth. The paper proposes a focused reform agenda aimed at restoring a virtuous cycle between confidence, investment and growth. Scenario analysis suggests that under a credible reform and fiscal consolidation pathway, growth could rise toward and potentially exceed 3 percent, materially improving employment and poverty outcomes. Havemann, R. (2026). Reigniting investment in South Africa (ERSA Policy Paper No. 45). Economic Research Southern Africa. https://doi.org/10.71587/7egp8e64
Public debt and inflation dynamics in South Africa: An estimated NK-DSGE model with a monetary and fiscal policy mix regime
This study estimates a closed economy NK-DSGE model with a monetary and fiscal policy mix regime to examine the role of a coexistence regime in shaping the effects of policy shocks on the dynamics of public debt, inflation, and other key variables in South Africa. The results show that when the monetary and fiscal authorities coordinate to stabilize public debt, as in the coexistence regime, the macroeconomic effects of fiscal and monetary policy shocks are relatively balanced. The coexistence regime emerges as a more desirable policy mix, offering a solution to stable economic growth while effectively managing both public debt and inflation, compared to Regime M (an active monetary policy and a passive fiscal policy) and Regime F (an active fiscal policy and a passive monetary policy). While supply and demand shocks remain important drivers of fluctuations in public debt and inflation, the contribution of policy shocks is also non-negligible. Both the debt service cost channel and the initial fiscal condition play a significant role in shaping the dynamics of public debt and inflation.
Monetary and fiscal policy mix regime; Fiscal inflation; Unbacked public debt; New-Keynesian DSGE; Bayesian.
Enhancing merger control to support economic growth in South Africa
Competition policy – and merger control in particular – is an important policy to support productivity and innovation, investment, and long-run economic growth. This paper argues that merger control, when compared to anti-cartel enforcement, has become dominated by discretionary policy preferences fuelled by the expansive ‘public interest’ provisions of the amended Competition Act. Drawing on theoretical and empirical evidence, the paper identifies ministerial discretion, an outsized and opaque role for public interest concerns and the introduction of “vulnerability” as factors that limit the focus of merger control on competition matters. Boshoff, W. (2026). Enhancing merger control to support economic growth in South Africa (ERSA Policy Paper No. 44). Economic Research Southern Africa. https://doi.org/10.71587/4z4q0k71
Understanding South Africa’s mining slowdown
South Africa’s mining sector presents a significant economic paradox: despite possessing a mineral endowment of global significance—particularly in platinum group metals (PGMs), manganese, and chromium—the industry has experienced a profound structural decline since the 1970s. This paper investigates the binding constraints that have prevented the sector from capitalising on global commodity booms and the green energy transition. Applying the Growth Diagnostics framework developed by Hausmann, Rodrik, and Velasco (2005), the study argues that the sector's decline is primarily endogenous, driven by human-made constraints rather than geological exhaustion. Botha, R. (2026). Understanding South Africa’s mining slowdown (ERSA Policy Paper No. 43). Economic Research Southern Africa. https://doi.org/10.71587/0jznvd71
Why Higher Trend Inflation Makes Monetary Policy More Costly in South Africa
Most inflation-targeting central banks target a small but positive underlying rate of inflation, often called trend inflation1. Yet its appropriate level remains uncertain. The extended deliberation in South Africa to move from a 3 - 6% target band to a 3% point target (with a ±1% tolerance band) illustrates this tension. In our working paper (Trend Inflation and the Costs of Price Dispersion in a Fiscal DSGE Model), we examine the role of trend inflation in an economy and argue that, all else equal, lower trend inflation is better for the economy.
Agglomeration and firm-level productivity in African cities
Africa's prosperity hinges on the success of its cities. Yet in many African countries, the expected productivity gains from urbanisation are stifled by chronic infrastructure deficits, governance weaknesses and market inefficiencies. This study examines evidence on the relationship between agglomeration and firm-level productivity covering 157 cities across 33 African nations, using comparable cross-country data from the World Bank Enterprise Surveys and the Global Human Settlement Layer. The findings reveal a loose but positive link between city size and productivity. This is robust to econometric controls and choice of sales per worker, wages or total factor productivity. Interestingly, service firms benefit roughly twice as much as manufacturers, underscoring the importance of service industries in Africa’s growth. Surprisingly, features of the built environment, such as surface area, building height and road networks show limited impact, suggesting that infrastructure quality may matter more than urban form. While agglomeration economies offer potential benefits for African countries, the relationship is weak and highly variable across cities and countries. Further research is needed to uncover the forces and obstacles at work in more detail.
Quantifying the impact of international food price spillovers on South Africa domestic market: Short- and long-term dynamics and transmission channels
This study quantifies the degree of return and volatility risk transmission from the global food market to the South African food market for the period from January 2010 to December 2023. It employs the TVP-VAR-based frequency connectedness to quantify and observe the evolution of both return and volatility risk transmission from the global food market to the South African food market. It also uses the quantile regression technique to identify the main driving factors of both return and volatility spillover from the international food market into the South African market. Results show a slightly higher level of return connectedness than volatility connectedness among the food markets and that shocks from the global food market dominate shocks from the South African food market. While return shocks appear to be more of a short-term phenomenon, volatility shocks are mainly driven by long-term factors. The degrees of shocks transmission are significantly higher when we use the five main global food types (meat, dairy, cereals, oil, and sugar) instead of the composite index of global food prices, especially in terms of volatility. In addition, an increase in geopolitical risks, equity market returns in South Africa, oil prices, and the COVID-19 pandemic were the main drivers of the transmission of return risk from the global food market to the South African food market. However, the depreciation of the Rand value decreased the spillover level. Regarding volatility risk transmission, the gold price, the South African equity, and the fixed income market return are the main drivers of volatility shock transmission from the global food market into the South African food market. The study recommends that South Africa strengthen domestic food production and diversify to build resilience against global food market shocks, especially by supporting vulnerable crops like barley, sorghum, and wheat. Policymakers should also implement strategic reserves, develop short-term risk management tools, integrate energy and food policy, monitor financial-commodity market linkages, and apply macroprudential regulations to mitigate the impact of global return and volatility spillovers on local food markets. JEL:C13,C32,E31
Unlocking sustainable and inclusive growth in South Africa: Advancing the electricity reform agenda
South Africa continues to face deep structural bottlenecks to growth, including weaknesses in the business environment, limited workers’ employability and access to jobs, and persistent inefficiencies in key network industries such as transport, water, and electricity. These challenges are underscored in the 2025 Economic Survey of South Africa, released in June 2025. Although notable progress has been made under Operation Vulindlela, significant obstacles remain, including within the electricity sector (OECD, 2025). Electricity is a foundational input for economic activity, central to firms’ production decisions and to the functioning of the broader economy. This note examines how restoring energy security, accelerating renewable deployment, and reforming municipal and pricing structures can stimulate growth and support a just and sustainable green transition.
Monetary-fiscal coordination in South Africa: Aligning the stars
Monetary-fiscal policy tensions build-up when debt is rising and inflation is falling. The consequence is that either fiscal policy must achieve fiscal consolidation with monetary policy maintaining price stability (passive FP-active MP) or monetary policy must accommodate fiscal policy in debt stabilisation leaving fiscal policy free to achieve its spending and redistribution objectives (passive MP-active FP). We introduce the concept of a fiscal neutral rate (fiscal r-star) into a two-agent new Keynesian dynamic stochastic general equilibrium model estimated with South African data. We show two persistent gaps: (i) monetary r-star exceeds fiscal r-star, indicating a misalignment between monetary and fiscal policy; and (ii) market interest rates exceed fiscal r-star, implying that, without policy action, the risk premium on borrowing will continue to be a drag on growth and debt service costs are likely to crowd out other spending. Our model simulations show that the optimal welfare outcomes are achieved by taking steps to align fiscal r-star with monetary r-star, through introducing a credible fiscal anchor.
Nominal versus Real Deposit Dollarization in Zambia: Determinants and Monetary Policy Insights
This study investigates the determinants of deposit dollarization in Zambia after transition of monetary policy to inflation targeting and introduction of a Monetary Policy Rate (MPR). Using quarterly data from 2012 to 2023, two indices of dollarization are constructed — nominal and real (adjusted for exchange rate fluctuations). We find that while nominal dollarization has remained elevated, real dollarization has trended downward over time. Empirical estimates from an autoregressive distributed lag (ARDL) model indicate that nominal dollarization is largely driven by money supply, output, and the exchange rate, whereas real dollarization is determined primarily by output and exchange rate volatility. The MPR exerts a modest but statistically significant effect on nominal dollarization. Impulse responses obtained using local projection framework show that MPR hikes yield short-term reductions in nominal dollarization, whereas exchange rate innovations have a more pronounced and sustained influence over both indices time. These findings underscore the need for coordinated monetary and exchange rate stabilization policies to effectively manage dollarization pressures in developing economies with multiple currencies in circulation.
Deposit dollarization; real and nominal dollarization; monetary policy; Zambia
South Africa's inflation: Monetary or fiscal
Conventional macroeconomics has viewed inflation as a monetary phenomenon through the Quantity Theory of Money. Ever-increasing sovereign debt globally has caused concern among economists. These concerns follow not from the ability of governments to repay their debt, but rather from the impact of sizeable debt portfolios on price levels. The Fiscal Theory of the Price Level epitomizes these concerns, contrasting the traditional view on inflation by arguing that it is a fiscal phenomenon caused by debt issuance without real backing. This study uses this fiscal inflation theory to analyse South Africa's inflation through a fiscal-monetary VAR model, finding that South Africa's inflation dynamics are accurately described by both monetary and fiscal factors, but more so by the latter.
Monetary and fiscal interactions, Fiscal theory of the price level, Inflation
Resolving the friction between Turnbull's (1983) and Klemperer-Meyer's (1989) Nash equilibria in affine supply functions
Turnbull (1983) describes unique symmetric Nash equilibria for supply function competition under demand uncertainty which consist of affine strategies that are nonlinear. For the same economy Klemperer and Meyer (1989) derive unique Nash equilibria that are linear. This note shows that the friction between both results comes from a mathematical error in Turnbull (1983). Correcting this error establishes the same linear Nash equilibria for both models.
Supply function competition; Demand uncertainty; Uniqueness of Nash equilibria
Governance, and regional dynamics of inflation persistence: Evidence from South Africa
Regional inflation patterns within a single economy can have important implications for the effectiveness of fiscal and monetary policy. Yet, much of the existing research has focused on cross-country or monetary union dynamics, under the assumption that intra-country regions are sufficiently homogeneous for national policy to transmit uniformly. This assumption may be particularly problematic in countries like South Africa, where significant regional disparities in economic activity, infrastructure, and governance exist — each of which affects how policy is transmitted to the subnational level. This study uses consumer price index (CPI) data from 27 local municipalities between 2008 and 2023 to examine the extent of variation in inflation and inflation persistence across South African regions. Employing an autoregressive model, the study assesses the role of municipal governance, measured by audit outcomes from the Auditor-General of South Africa, in mediating this persistence. The results indicate marked regional differences in both inflation levels and persistence. Regions with lower economic activity tend to experience higher inflation persistence, suggesting a compounding vulnerability for already marginalised populations. Governance quality appears to mitigate inflation persistence, particularly in market-determined prices, while its effect is weaker in administered price categories, likely due to slower adjustment processes. The findings contribute to understanding the sub-national drivers of inflation and inform the development of targeted policy interventions to address regional disparities and enhance overall economic stability in South Africa.
Macroeconomic effects of lowering South Africa’s inflation target: An SVAR analysis
The paper estimates the macroeconomic effects of shifting to a lower inflation target for South Africa, within a Structural Vector Autoregressive (SVAR) framework identified using the Max Share Identification strategy and estimated with Bayesian methods. We find that a decrease of 1% (in terms of percentage points change) in the inflation target leads to output expanding over the next few quarters after an initial muted response, with a peak of about 1.20% after about two years and remains positive and statistically significant for nearly three years after the shock. We also observe a short and medium-term co-movement of inflation and the nominal policy rate in response to the inflation target shock, reminiscent of Neo-Fisherian effects. However, unlike most of the findings in the literature whereby the effects of inflation target shocks are persistent, we find that they are less persistent for the South African economy with this finding being robust to using an alternative identification approach. We find a strongly operative sovereign credit risk and asset price channels through which lower inflation target increases output. These findings are relevant for emerging markets where sovereign credit risks tend to be elevated compared to developed economies.
Climate Change and Financial Stability: Evidence from Southern Africa
Climate change poses increasing risks to financial stability, yet empirical evidence from small African economies remains scarce. This paper provides systematic estimates of the impact of temperature shocks on banking sector stability in Lesotho, Eswatini and Namibia over the period 2009 - 2023. Using the Local Projections (LP) method, results show that increases in temperature are associated with sustained growth in non-performing loans (NPLs), indicating rising credit risk and a weakening banking environment in the face of climate shocks. To complement these findings, a two-way fixed effects model with mediation analysis is employed, testing GDP as a transmission channel. The results suggest that while GDP does not significantly mediate the relationship, temperature shocks exert a robust and direct effect on banking stability. The study contributes new evidence an climate- finance linkages in climate-vulnerable, agriculture-dependent economies and underscores the need for supervisory frameworks and climate-related stress testing to integrate physical risk into financial assessments.
Southern Africa: Lesotho, Eswatini, Namibia
The Scars of Child Labor: Links with Youth Employment and Earnings
We use panel data that tracks individuals from childhood to adulthood—the YoungLives data—and investigate the effects of involvement in child labor at age 12 on labor market outcomes later in life. The results suggest that one hour of participation in child labor at the age of 12 increases the probability of youth employment by 10.7 percent later in life, at least in part, indicating an early entry advantage in the labor market. However, we find that participants in child labor have a higher likelihood of working in hazardous jobs later in life. Using earnings as an outcome variable, we also find that involvement in child labor at age 12 has a significant negative effect on earnings 14 years later (at age 26). We argue that one of the key mechanisms through which child labor affects labor market outcomes later in life is through its persistent negative effect on education. Our findings provide insights into the potential social benefits of addressing child labor and mitigating its impact on human capital formation through safety nets.