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Modelling macroeconomic performance of African economies: An application of a macro econometric model.

Kavari, Gift Vijandjua. (2002) Modelling macroeconomic performance of African economies: An application of a macro econometric model. Doctoral thesis, University of Surrey (United Kingdom)..

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The main objective of this study has been to model macroeconomic performance of African economies, and therefore, a macro econometric model was constructed to facilitate this exercise. The study has investigated thirteen African countries during the period 1980-97. Based on the growth rate of real GDP and per capita income, and other macroeconomic indicators, Botswana emerges as the African "Tiger Economy", which has pursued sound economic policies. Other good macroeconomic performers are Mauritius and Namibia. The macro econometric model was constructed for four African economies in Southern Africa: Namibia, Botswana, Mauritius, and South Africa. An instrumental variable technique was applied to estimate the model, and the WinSolve (simulation program) was utilised to perform policy simulations. Based on estimated model (1970-96), consumption is not influenced by real interest rates. However, real interest rates are a determinant of investment only in South Africa. The determinant of consumption is real disposable income and the determinant of investment is real domestic income, in all the countries. Exchange rate effects boosted exports in the economy following a pegged exchange rate system (Namibia), and have constrained imports in the economy, which have experienced massive exchange rate depreciation or a weak currency (Mauritius). The existence of speculative money demand is well confirmed in Botswana and South Africa, but not in Namibia and Mauritius. In all countries, real wage rates and the level of income significantly determine employment. In the simulation model, a tax stabilisation rule was enforced, and a quarter of last year's cumulated debt was raised in taxes. When the tax rule is in place, the effects of government spending to stimulate the level of income is less potent than when the tax rule is relaxed. The simulation model was used to perform historical simulations, and the ability of the model to replicate the actual data demonstrates the "goodness of fit" of the model. Hence the model was subjected to shocks, and the potency of economic policies on the economy was assessed. These policies are interest rate, exchange rate devaluation, fiscal policy (government spending and tax cuts), and income policy (wages rise). Based on simulation evidence, interest rate policy was more potent in stimulating economic activities in South Africa than in the remaining economies. Interest rate control in Mauritius and the lack of an independent interest rate policy in Namibia explain why the interest rate policy in these economies is less potent. Exchange rate devaluation improves the trade balance in Namibia and Botswana whilst the trade balance in Mauritius and South Africa deteriorates. The conduct of fiscal policy (rise in government spending or tax cuts) to raise the level of income is more effective in South Africa. While a rise in government spending is less effective in Mauritius, tax cuts are more potent in this economy. Tax cuts policy is relatively less effective than a rise in government spending in Namibia and Botswana. Policy prescriptions are country-specific and the study recommends an implementation of proposed growth policy targets.

Item Type: Thesis (Doctoral)
Divisions : Theses
Authors :
Kavari, Gift Vijandjua.
Date : 2002
Contributors :
Depositing User : EPrints Services
Date Deposited : 09 Nov 2017 12:18
Last Modified : 20 Jun 2018 11:55

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