Accelerated Land Reform, Mining, Growth, Unemployment and Inequality in South Africa: A Case for Bold Supply Side Policy Interventions

Preface
	Reference
Acknowledgements
Contents
List of Figures
List of Tables
1: Introduction
	1.1	 The Interaction Between Nominal Wage Inflation, Consumer Price Inflation and the Exchange Rate Appreciation and Depreciation Episodes Influences Output Costs Associated with Disinflation
	1.2	 An Evaluation of How the Inflation Targeting Framework Has Performed in South Africa
	1.3	 A Lower Inflation Target Regime and Monetary Policy Credibility
	1.4	 The Output-Employment Intensities and the Structural Change Indices
	1.5	 The Exports-Led GDP Growth Hypothesis and the Stimulation of Economic and Employment Growth
	1.6	 Import Competition, the Effectiveness of Import Tariffs and Exchange Rate Depreciation in Selected Agricultural Sector Industries
	1.7	 Can Accelerated Land Reform Help Reduce Poverty and Inequality?
	1.8	 Do the Land Redistribution and Increase in Hectares Planted Policies Complement Each Other?
	1.9	 What Does the Accelerated Land Reform Policy Imply for Youth Unemployment?
	1.10	 The Role of Investment and Productivity Shocks on Output and Employment Growth
	1.11	 Impact of Binding Minimum Wage Shocks in the Mining and Agricultural Sectors
	1.12	 The Role of the Land Bank, Postbank and Lower-Tier Banks
	1.13	 The Balance Sheet Channel, Contractionary Effects of Exchange Rate Depreciations and the Import Substitution Strategy
	1.14	 The Impact of Financial Regulations and Macroprudential Tools on the Funding of the Agricultural Sector Growth
	1.15	 The Interaction Between the Financial Sector Regulatory Framework, Property Rights Clause and the South African Reserve Bank Mandate
	References
Part I: The Interaction Between Nominal Wage Inflation, Consumer Price Inflation and the Exchange Rate Appreciation and Depreciation Episodes and their Influence on Output Costs Associated with Disinflation
	2: Does the Consideration of Nominal Wage Growth Imply a High Level of Inflation Inertia or Persistence Compared to Consumer Price Inflation?
		2.1	 Introduction
		2.2	 Why Does This Analysis Matters?
			2.2.1	 The Rejection of the Unemployment Invariance Hypothesis
			2.2.2	 High Inflation Is Bad for Economic Growth
			2.2.3	 The Short-Run Phillips Curve
			2.2.4	 Increased Labour Productivity Matters
		2.3	 What Are Sacrifice Ratios and Why They Matter?
		2.4	 The Ball (1994) and Harding and Pagan (2002b) Approaches to Disinflation
		2.5	 Actual Output and Employment Relative to Trend Output and Employment During Consumer and Wage Disinflation Episodes
		2.6	 How Does Trend Output and Employment Behave During the Nominal Wage and Consumer Price Disinflation Episodes
		2.7	 How Do Cyclical Output and Employment Perform During the Disinflation Episodes?
		2.8	 How Does the Policy Rate Change During the Disinflation Episodes?
		2.9	 Conclusion and Policy Implications
		Appendix
		References
	3: Wage and Consumer Price Inflation During Exchange Rate Appreciation and Depreciation Episodes
		3.1	 Introduction
		3.2	 The Link Between the Exchange Rate, Nominal Wages and Consumer Price Inflation
		3.3	 The Exchange Rate, Nominal Wage and Consumer Price Inflation
		3.4	 Are the Macroeconomic Shock Effects and Monetary Policy Responses to Nominal Wage and Consumer Prices Different?
			3.4.1	 Do Inflation Regimes Play a Role on the Effects of Nominal Wage and Consumer Price Inflation Shocks?
			3.4.2	 What About Real Wage Inflation Threshold?
		3.5	 Do Exchange Rate Volatility Components Propagate the Impact of the R/US$ Exchange Rate Changes on Nominal Wage and Consumer Price Inflation?
		3.6	 Conclusion and Policy Implications
		References
Part II: An Evaluation of the Performance of the Current Inflation Targeting Framework in South Africa and Whether Nominal GDP Growth Targeting is a Viable Alternative
	4: An Evaluation of How the Inflation Targeting Framework Has Performed in South Africa
		4.1	 Introduction
		4.2	 Insight from Inflation and Output Trade-offs
		4.3	 Evidence from Disinflation Episodes and Output Costs
		4.4	 Insight from the Relationship Between Output Growth, Output-Gap and Inflation (Phillips Curve)
		4.5	 The Existence of Thresholds Within the Current Inflation Target Range
		4.6	 The Inflation Target Range and Thresholds Matter for the Pass-Through of Shocks
		4.7	 Relative Price Dispersion, Inflation and the Role of the Inflation Target Range
		4.8	 Monetary Policy Conduct and Asset Price Booms and Busts
		4.9	 Fiscal Policy Conduct Effects on Price Stability and the Inflation Targeting Regime
		4.10	 The Role of Economic Policy Uncertainty and Channels of Transmission into the Domestic Economy
		4.11	 How Has the Credibility of Monetary Policy in South Africa Evolved?
		4.12	 Conclusion and Policy Implications
		References
	5: Is There a Case for Nominal GDP Growth Targeting in South Africa and Abandoning Inflation Targeting?
		5.1	 Introduction
		5.2	 What Is Nominal GDP Targeting?
		5.3	 What Is the Nature of the Inflation and NGDP Volatilities in South Africa?
		5.4	 Inflation and Repo Rate Responses to Positive NGDP Growth Shocks
		5.5	 Taylor Rule Prescriptions Using NGDP Growth and CPI Inflation Under Different Inflation Target Bands
		5.6	 What Happens When the NGDP Growth Target Is Increased?
		5.7	 Conclusion and Policy Implications
		References
	6: How Does Nominal GDP Growth Respond to Various Shocks
		6.1	 Introduction
		6.2	 How Does NGDP Growth and Inflation Respond to Monetary Base Growth Shocks?
		6.3	 The Identification of Various Structural Shocks by Sign Restriction Approach
		6.4	 NGDP and Inflation Responses to Aggregate Supply Shocks?
		6.5	 How Does NGDP and Inflation Respond to Aggregate Demand Shocks?
		6.6	 NGDP and Inflation Responses to Credit or Loan Supply Shocks?
		6.7	 Conclusion and Policy Implications
		References
	7: Are High NGDP Growth Targets Consistent With a Dual Mandate of Low Inflation and Maximum Employment Growth and a Low Unemployment Rate?
		7.1	 Introduction
		7.2	 Where Does the NGDP Threshold Lie?
		7.3	 The Effects of NGDP Growth on Employment Growth and the Unemployment Rate
		7.4	 The Impact of Positive NGDP Growth Shocks: Perspective from the Employment Growth and the Unemployment Rate
			7.4.1	 Perspective from Consumer Price Inflation Regimes
			7.4.2	 What Can Explain the Inflation Behaviour?
			7.4.3	 The Role of the Exchange Rate Channel
			7.4.4	 The Role of the Nominal Wage Growth Channel
			7.4.5	 The Role of the Inflation Expectation Channels
		7.5	 What Are the Implications for the Conduct of Monetary Policy?
		7.6	 Conclusion and Policy Implications
		References
Part III: The Output-Employment Intensities and the Structural Change Indices
	8: What Is the Nature of the Output-Employment-Unemployment Nexus in South Africa? Evidence from Various Approaches to Okun’s Law
		8.1	 Introduction
		8.2	 Alternative Approaches to the Estimation of the GDP-Employment-Unemployment Growth Relationship
			8.2.1	 Different Versions of the Employment-Output Intensity Relationship
		8.3	 How Has the GDP-Employment-Unemployment Growth Relationships Evolved?
		8.4	 How Quickly Would Output Typically Need to Grow to Maintain a Given Level of Employment Growth and Unemployment Rate?
		8.5	 The Sectorial Estimates of the Okun’s Law Estimates
		8.6	 Conclusion and Policy Implications
		Appendix
		References
	9: The Impact of Structural Change on the South African Economy: Evidence from the Structural Change Indices
		9.1	 Introduction
		9.2	 Brief Literature Review
		9.3	 Methodology of Measurement of Structural Change
		9.4	 Structural Change Indices
			9.4.1	 Nominal and Real Gross Value Added Structural Change Indices
			9.4.2	 Employment Structural Change Indices
			9.4.3	 Investment Structural Change Indices
		9.5	 Causality Between Sectoral Growth and Sectoral Structural Change Indices
		9.6	 Conclusion and Policy Implications
		Appendix
		References
	10: The Impact of Structural Change on the South African Economy: Evidence from the McMillan and Rodrik (2011) Labour Productivity Decomposition Approach
		10.1	 Introduction
		10.2	 Decomposition Approach
		10.3	 Selected Trends
		10.4	 McMillan and Rodrik (2011) Decomposition Approach: The Decomposition of Labour Productivity into the “Within” and “Structural Change” Components
		10.5	 Has the Structural Change Component Been Positive for the South African Economy?
		10.6	 What Happens to the Displaced Workers Due to Positive Shocks to Relative Labour Productivity?
		10.7	 Conclusion and Policy Implications
		Appendix
		References
Part IV: Policy Uncertainty, Mining Sector Charter, Exchange Rate Volatility, Commodity Price Booms and Busts, Binding Minimum Wage Increases and the Mining Sector
	11: How Has the Intensity of the Ability of Commodity-Specific Output Growth to Create Jobs Evolved? Implications for the Mining Sector as a “Sunrise Industry”
		11.1	 Introduction
		11.2	 Is There a Case for a Special Treatment of Coal Mining Within the Mining Sector and Energy Mix Policy?
		11.3	 The Metal Ores Commodity Sector
		11.4	 The Platinum Group Commodity Sector
		11.5	 Output-Employment Estimates for the Commodity Sector Mining
		11.6	 Conclusion and Policy Implications
		Appendix
		References
	12: Is Export-Led Growth a Necessary but Insufficient Condition for Job Creation in the Mining Sector? Does This Mean That There Is a Strong Case for Beneficiation?
		12.1	 Introduction
		12.2	 The Export-Led Growth Hypothesis
			12.2.1	 Analytical Framework
		12.3	 Data and Stylised Facts
			12.3.1	 Aggregate Exports, GDP, Employment and Investment Growth
			12.3.2	 Evidence from Granger Causality Tests
			12.3.3	 Mining Exports, GDP, Employment and Investment Growth
		12.4	 Is There a Prevalence of the “Exports-Led Growth” Hypothesis Over the “Growth-Driven Exports” Hypothesis?
			12.4.1	 Does the “Exports-Led Growth” Hypothesis Hold in the Mining Sector?
			12.4.2	 The Role of Foreign Demand
			12.4.3	 Is Foreign Demand a Catalyst for Mining Exports, Output and Employment Growth?
		12.5	 Conclusion and Policy Implications
		Appendix
		References
	13: The Impact of Mining Commodity Price Booms and Sharp Exchange Rate Depreciation Episodes on Mining Output and Employment Growth
		13.1	 Introduction
		13.2	 The Identification of Booms and Busts
		13.3	 Measuring the Synchronisation of Cycles: The Harding and Pagan Approach
		13.4	 Identification of Booms and Bust Episodes Based on the Threshold Techniques
		13.5	 How Do Sharp Exchange Rate Appreciations and Depreciations Coincide with Capital Flow Surges and Sudden Stop Episodes?
		13.6	 Do Capital Flow Surge and Sudden Stop Episodes Coincide with the Equity and Commodity Price Booms and Busts?
		13.7	 Did South Africa Miss Out from the Commodity Price Super Cycle?
		13.8	 The Sector Mining Output Losses Due to Commodity and Asset Price Busts and Sharp Exchange Rate Appreciations and Depreciations
		13.9	 What Happens to the Mining Sector Output, Investment and Employment Growth During Assets and Commodity Price Bust Episodes?
			13.9.1	 Which Mining Commodity Sectors Are More Responsive to Commodity and Asset Price Busts?
		13.10	 Episodes of Financial Cycle Boom Episodes and the Amplification Effects on Credit and GDP
		13.11	 Conclusion and Policy Implications
		Appendix
		References
	14: The Role of the Exchange Rate on Investment Growth in the Mining Sector: Evidence from the Balance Sheet Hypothesis
		14.1	 Introduction
		14.2	 Literature Review
		14.3	 The Contractionary Effects of Large Real Exchange Depreciations Versus Large Commodity Price Busts
			14.3.1	 What Is the Impact of Large Real Exchange Rate Depreciations Compared to Those Induced by Severe Commodity Price Busts?
			14.3.2	 How Different Is the Variance Induced by the Real Exchange Rate Depreciations Versus Commodity Price Declines?
			14.3.3	 How Does Mining Investment Respond to Commodity Prices, Foreign Debt and Intermediate Imports?
			14.3.4	 The Impact of Persistent and Transitory Commodity Price Shocks
			14.3.5	 The Asymmetric Transmissions of Shocks to Mining Investment
		14.4	 Conclusions and Policy Implications
		Appendix
		References
	15: The Role of the Exchange Rate Volatility Shocks on the Mining Sector
		15.1	 Introduction
		15.2	 Why Does Exchange Rate Volatility Matter?
		15.3	 Thresholds for Mining Investment Growth
		15.4	 What Is the Impact of the Exchange Rate Volatilities on Mining Investment, Output and Employment Growth?
			15.4.1	 What Is the Impact of Exchange Rate Volatilities on Mining Exports?
		15.5	 The Threshold Effects on Mining Investment on Output and Employment
		15.6	 Conclusion and Policy Implications
		References
	16: The Role of Policy Uncertainty, Low Confidence and the Mining Charter in the Transmission of Positive Shocks to Commodity Prices in the Mining Sector
		16.1	 Introduction
		16.2	 Literature Review
		16.3	 Empirical Findings
			16.3.1	 Historical Variance Decompositions
			16.3.2	 The Propagation of Positive Shocks to Commodity Prices by Various Shocks
		16.4	 Conclusion and Policy Implications
		References
	17: What Are the Mechanisms and Channels Through Which the Mining Sector Adjusted to an Increase in the Binding Minimum Wage in 2014?
		17.1	 Introduction
		17.2	 Literature Review
		17.3	 Empirical Evidence
		17.4	 Conclusion and Policy Implications
		Appendix
		References
Part V: The Implications of the Policy of Accelerated Land Reform for Food Security and Affordability, Price Stability and the Agricultural Sector Output and Employment Growth
	18: Land Reform, Redistribution and Agricultural Investment Growth: What Are Implications for the National Development Plan Output and Employment Targets?
		18.1	 Introduction
		18.2	 Further Stylised Facts on the Agricultural Sector
		18.3	 How Employment Intensive Is the Agricultural Sector GDP Growth?
		18.4	 What Happens to Agricultural GDP and Employment Growth When Investment Increases?
		18.5	 Does Bringing Underutilised Land in the Former Homelands and Communal Areas Make a Meaningful Difference?
		18.6	 Conclusion and Policy Implications
		References
	19: What Is the Role of Food Commodity Price Booms and Busts in the Agricultural Sector? Implications for Monetary Policy
		19.1	 Introduction
		19.2	 The Identification of Food Commodity Price Booms and Busts
		19.3	 How Reasonable and Plausible Is the First Common Food Commodity Price Factor?
			19.3.1	 How Synchronised Are Domestic and Global Food Commodity Prices?
		19.4	 What Is the Role of Food Commodity Price Booms and Busts in the Agricultural Sector?
			19.4.1	 What about Investment Growth in the Agricultural Sector?
			19.4.2	 Do Food Commodity Price Booms and Busts Push Food and Consumer Price Inflation, and Key Agricultural Sector Aggregates in Different Directions?
		19.5	 Conclusion and Policy Implications
		Appendix
		References
	20: What Is the Role of Trade Liberalisation and Food Commodity Price Booms in the Agricultural Sector? Implications for the Export-Led Growth Strategy
		20.1	 Introduction
		20.2	 How Has Trade Liberalisation Affected the Agricultural Sector?
		20.3	 What Are the Effects of Exposure to Import Competition in the Agricultural Sector?
		20.4	 Does Export Growth Cause Output Growth?
		20.5	 Do Food Commodity Price Booms Propagate the Demand Effects on Exports Growth?
		20.6	 Conclusion and Policy Implications
		Appendix
		References
	21: Is the Agricultural Sector Sensitive to the Exchange Rate Depreciation and Volatility Shocks: Evidence from the Balance Sheet Channel
		21.1	 Introduction
		21.2	 Why Is the Assessment of the Exchange Rate Balance Sheet Effects Important for the Agricultural Sector?
		21.3	 The Balance Sheet Channel of the Monetary Policy Transmission
		21.4	 The Agricultural Sector Capital Assets on Commercial Farms
		21.5	 The Exchange Rate Channel of the Monetary Policy Transmission on the Agricultural Sector
			21.5.1	 The Food Prices and Headline Inflation Channel
			21.5.2	 The Exchange Rate, Import Duties and the Import Price Channel in the Poultry Sector
			21.5.3	 What Is the Impact of Wheat Tariffs and R/US$ on Wheat Imports? Which One between Wheat Tariffs and R/US$ Depreciation Exerts Significant Effects?
			21.5.4	 The Impact of the Exchange Rate on the Components of the Agricultural Sector Imports
		21.6	 Conclusion and Policy Implications
		Appendix
		References
	22: What Is the Impact of a Binding Minimum Wage on the Agricultural Sector?
		22.1	 Introduction
		22.2	 Summary of Recent Findings on the Impact of the Minimum Wage on the Agricultural Sector
		22.3	 Literature on the Channels of Adjustment to an Increase in the Binding Minimum Wage
		22.4	 What Are the Dominant Channels of Adjustment to the Minimum Wage in the Agricultural Sector?
			22.4.1	 The Impact of Food Commodity Price Booms and Busts
			22.4.2	 The Exports Growth Channel
			22.4.3	 Does the Hypothesis of the Efficiency Wage Hold in the Agricultural Sector?
			22.4.4	 Do Tight Monetary Policy Shocks Matter for the Agricultural Sector?
			22.4.5	 How Does the Agricultural Sector Adjust to an Unexpected Increase in the Minimum Wage?
		22.5	 What Is the Role of Hours and the Capital-Labour Ratio Dynamics as Adjustment Channels to the Increase in the Minimum Wage?
		22.6	 Conclusion and Policy Implications
		References
	23: Social Income Grants, Population Dynamics and Gender Distribution in the Agricultural Sector Employment
		23.1	 Introduction
		23.2	 Social Income Grants Trends and Studies on the Impact of the Social Income Grant System
		23.3	 Population and Gender Dynamics
		23.4	 Conclusion
		References
	24: Land Redistributed between 1994 and 2017, the Production Function and the Evolution of Area Planted in Various Agricultural Sector Commodities
		24.1	 Introduction
		24.2	 Land as a Primary Factor in the Production Function and the Evolution of Land Reform in South Africa
		24.3	 The Evolution of Area Planted, Tonnes per Hectare Produced and Yield per Hectare Planted in Selected Field Crops
		24.4	 Conclusion and Policy Implications
		References
	25: The Interaction between the Minimum Wage, Social Income Grants, Household Consumption and the Gini Coefficient
		25.1	 Introduction
		25.2	 Do Positive Shocks to the Minimum Wage and Social Income Grants Lead to an Increase in Household Consumption and a Decline in the Gini Coefficient?
		25.3	 Do Positive Shocks to the Minimum Wage and Social Income Grants Reinforce Each Other’s Effects on Household Consumption and the Gini Coefficient?
		25.4	 Is There Evidence of a Direct Impact of Social Income Grants on the Agricultural Sector in the Rural Areas?
		25.5	 Conclusion and Policy Implications
		References
	26: Can Accelerated Land Reform and The Increase in Hectares Planted Policy Tools Help Increase Employment Growth and Reduce Income Inequality?
		26.1	 Introduction
		26.2	 Do Positive Shocks to Area Planted and Land Redistribution Lead to an Increase in Household Consumption and the Gini Coefficient?
		26.3	 Can Accelerated Land Reform and Increase in Hectares Planted Policy Tools Help Increase Employment Growth and Reduce Income Inequality?
		26.4	 Do the Land Redistribution and Increase in Hectares Planted Policies Complement Each Other?
		26.5	 Conclusion and Policy Implications
		References
Part VI: The Interaction Between the Financial Sector Regulatory Framework, Property Rights Clause and the South African Reserve Mandate
	27: The Transmission of Shocks to Farmland Prices, Interest Rates and the Confidence Channels in the Agricultural Sector
		27.1	 Introduction
		27.2	 The “Willing Buyer:Willing Seller” Model and the Funding Requirement for Land Reform
		27.3	 Idiosyncratic Factors Related to Farmland Prices
		27.4	 A Brief Discussion of the Models of Land Reform since 1994
		27.5	 The Relationship between Farmland Prices and Selected House Price Indicators
		27.6	 The Relationship between Prime Rate and Nominal Farmland Prices
		27.7	 The Channels of Transmission of Interest Rate Shocks in the Agricultural Sector
			27.7.1	 The Asset Price Channel Operating Via Farmland Prices in the Agricultural Sector
		27.8	 The Role of the Business Confidence Channel
			27.8.1	 Does the Agricultural Sector Business Confidence Channel Propagate Positive Shocks to Farmland Prices?
		27.9	 Conclusion and Policy Implications
		References
	28: The Land Bank Balance Sheet and the Transmission of Shocks to the Agricultural Sector
		28.1	 Introduction
		28.2	 The Evolution and Structure of the Agricultural Sector Debt
		28.3	 What about the Land Bank Exposure?
			28.3.1	 The Quality of the Land Bank Loan Book
		28.4	 How Are Loan Supply Shocks Transmitted Via the Land Bank Balance Sheet?
		28.5	 Asymmetric Effects of Positive Land Bank Balance Sheet Shocks
		28.6	 Quality of the Balance Sheet: The Case of Land Bank Non-performing Loans
		28.7	 Conclusion and Policy Implications
		Appendix
		References
	29: Is There a Role that Lower-Tier Banks Can Play in Complementing the Land Bank Development Mandate of the Agricultural Sector Value Chain?
		29.1	 Introduction
		29.2	 The Historical Role of Co-operative Banks, Control and Marketing Boards in the Agricultural Sector
		29.3	 The Land and Agricultural Bank Act and the Agricultural Sector Development
		29.4	 Stylised Facts of the Balance Sheets of Lower-Tier Banks in South Africa
			29.4.1	 The Postbank Balance Sheet
			29.4.2	 The Mutual Banks’ Balance Sheet
			29.4.3	 The Co-operative Banks’ Balance Sheet
		29.5	 What Are the Effects of Positive Credit Extension Shocks by the Postbank, Co-operative Banks and Mutual Banks?
		29.6	 What Are the Financial Implications of Increasing the Size of the Postbank, Co-operative Banks and Mutual Banks?
		29.7	 Conclusion and Policy Implications
		References
	30: The Impact of Financial Regulations and Macroprudential Tools on the Funding of the Agricultural Sector Growth
		30.1	 Introduction
		30.2	 What Is the Impact of a Decline in Excess CAR on RWAs and the Share of the Agricultural Sector Credit by the Banking Sector?
		30.3	 What Is the Impact of a Decline in Excess CAR on the Agricultural Sector Growth?
		30.4	 Robustness Analysis: Inferences for the Impact of Positive RWAs Shocks
		30.5	 Do Negative Excess CAR Shocks Exert Asymmetric Effects on the Agricultural Sector?
		30.6	 Conclusion and Policy Implications
		References
	31: The Interaction Between the Financial Sector Regulatory Framework, Property Rights Clause and the South African Reserve Bank Mandate
		31.1	 Introduction
		31.2	 How Can Section 25(5) of the Constitution Be Redrafted to Protect Gender Equity?
			31.2.1	 What Are the Implications for Communal Land?
		31.3	 What about the Criteria Set Out in 25(3) of the Constitution to Decide What Is Fair, Just and Equitable Compensation? Is There a Case to Redraft and Expand Criteria in Making Decisions about the Trade-Offs?
			31.3.1	 What Is in the Public Interest and What Is for a Public Purpose?
			31.3.2	 How Does the Court Fix It and What Is Fair Compensation?
			31.3.3	 What Constrains and Anchors the Application of Discretion and Judgement on What Is Fair, Just and Equitable Compensation?
		31.4	 What Are the Implications for Section 223 of the Constitution for the Monetary Policy Framework of the South African Reserve Bank?
			31.4.1	 The Price Stability Mandate
			31.4.2	 The Financial Stability Mandate
			31.4.3	 The Expanded Monetary Policy Mandate
		31.5	 Conclusion and Policy Implications
		References
Index