publications

2024

1. Investigating unemployment hysteresis in South Africa

   V. Dadam, and N. Viegi

   South African Journal of Economics, 2024

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   This paper investigates hysteresis in South Africa’s unemployment. First, we test the presence of hysteresis in unemployment using traditional stationarity tests and non-linear transformation methods to identify two further characteristics of hysteresis, namely, remanence and selective memory. In the second part of the paper, we estimate a simple insider–outsider model using a Bayesian vector autoregression methodology to identify the shocks driving unemployment dynamics. The main finding is that mark-up shocks and negative productivity shocks are the main drivers of unemployment, with demand shocks playing a secondary role. Nominal wages are not responsive to real shocks and are an important component of inflation. These results point to the difficulty of absorbing the current level of unemployment without a significant increase in the flexibility of goods and labour markets. At the same time, the evidence suggests that, if reforms are being implemented, demand policies can play a significant role in improving employment and growth, reversing the structural unemployment evident in the data.

   @article{dadamviegi2,
     title = {Investigating unemployment hysteresis in South Africa},
     author = {Dadam, V. and Viegi, N.},
     journal = {South African Journal of Economics},
     volume = {},
     number = {},
     pages = {1--23},
     year = {2024},
     publisher = {Wiley},
   }

2019

1. Estimating a New Keynesian Wage Phillips Curve for South Africa

   V. Dadam, and N. Viegi

   Journal of Development Perspectives, 2019

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   This paper estimates a New Keynesian wage Phillips curve for South Africa to determine the responsiviness of nominal wages to employment conditions. The estimation is based on a New Keynesian model with staggered nominal wages setting and where all variations in hired labour input is taking place at the extensive margin. First we estimate the model using aggregate data from 1971 to 2013. The aggreagate estimations show that private sector nominal wages are not responsive to employment conditions, while they show a certain sensitivity to inflation and quite a good correlation with inflation expectations. The relationship between private sector nominal wage inflation and employment is clearly weak for the whole sample, and it becomes insignificant at the end of the sample, indicating an increase of wage rigidities in the post-apartheid South Africa. On the other hand the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample but it becomes quantitatively weak for the inflation targeting period. In this period Trade Union inflation expectations are instead strongly correlated with nominal wage inflation. In the second part of the paper we look at the relationship between nominal wage, productivity and the reservation wage, using a panel of nine industrial sectors over the period 1970- 2013 The findings confirms that nominal wages inflation have consistently outpaced the growth in productivity, even after correcting for inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction in a wage equation for South Africa. The results show that labour productivity has a direct effect on wages and the reservation wage. The overall picture that comes out from the analysis is of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.

   @article{dadamviegi1,
     title = {Estimating a New Keynesian Wage Phillips Curve for South Africa},
     author = {Dadam, V. and Viegi, N.},
     journal = {Journal of Development Perspectives},
     volume = {3},
     number = {1-2},
     pages = {137--163},
     year = {2019},
     publisher = {Penn State University Press},
   }

2. Why South Africa is Cheap for the Rich and Expensive for the Poor - Reconsidering the Balassa-Samuelson Effect

   V. Dadam, M. Hanusch, and N. Viegi

   World Bank Policy Research Working Paper No. WPS 8942, 2019

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   This paper investigates cross-sectoral productivity differentials in South African industry and their distributional consequences. The analysis shows that typically, traded sectors have experienced low productivity growth over the past decade, while skill intensive service sectors have had significant productivity growth. This is the inverse of the traditional Balassa-Samuelson sectoral transformation hypothesis, where high wages in high-productivity traded sectors increase wages throughout the economy, thus increasing prices on non-traded goods and revaluing the country’s real exchange rate. Instead, the higher productivity of non-traded sectors experienced in South Africa induces a devaluation of the real exchange rate and a contraction of the traded sectors. The results of the estimation show evidence of this "inverse" Balassa-Samuelson effect for agriculture and manufacturing and in particular mining. This "inverse" Balassa-Samuelson effect has important distributional consequences - the high-productivity sectors are associated with cheaper goods and services for wealthy households. This in turn burdens poor households, which are more dependent on traded goods, with higher prices, which are a consequence of low productivity and high markups.

   @article{dadamhanuschviegi,
     title = {Why South Africa is Cheap for the Rich and Expensive for the Poor - Reconsidering the Balassa-Samuelson Effect},
     author = {Dadam, V. and Hanusch, M. and Viegi, N.},
     journal = {World Bank Policy Research Working Paper No. WPS 8942},
     volume = {},
     number = {},
     pages = {},
     year = {2019},
     publisher = {Washington DC - World Bank},
   }

2018

1. Investment in South Africa - Opening the Economy to Transform the Soceity

   V. Dadam, and N. Viegi

   The Journal of the Helen Suzman Foundation, 2018

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   In the last ten years South African economic stagnation has been reflected in a dearth of private sector investment. The level of private sector investment today is still around 20 per cent lower than the level reached before the Global Financial Crisis in 2008. This observation, together with an apparent increase of cash hoarding by private corporations, has suggested many commentators that the private business sector was on an “investment strike”, driven mainly by political concerns during the Zuma presidency.

   @article{dadamviegi3,
     title = {Investment in South Africa - Opening the Economy to Transform the Soceity},
     author = {Dadam, V. and Viegi, N.},
     journal = {The Journal of the Helen Suzman Foundation},
     volume = {},
     number = {},
     pages = {},
     year = {2018},
     publisher = {Helen Suzman Foundation}
   }

2. Systemic, Sectoral Risk and the Myth of a Corporate Savings Glut

   V. Dadam, and N. Viegi

   Systemic Country Diagnostic Background Note, 2018

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   This note investigates the nature of corporate savings in South Africa. The first part focuses on the empirical impact of uncertainty on investment in the manufacturing sector, while the second part discusses factors influencing corporate cash hoarding and assesses whether South African firms’ behavior is peculiar. The results show that sectoral and systemic risks – our measures of uncertainty – consistently impede investment in the South African manufacturing sector, which could explain in part for firms increasing their savings. Further reasons for that behavior include precautionary measures when economic conditions are unfavorable, increasing appetite for investment abroad at the expense of domestic investment, cash provision for amortization purposes and balance sheet management.

   @article{dadamviegi4,
     title = {Systemic, Sectoral Risk and the Myth of a Corporate Savings Glut},
     author = {Dadam, V. and Viegi, N.},
     journal = {Systemic Country Diagnostic Background Note},
     volume = {},
     number = {},
     pages = {},
     year = {2018},
     publisher = {Washington DC - World Bank}
   }

2017

1. Morocco - Implications of Gender Inequality for Growth

   G. Auclair, V. Dadam, L. Kolocih, and 1 more author

   IMF Selected Issues Paper, 2017

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   This paper quantifies the effect of gender inequality in Morocco on growth, compared to groups of faster growing countries. It also estimates income losses due to low female labour force participation. The results highlight that closing overall gender gaps would help Morocco close its GDP per capita gap with benchmark countries in other regions by up to 1 percentage point. Simulations also show that gradually closing gender gaps in the labour force participation rate could lead to significant income gains over the long term. Policy recommendations to promote gender equality include investing in secondary education for women and in infrastructure, and reforming gender-discriminatory tax policies and laws.

   @article{imfmoroccosip,
     author = {Auclair, G. and Dadam, V. and Kolocih, L. and Ndoye, A.},
     title = {Morocco - Implications of Gender Inequality for Growth},
     journal = {IMF Selected Issues Paper},
     volume = {},
     number = {},
     pages = {},
     year = {2017},
     publisher = {International Monetary Fund}
   }

2014

1. Labour Market and Monetary Policy

   V. Dadam, and N. Viegi

   South African Reserve Bank Conference Series, 2014

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   This paper analyses the influence of the South African labour market on the conduct of monetary policy. Because of the weak response of wages to changes in employment, the South African Reserve Bank is confronted by an unfavourable short run unemployment-inflation trade o§ that complicates the implementation of the inflation targeting framework. First, we provide some reduced form evidence by estimating a form of the traditional wage Phillips curve, showing the weak relationship between wage dynamics and unemployment in South Africa. We then confirm this result by presenting an estimation of a structural model of the South African economy and give a quantitative assessment of the constraint imposed by the labour market on monetary policy. Finally, we interpret these results in a strategic framework, analysing the role that inflation targeting might play in either improving coordination, or worsening the interaction between trade unions and Central Bank objectives.

   @article{dadamviegi5,
     title = {Labour Market and Monetary Policy},
     author = {Dadam, V. and Viegi, N.},
     journal = {South African Reserve Bank Conference Series},
     volume = {},
     number = {},
     pages = {},
     year = {2014},
     publisher = {South African Reserve Bank}
   }

2. Oil Price Uncertainty and Manufacturing Production

   G. Aye, V. Dadam, R. Gupta, and 1 more author

   Energy Economics, 2014

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   Given the rapid rise and volatility of oil prices, the paper investigates the effect of oil price uncertainty on the South African manufacturing production using monthly observations covering the period 1974:02 to 2012:12. In addition, we quantify the responses of manufacturing production to positive and negative oil price shocks. We examine the dynamic relationship using a bivariate GARCH-in-mean VAR simultaneously estimated with a full information maximum likelihood technique. The conditional standard deviation of the forecast of the growth of US crude oil imported acquisition cost by refiners is used as a measure of oil price uncertainty. Our results show that oil price uncertainty negatively and significantly impacts on South Africa’s manufacturing production. We also find that the responses of manufacturing production to positive and negative shocks are asymmetric.

   @article{ayedadamguptamamba,
     title = {Oil Price Uncertainty and Manufacturing Production},
     author = {Aye, G. and Dadam, V. and Gupta, R. and Mamba, B.},
     journal = {Energy Economics},
     volume = {43},
     number = {C},
     pages = {41--4},
     year = {2014},
     publisher = {Elsevier}
   }