International economic integration and financial contagion vulnerability : the case of South Africa

Zamuee, Zanata Clarence (2008-12)

Thesis (MBA (Business Management))--Stellenbosch University, 2008.

Thesis

ENGLISH ABSTRACT: The phenomenon of globalisation has seen the closer integration of the world's countries and people. The result of this, is that overall, the world economy has grown substantially. On the flip side, globalisation has greatly increased the exposure of individual countries to occurrences elsewhere in the world. This latter statement is witnessed by the events such as the spread of financial crises from source countries to third party countries that do not seem to have any obvious ties with the crisis-source countries. This has been termed financial contagion. This study seeks to break new ground by focussing on trade-related issues of contagion rather than presenting the usual macro-economic, financial, and political perspectives. A model that considers the trade pattern of countries as linkages tying together countries around the world as a whole (network) is used. This study uses the network approach to international trade as an integration measure and ascertains the occurrence of contagion in South Africa. These parameters will then be used to establish whether trade network integration can be used to explain financial contagion affecting South Africa (and extended to other countries). Two hypotheses are designed and tested in order to establish this. Two measures are used to determine the level of integration of the four study countries. The two measures are country centrality and country importance index. Comparative analysis done showed that all four countries are relatively highly integrated and are in close proximity for both degree centrality and importance. A summary of both indicators of integration measures relative to other countries in the trade network indicate that Mexico, Russia, South Africa and Thailand are well integrated in the network. Secondly the difference in ranking amongst these countries is not significant. Three financial crises are used namely, the Mexican Tequila (1994), the Asian Flu (1997) and the Russian Virus (1998). The contagion testing methodology applied uses the cross-market correlation coefficients between crisis-country and test-country. It is shown that there is no evidence to suggest that South Africa (JSE) was contagiously affected by any of the three financial crises. Only interdependence seems to have existed between the South African market and the crises countries. Evidence shows that countries that are, relatively, highly integrated with the crisis epicentre in terms of the international trade are more immune to episodes of contagion. It is shown further that the relative position of the crisis-suspect country to the crisis epicentre countries, in terms of integration in the international economic landscape, can provide susceptibility indications of that particular country.

AFRIKAANSE OPSOMMING: Die fenomeen van globalisering het gelei tot 'n groter integrasie van die wereld se lande en mense. Die gevolg hiervan is, dat oor die algemeen die wereld ekonomie beduidend gegroei het. Aan die ander kant het globalisering gelei tot die toename in blootstelling van individuele lande aan gebeurtenisse elders in die wereld. Die laasgenoemde stelling getuig van die gebeure, soos die verspreiding van finansiele krisisse vanaf die land van oorsprong tot 'n derde party land wat op die oog af geen ooglopende bande met die krisis-bron lande gehad het nie. Hierdie verskynsel word finansiele besmetting genoem. Hierdie studie beoog om nuwe lig te werp op die saak deur om te fokus op handelsverwante kwessies van besmetting eerders as om die gewone makro-ekonomiese, finansiele en politieke perspektiewe voor te le. 'n Model word gebruik wat die handelspatrone van lande voorstel as 'n samesnoering van lande dwarsoor die wereld as 'n netwerk. Hierdie studie gebruik die netwerk uitgangspunt vir internasionale handel, as 'n integrasie maatstaf en stel vas wat die voorkoms van besmetting in Suid-Afrika is. Hierdie parameters sal dan gebruik word om vas te stel handelsnetwerk integrasie gebruik kan word om die finansiele besmetting wat Suid Alrika (en verspreiding na ander lande) affekteer. Twee hipotese (veronderstellings) word ontwerp en getoets om bogenoemde te bewys. Twee maatstawwe word gebruik om die vlak van integrasie van die vier studie-lande te bepaal. Die twee maatstawwe is 'n land se sentralisasie en die land se belangrikheidsindeks. Vergelykende analise het gewys dat al vier lande relatief hoogs geintegreer is en parallel is in beide sentralisasie en belangrikheid. 'n Opsomming van beide aanduidings t.o.v. integrasie maatstawwe, relatief tot ander lande in die handelsnetwerk, toon dat Meksiko, Rusland en Thailand goed geintegreer is in die netwerk. Tweedens die verskil in rang tussen die lande is nie beduidend nie. Drie finansiele krisisse word gebruik naamlik die Meksikaanse Tequila (1994), die Asiatiese Griep (1997) en die Russiese Virus (1998). Die besmettings waarnemings metodologie gebruik die krisismark korrelasie medewerkende faktore tussen die krisisland en die toets-land. Dit wys dat daar geen getuienis is wat te kenne gee dat Suid Afrika (JSE) besmet is deur enige van die drie krisisse nie. Slegs onderlinge afhanklikheid kom voor tussen die Suid Afrikaanse mark en die krisislande. Dit is bewys dat lande, wat relatief hoog geintegreer is met die krisis episenter, in terme van internasionale handel, meer immuun teen episodes van besmetting is. Verder het dit bewys dat die relatiewe posisie van die krisis-vermeende land tot die krisis episenter lande, in terme van integrasie in die internasionale ekonomiese landskap, vatbare indikasies vir daardie spesifieke land kan verskaf.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/6409
This item appears in the following collections: