اثرات خودکفایی مالی و یکپارچه سازی : مورد تحریم آفریقای جنوبی

The paper interprets the imposition in 1985 and removal in 1993 of the embargo on South Africa as financial autarky and financial integration ‘natural experiments’, and studies the effects on the economy. The aggregate data indicate a decrease in the levels and growth rates of investment, capital, and output during the embargo period relative to the pre-embargo and post-embargo periods. To further rationalize these findings, we calibrate a neoclassical growth model to the economy. During the transition to steady state, we limit the country's ability to borrow for a period corresponding to the duration of the embargo. The derived dynamics for investment, capital, and output support the findings of a positive (negative) link between financial integration (isolation) and economic growth.

Between 1985 and 1993 the world imposed economic sanctions on South Africa to put pressure on its apartheid regime (a political system that granted different rights to citizens based on race). At that time, foreign investors withdrew their capital from the country and stopped making new investments in and loans to South Africa. As a result, net capital inflows declined drastically. In this paper, we exploit the unique reversion toward financial autarky during the embargo period and the reintegration into the world economy in the post-embargo period to study the economic benefits of financial integration for an emerging economy. Until recently, it seemed obvious that financial integration yields important economic benefits for emerging economies. The conventional view of financial integration suggests that when countries are integrated, capital flows from capital-abundant to capital-scarce countries to achieve a more efficient allocation of global savings. The inflow of capital speeds up capital formation, and increases economic growth and welfare in the recipient country (see e.g. Obstfeld, 1994, Fischer, 1998 and Eichengreen et al., 1998).1 The financial crises that devastated the emerging economies of Asia and Latin America in the mid to late 1990s following the liberalization of their capital accounts challenged the conventional view on the economic effect of financial integration, and prompted a renewed research interest in the subject.2 Since then, several empirical studies have assessed the economic effect of capital account liberalizations with mixed resulting evidence (see Edison et al., 2003 for a survey). Part of the challenge to resolve this issue can be traced to the difficulty in measuring financial integration as noted in Edison et al. (2002).3 This study analyzes the effect of financial integration in a novel way that circumvents the challenges of measuring financial integration. The financial isolation is the imposition of the embargo, and the financial integration is the removal of the embargo. A related and often mentioned reservation about some of the previous measures of financial integration is the endogeneity of the integration measure itself. Financial integration, skeptics argue, is a process that does not occur in isolation. It is usually induced by contemporaneous or prospective changes to the economy. In this case, the direction of causality from integration to economic performance is not obvious. In this study, we posit that the isolation and reintegration due to the imposition and removal of the embargo, can be interpreted as events less subject to the endogeneity encountered in some of the previous studies. The decision by the world to impose an economic embargo on South Africa was not related to the country's economic performance, but to the desire to change its political regime. Similarly, the decision to remove the embargo followed a host of political reforms that dismantled the apartheid regime. The reforms were instituted under a new and more moderate prime minister following the resignation of his predecessor for unexpected health problems. The study further contributes to the literature by analyzing the benefits of financial integration through the lenses of the adverse effects of financial isolation. A corollary of the view that greater financial integration yields economic benefits is that financial isolation should adversely affect the economy. Since South Africa was integrated prior to the economic embargo and reintegrated into the world financial markets after the embargo period, we can analyze both the negative effects of financial isolation as well as the positive effects of financial integration. There are, however, potential challenges to using this embargo event study which make it difficult to isolate the effect of the financial isolation. First, the sanctions against South Africa included an embargo on trade, and the effects of the embargo on the economy could have resulted from the trade sanctions, and not necessarily from the financial isolation. Second, domestic policy changes induced by the sanctions, if any, could have been the cause of any distortions to the economy during the embargo period. Third, the embargo took place in an environment of political instability. The risk stemming from the instability could have adversely affected the economy during the embargo period. Last, possible shocks to the global economy during the embargo period could have also affected the South African economy irrespective of the financial isolation. Despite these potential limitations, which we address later in the study, the South Africa embargo offers a unique alternative experiment not explored in the literature to analyze the economic importance of financial integration (isolation) for an emerging economy. The study begins in Section 2 with a documentation of the embargo event and the financial isolation. In Section 3, we analyze the effect of the embargo on investment, capital, and output using time series data of the South Africa economy. According to the integration hypothesis, the growth rates and levels for these variables should decrease during the embargo period compared to the pre-embargo and post-embargo years. The data support these predictions. During the embargo period, average growth rates fell from 0.2 percent to −2.6 percent for investment, from 3.5 to 1.3 percent for capital per worker, and from 2.2 to 0.8 percent for output per worker. After the embargo, the average growth rates for investment, and capital and output per worker increased to 5.0 percent, 2.0 percent, and 3.7 percent, respectively. The statistics further indicate that the levels of investment, capital, and output fell by 25.6 percent, 12.5 percent, and 9.5 percent during the embargo period compared to the levels that would have prevailed if the variables had maintained the pre-embargo average growth rates. In the post-embargo period, the levels of investment, capital, and output rose 37.3 percent, 2.2 percent, and 8.4 percent above the levels that would have prevailed if the variables had continued to grow at the embargo period average growth rates. To further rationalize the observations of a positive (negative) effect of financial integration (isolation) on economic performance, we present in Section 4, a small open economy neoclassical growth model calibrated to the South African economy. During the transition to steady state, we model the embargo event by limiting the country's ability to borrow, and by imposing a tax on output to capture the disinvestment during the embargo period. The resulting dynamics for investment, capital, and output confirm the observations of a positive (negative) link between financial integration (isolation) and economic growth. In Section 5, we address the challenges noted earlier with using the South Africa embargo experiment. A “horse race” between various shocks to the economy between 1985 and 1993 indicates that the effect of the financial embargo outperforms other shocks such as trade embargo, political instability, or productivity. We conclude in Section 6.

This paper exploited the 1985–1993 South Africa embargo to study the effect of financial isolation and integration on an emerging economy. The experiment is interesting for three reasons. First, it circumvents the need to measure financial integration. Second, because the country was integrated prior to the embargo, we were able to evaluate both the adverse effect of financial isolation as well as the benefits of financial integration for the same economy. Third, the imposition and removal of the embargo were not directly related to the country’s economic performance, but to the desire to change its political regime. We can, therefore, interpret the embargo as an event less subject to the endoge- neity encountered in some previous studies. The analysis indicated that during the embargo, which turned out to be a financial embargo, the average growth rates of investment, and capital and output per worker fell below the average growth rates in the pre-embargo period. The lower growth rates resulted in lower levels of investment, capital, and output. When the embargo was lifted in 1993, the average growth rates and the levels of investment, capital, and output rose above the average rates during the embargo period. To further rationalize these findings, we calibrate a neoclassical growth model to the South Africa economy, and limit the country’s ability to borrow for a period corresponding to the duration of the