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SAGA PUBLICATIONS Included here are Working Papers and Conference Papers. Publications on this page are organized by geographical focus: RETURN TO MAIN PUBLICATIONS BY GEOGRAPHY PAGE SOUTH AFRICA Poverty and Well-Being in Post-Apartheid South Africa January 2006 Bhorat, Haroon and Ravi Kanbur “The end of the first decade of democracy in South Africa naturally resulted in a wide-ranging set of political events to mark this date. South Africa’s formal baptism as a democracy in April 1994 received international acclaim and recognition — and to this day serves a model for other countries undergoing difficult and protracted political transitions. However, perhaps the greatest struggle since the early post-apartheid days has been the attempt to undo the economic vestiges of the system of racial exclusivity. Alongside the political evaluation and praise, therefore, there has been a vigorous local research programme broadly aimed at measuring the changes in well-being that occurred during this ten-year period. In addition, a number of studies have also concentrated on measuring the performance of the government in meeting its stated objectives of reducing poverty, inequality and unemployment. This volume brings together some of the core pieces of academic research that have been prominent in this ten-year review, focusing on poverty and policy in post-apartheid South Africa...” Introduction to Poverty and Policy in Post-Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Exploring Poverty Traps and Social Exclusion in South Africa Using Qualitative and Quantitative Data February 2006 Adato, Michelle, Michael R. Carter, and Julian May Recent theoretical work hypothesises that a polarised society like South Africa will suffer a legacy of ineffective social capital and blocked pathways of upward mobility that leaves large numbers of people trapped in poverty. To explore these ideas, this paper employs a mix of quantitative and qualitative methods. Novel econometric analysis of asset dynamics over the 1993-98 period identifies a dynamic asset poverty threshold that signals that large numbers of South Africans are indeed trapped without a pathway out of poverty. Qualitative analysis of this period and the period 1998-2001 more deeply examines patterns of mobility, and confirms the continuation of this pattern of limited upward mobility and a low-level poverty trap. In addition, the qualitative data permit a closer look at the specific role played by social relationships. While finding ample evidence of active social capital and networks, these are more helpful for non-poor households. For the poor, social capital at best helps stabilise livelihoods at low levels and does little to promote upward mobility. While there is thus some economic sense to sociability in South Africa, elimination of the polarised economic legacy of apartheid will ultimately require more proactive efforts to assure that households have access to a minimum bundle of assets and to the markets needed to effectively build on those assets over time. In Journal of Development Studies 42(2):226-247, 2006 In Understanding and Reducing Persistent Poverty in Africa, Christopher Barrett, Peter Little, Michael Carter (eds.), Routledge, 2007. Measuring Recent Changes in South African Inequality and Poverty Using 1996 and 2001 Census Data October 2005 Leibbrandt, Murray, Laura Poswell, Pranushka Naidoo, Matthew Welch and Ingrid Woolard The paper analyses poverty and inequality changes in South Africa for the period 1996 to 2001 using Census data. To gain a broader picture of wellbeing in South Africa, both income-based and access-based measurement approaches are employed. At the national level, findings from the income-based approach show that inequality has unambiguously increased from 1996 to 2001. As regards population group inequality, within-group inequality has increased; while between-group inequality has decreased (inequality has also increased in each province and across the rural/urban divide). The poverty analysis reveals that poverty has worsened in the nation, particularly for Africans. Provincially, the Eastern Cape and Limpopo have the highest poverty rates while the Western Cape and Gauteng have the lowest poverty rates. Poverty differs across the urban-rural divide with rural areas being relatively worse off than urban areas. However, due to the large extent of rural-urban migration, the proportion of the poor in rural areas is declining. The access-based approach focuses on type of dwelling, access to water, energy for lighting, energy for cooking, sanitation and refuse removal. The data reveal significant improvements in these access measures between 1996 and 2001. The proportion of households occupying traditional dwellings has decreased while the proportion of households occupying formal dwellings has risen slightly (approximately two-thirds of households occupy formal dwellings). Access to basic services has improved, especially with regard to access to electricity for lighting and access to telephones. On a provincial level, Limpopo and the Eastern Cape display the poorest performance in terms of access to basic services. The paper concludes by contrasting the measured changes in well being that emerge from the income and access approaches. While income measures show worsening well being via increases in income poverty and inequality, access measures show that well being in South Africa has improved in a number of important dimensions. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Does City Structure Cause Unemployment? The Case Study of Cape Town October 2005 Rospabe, Sandrine and Harris Selod Several theoretical and empirical findings suggest that the spatial organization of cities can be a source of unemployment among unskilled workers and ethnic minorities, stressing either the role of residential segregation or that of the physical disconnection between work and residence. The present paper investigates this issue in South Africa by focusing on the example of Cape Town, a sprawling and highly segregated city. Using the dataset of the 1998 study on the Migration and Settlement in the Cape Metropolitan Area complemented by local population statistics extracted from the 1996 Census and local employment statistics extracted from the City of Cape Town’s 2000 RSC Levy database, we regress the unemployment probability of a selection of workers in 24 different areas of the city on their individual and household attributes as well as on the characteristics of their locations. Results obtained so far suggest that (i) distance to jobs, (ii) rural origin (especially for women) and (iii) the length of time spent in their present dwelling reduce the employment probability of workers. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Internal Labour Migration and Household Poverty in Post-Apartheid South Africa October 2005 Posel, Dorrit and Daniela Casale The first objective of this chapter is to briefly describe and discuss trends in labour migration over the period 1993 to 2002 using these household survey data. We show that a growing number of rural African households report labour migrants as (non-resident) household members and we discuss possible reasons why individuals may continue to migrate temporarily to places of employment. Our second objective is to explore the economic status of those who remain behind in the household of origin. We find that total household income on average is significantly and consistently lower in migrant, than in non-migrant, households. Remittance transfers are a more important source of income than the earnings of employed resident members in migrant households. Since 1993, however, both the receipt and the average real value of remittance income have fallen. We conclude our study with a discussion of factors that may account for this trend and the possible development implications of migration for rural African households. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Half Measures: The ANC’s Unemployment and Poverty Reduction Goals October 2005 Meth, Charles This paper looks behind the [ANC’s 2004 election] manifesto at policy and other documents in an attempt to discover what the ANC in government understands by these commitments. Finding little evidence of a coherent view there, the paper delves into unemployment and poverty statistics in South Africa in an attempt to see whether or not greater precision than that displayed so far in specifying each of these targets, is possible. In each case, the search for precision opens a window overlooking an impressively wide plain of ignorance. In view of this, the paper ends with some recommendations about what to do about the two commitments. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Crime and Local Inequality in South Africa October 2005 Demombynes, Gabriel and Berk Özler We examine the effects of local inequality on property and violent crime in South Africa. The findings are consistent with economic theories relating local inequality to property crime and also with sociological theories that imply that inequality leads to crime in general. Burglary rates are 25-43% higher in police precincts that are the wealthiest among their neighbors, suggesting that criminals travel to neighborhoods where the expected returns from burglary are highest. Finally, while we find little evidence that inequality between racial groups fosters interpersonal conflict at the local level, racial heterogeneity itself is highly correlated with crime. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Public Spending and the Poor Since the Transition to Democracy October 2005 van der Berg, Servaas Fiscal expenditure analysis, or benefit incidence analysis, as it is often referred to, deals with the distribution of the statutory incidence of public expenditure, usually by income group, although some studies incorporate geographic or even gender dimensions. (Demery n.d.) This is the topic dealt with in this chapter, although the South African situation requires that incidence analysis along racial grounds should also be considered. The chapter addresses a number of interrelated questions, relating to targeting of, and shifts in, public social spending, but also to the capacity to transform social spending into social outcomes. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Poverty and Inequality in Post-Apartheid South Africa: 1995-2000 October 2005 Hoogeveen, Johannes G. and Berk Özler As South Africa conducts a review of the first ten years of its new democracy, the question remains as to whether the economic inequalities of the apartheid era are beginning to fade. Using new, comparable consumption aggregates for 1995 and 2000, this paper finds that real per capita household expenditures declined for those at the bottom end of the expenditure distribution during this period of low GDP growth. As a result, poverty, especially extreme poverty, increased. Inequality also increased, mainly due to a jump in inequality among the African population. Even among subgroups of the population that experienced healthy consumption growth, such as the Coloureds, the rate of poverty reduction was low because the distributional shifts were not pro-poor. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Poverty, Asset Accumulation and Shocks in South Africa: Evidence from KwaZulu-Natal October 2005 May, Julian Although their use has become widespread, approaches to poverty measurement such as the FGT class of measures discussed by Woolard and Leibbrandt et al (2000:60-67) for South Africa are necessarily static in nature. Such measurement regards poverty is a deficiency, measured in terms of the proportion of the population who are categorised as poor, or perhaps more usefully, in terms of the distance that separates those that are poor from the least well-off of the non-poor: the individual or household whose income is exactly equal to the poverty line. From the perspective of policy, poverty becomes a circumstance to be resolved by appropriately targeted transfers rather than the outcome of social and economic structures: a poverty that is ‘produced’ or in the language of some analysts, a poverty that is ‘perpetrated’ (Øyen, 2002). Beyond the identification of possible target groups and some of the ways in which poverty is experienced, those factors which lead to the production, reproduction and persistence of poverty are concealed. As a result, little can be offered in the way of concrete issues for strategy in a country such as South Africa where the legacy of past policies continues to burden efforts to reduce poverty. While a comparatively new literature on poverty transitions offers some solutions to this shortcoming through its focus on chronic versus transitory poverty, such analysis still does not identify those who are structurally mobile from those who may be in poverty trap. However, merging elements of Sen’s entitlement approach with the economic theory of the household in imperfect market environments, Carter and May (2001) present non-parametric estimates of the mapping between household assets and poverty. This paper builds on their analysis of to identify an alternative categorisation of poverty using panel data collected in 1993 and again in 1998 in KwaZulu-Natal. The paper goes further to describe the shocks that result in persistent poverty and the characteristics of those in different dynamic poverty categories in terms of the assets that might eventually lead to their mobility. This draws out some important themes for poverty reduction including redistributive strategies and microeconomic reform. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Trade Liberalisation and Labour Demand in South Africa during the 1990s October 2005 Edwards, Lawrence The 1990s heralded a period of increased globalization of the South African economy. The new democratically elected government in 1994 initiated a range of new policy reforms that were designed to encourage economic growth as well as uplift the standard of living of the previously disenfranchised majority. These reforms included significant tariff reductions in accordance with the government’s 1995 Offer to the WTO. A new macroeconomic policy (GEAR) was also implemented with the aim of transforming South Africa into a “competitive, outward orientated economy” (GEAR, 1996)... In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. The Relative Inflation Experience of Poor Urban South African Households: 1997-2002 October 2005 Bhorat, Haroon and Oosthuizen, Morné Much work has been done in South Africa on the relationship between the labour market and household poverty, as well as more generally the association of differentially sourced incomes to household poverty and inequality. The notion is that it is access to incomes, or lack thereof, which lies at the heart of characterising inequality and poverty in the society. Clearly though, a critical intermediary to income access remains the fluctuations in the real values of these incomes, despite controlling for access to income. This line of enquiry – namely the role of relative final price movements in affecting households across the income distribution –is a new one for the post-apartheid period, with its local intellectual origins lying in Kahn (1985). At one level the study aims to identify and quantify the impact of relative price movements on household poverty levels, with a key aim being to identify those products that are critical to indigent households’ vulnerability. At a more generic level, the paper is implicitly a representation of how the macroeconomic environment is able to, and indeed does, impact on household welfare. Ultimately, the paper hopes to deliver a detailed analysis not only of the construction of an appropriate consumer price index for South Africa, but also, through the use of income and expenditure survey data, the impact of reported price movements on inflation for households at different points in the national income distribution. Specifically, this study’s two main objectives are, firstly, to derive inflation rates for urban households grouped according to expenditure deciles and, secondly, to identify some of the key product categories responsible for the largest shares of inflation of the poorest 40% of urban households. From Chimera to Prospect: South African Sources of and Constraints on Long-term Growth October 2005 Fedderke, Johannes In this paper we consider the implications of evidence that has emerged over the past six years that carries insight into the growth and employment creation performance of the South African economy. The emphasis is explicitly on why limitation in the growth performance of the South African economy may have emerged. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Is Sub-Saharan Africa a Convergence Club? July 2005 Johnson P. Asiama and Maurice Kugler The African growth effect has been found to be significant in many empirical growth research papers — suggesting that even after controlling for a wide range of variables that potentially affect growth, the Sub-Saharan African dummy has an adverse impact on economic growth. This has thus remained one of the unexplained empirical puzzles in the growth literature. Earlier studies have attributed this growth tragedy to factors such as macroeconomic instability; external shocks; human capital inadequacies, institutional and political uncertainty, geography, ethnic fractionalisation, etc. Moreover, the recent perspective about the effect of colonial, geographical and disease factors in previously colonised regions such as Africa, also offers significant insights about the growth situation in Sub-Saharan Africa. On the other hand, some have suggested that Sub-Sahara Africa could simply be an example of club convergence from the lower end. We evaluate the latter view, and provide some new evidence on long run growth dynamics in Sub- Sahara Africa. We make use of the dynamic panel GMM methodology, which by construction controls for such country-specific and time-invariant effects due to history, disease or geographic factors. Our findings suggest that Sub-Saharan Africa is not an example of a convergence club. Rather, countries conditionally converge to their own steady states, and this could explain the increasing heterogeneity in economic conditions across the sub-region. In addition, we found openness, the extent of financial development, and foreign direct investment provide beneficial marginal effects on the steady state growth path of each country in the region. By contrast, government consumption, inflation, and excessive monetization have a negative effect on growth. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Unemployment in South Africa, 1995 - 2003: Causes, Problems and Policies January 2005 Geeta Kingdon and John Knight It is our view that developments in the labour market hold the key to South African prosperity or penury. It is from the labour market that the income benefits from growing labour scarcity, or the threat to social and political stability from growing unemployment and underemployment, could emerge. The government response should be to keep this issue at the forefront and to pursue whatever policies will improve labour market outcomes. Our primary concern in this paper is with unemployment and the informal employment that often disguises unemployment. However, in order to understand these phenomena it is necessary to consider a range of related indicators such as the adult population, the labour force, labour force participation, employment, distinguishing here between formal and informal employment, or between wage- and self-employment, and real wages and incomes. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Forthcoming in Journal of African Economies Evolution of the Labour Market: 1995-2002 December 2004 Bhorat, Haroon, and Morné Oosthuizen Since 1994, the South African economy has undergone significant changes with the government implementing various policies aimed at redressing the injustices of the past, fleshing out the welfare system and improving competitiveness as South Africa becomes increasingly integrated into the global economy. These policies have, directly or indirectly, impacted on the labour market and, consequently, on the lives of millions of South Africans. This paper’s chief objective is the analysis of some of the changes in the South African labour market in the post-apartheid era. The period, between 1995 and 2002, began with much promise and many challenges as the economy liberalised and normal trade relations were resumed with the rest of the world. Soon after the African National Congress came into power, the macro-economic strategy named “Growth, Employment and Redistribution” (or GEAR) was unveiled in 1996. This strategy predicted, amongst other things, employment growth averaging 270 000 jobs per annum from 1996 to 2000, with the number of new jobs created rising over time from 126 000 in 1996 to 409 000 in 2000 (GEAR 1996). Unfortunately, for a variety of reasons, these projections were not realised. In fact, in terms of the labour market, the experience of the second half of the 1990s appears to have fallen short of even the baseline scenario contained in the GEAR document, which projected a net increase in (non-agricultural formal) employment of slightly more than 100 000 jobs per annum. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. How responsive is capital formation to its user cost? An exploration of corporate tax effects October 2004 Stephen F. Koch and Albert de Wet The responsiveness of business investment spending to price changes is central in economic analysis. Despite the key role played by the user cost of capital in economic analysis, there is less supporting evidence for the existence of a substantial user cost elasticity. This study investigates the empirical user cost of capital with specific focus on the contribution that corporate taxes has on the price elasticity of investment in the South African economy. Making use of a disaggregated data set of corporate tax revenues we are able to get better understanding of how firms perceive their tax burden. Using vector auto regression and cointegration techniques we estimate the long run user cost elasticity to be –0.18%. Average total elasticity of companies with respect to effective corporate taxes is estimated at 0.09% implying that taxes plays a very important role in the price determination of capital. We have also shown that additional taxes placed on companies like secondary taxes, are perceived in a different light than normal profit taxes inducing more and bigger changes investment behaviour. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa An Improved Data set for Demographic Research: The KwaZulu-Natal Income Dynamics Survey (KIDS) 3rd Wave October 2004 Julian May “Qualitative research such as the South African Participatory Poverty Appraisal has shown the extent to which change matters for those who are poor (May and Norton, 1997). Concern about future vulnerability and shocks, expectations that some event might dramatically transform their lives such as births, deaths and entry into the labour market, and anticipation of obtaining entitlements such as government grants are frequently described as being either features of poverty or as strategies that might offer pathways out of poverty. Each of these events is integrally caught up with the demographic and socio-economic life-cycle that individuals and families undergo as time passes (Chayanov, 1966). In South Africa, the analysis of such change has relied upon cross-sectional studies or upon census data. Although useful, these data are unable to address a variety of questions, particularly those concerning dynamic processes and causal linkages. To address this gap, the KwaZulu-Natal Income Dynamics Study (KIDS) was undertaken by a consortium of South African and international researchers in 1998 which re- interviewed 1100 households first surveyed in 1993 as a part of the national Project for Statistics on Living Standards and Development (PSLDS). KIDS has just been extended by a further 5 years with a resurvey conducted in 2004.... Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Financial Services and the informal economy October 2004 Cally Ardington and Murray Leibbrandt This paper examines the impact of formality of employment on the utilisation of financial services, using data from the October 2000 Income and Expenditure Survey and the September 2000 Labour Force Survey. The presence of an employed member in the household is seen to be important for the utilisation of both bank accounts and funeral insurance, even after controlling for income. Furthermore there are strong links between the nature of this employment and utilisation of financial services. Employees are more likely to utilise financial services than the self-employed. Among employees, the probability of utilising financial services increases with the degree of formality of employment. These effects are stronger for formal banking services than for funeral insurance which includes informal burial societies. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Impact of HIV/AIDS on saving behaviour in South Africa October 2004 Sandra Freire The models measuring the macroeconomic impact of HIV/AIDS are heterogeneous : each one relies on a specific theoretical background. Nevertheless, there are, at least, three main common limits to those approaches : the authors concentrate on the impact on the labour market ; they neglect the potential implications on the capital market ; and they do not model some essential microeconomic impacts such as the change in the agents’ economic behaviour. More specifically, the analysis of the impact of HIV/AIDS on savings takes into account direct costs such as health expenditures, seldom indirect costs like the anticipation of funeral costs and they do not model differed indirect costs. The paper proposes an analysis of this last kind of implications through the impact of the epidemic on the saving behaviour. This paper focuses on the uncertainty of life expectancy and is based on two frameworks: the Galí (1990) model which considers the life cycle theory with a finite horizon at the aggregate level and the Moresi (1999) model which specifies a peculiar consumption utility function through uncertain lifetime. The calibration and simulations of our model reveal a significant drop in the future saving rate in South Africa under the hypothesis of a virus evolution similar to the one given by the UN Population Division : the saving rate in 2015, under those hypothesis, should be at least 5 percentage points inferior to the estimated saving rate that would then prevail in the absence of the epidemic. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Macro-Micro linkages in trade: Does trade liberalization lead to improved productivity in South African manufacturing firms October 2004 Imraan Valodia and Myriam Velia A feature of the post-apartheid economy in South Africa has been its reintegration into the global economy. Trade liberalisation has been a cornerstone of government policy since 1994, indeed prior to 1994 (see Bell, 1993). There has been extensive research analysis of trade issues in post-apartheid South Africa, including evaluation of the impact of trade liberalisation. A set of studies (for example Fedderke and Vaze, 2000) have examined the effect of trade liberalisation on effective protection showing declining levels of effective protection. Others, (for example Roberts, 2000) have studied the impact of liberalisation on the level of exports. A number of studies have explored the impact of liberalisation on the labour market, with Edwards (2001) arguing that technological change, rather than trade liberalisation, is the primary cause of falling employment in South Africa. Bhorat (2000) finds that trade liberalisation has had a positive impact of labour demand in manufactures. A feature of all of these studies is the focus on macroeconomic, or economy- wide, effects of liberalisation. To be sure, there have been a number of microlevel studies examining the competitiveness of the manufacturing economy, or of one or other industry (for example, Barnes 1998 on the automotive industry, Roberts 2001 on the plastics industry). There is, however, no systematic study in South Africa on the relationship between trade liberalisation at the macro level, and its micro or firm- level adjustment effects. It is this gap in the South African trade and industry literature that this paper proposes to address. Specifically, this paper aims to explore how manufacturing firms are adjusting to the liberalization of trade, how firms are adjusting their production in the face of a change in incentive structures, how they are dealing with the currency risks associated with increased international trade, and the linkages between export growth and productivity at the level of the firm. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa In Journal of African Economies 15(4):688-721, 2006 Industrial Strategy and local economic development: manufacturing policy and technological capabilities in Ekurhulen October 2004 Thandi Phele, Simon Roberts and Ian Steuart Ekurhuleni Metropolitan Municipality is one of six metropolitan municipalities created in major urban concentrations. More importantly, it covers the largest industrial concentration in South Africa and in sub-Saharan Africa. The economy of Ekurhuleni reflects the apartheid legacy of minerals-oriented industrialisation, and the growth of an urban labour pool to supply the mines. Ekurhuleni grew on the back of the main concentration of gold mining in the country. This is reflected in the structure of manufacturing. Ekurhuleni accounted for 37 per cent of South African output of machinery and 33 per cent of metal products in 1996, with major markets for each historically being mining.2 The performance of the Ekurhuleni economy has, however, been very poor in recent years and, with the decline in gold mining, unemployment increased sharply to reach 40 per cent in 2002.3 Manufacturing in Ekurhuleni recorded an average annual growth of va lue-added of just 0.4 per cent between 1997 and 2002 (much lower than the national manufacturing annual growth of 2.3 per cent). Regeneration of the industrial base is thus crucial to addressing unemployment and poverty in the region. This paper examines the impact of national developments and policies on the development of industry in Ekurhuleni. It assesses role of local government in industrial development in light of recent literature addressing agglomeration effects, industrial districts, and the deve lopment of local economic competencies and institutions. The analysis draws on recent work on the manufacturing sector in Ekurhuleni and a case study of the foundry industry in particular, focusing on its performance and recent development in terms of firm capabilities, orientation, and the institutional framework. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa South African Trade Reform since Democracy October 2004 Rashad Cassim and Dirk van Seventer As part of a wider investigation by the National Institute for Economic Policy, covering a range of economic policy issues, the main aim of this paper is to provide an overview of how trade policy has evolved since democracy. We use standard quantities measures of trade policy analysis as an input into a discussion of the impact of the trade regime on the economy. The paper also undertakes some sensitivity analysis about how we think about some basic welfare concepts. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The mystery of South Africa’s ghost workers in 1996: measurement and mismeasurement in the manufacturing census, population census and October Household Surveys October 2004 Martin Wittenberg Absences can be as telling as presences, as Sherlock Holmes reminds us. Some times, however, it is difficult to know whether one is really dealing with an absence or not. In the case of South African labour economics some absences have attracted attention: the surprisingly small size of the informal sector, or the surprisingly small rate of job creation during the 1990s. To these mysteries can be added another: the disappearance of about 300 000 manufacturing workers from the 1996 population census. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Geography as Destiny: Considering the spatial dimensions of poverty and deprivation in South Africa October 2004 Ronelle Burger, Servaas van der Berg, Sarel van der Walt and Derek Yu This paper’s main contribution to the discussion about the geographical dimensions of poverty traps is a careful description of how the nature and depth of poverty and deprivation differ by geography. Conventionally, much of the analysis of poverty has focused on money-metric poverty lines. However, as Amartya Sen and others have shown, welfare is a rich and complex concept that cannot be adequately captured by income and expenditure. To avoid the arbitrariness of a poverty line and the one-dimensionality of money-metric poverty measure, the paper opts for Totally Fuzzy and Relative indices of poverty – as pioneered by Cheli and Lemmi (1995). It provides a multi-dimensional account of poverty and deprivation without assigning arbitrary weights to the different poverty dimensions. Rather, the method weighs poverty dimensions according to the frequency of deprivation in this dimension among members of the population: the more common deprivation is in a specific dimension, the less weight the specific dimension will receive in the calculation of the index. Instead of a sharp line dividing the rich from the poor, the variable’s bottom category is defined as marking extreme poverty and the top category as representing affluence, with everything in-between assigned a score to indicate the degree to which these individuals or households can be regarded as poor. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The dynamics of job search and the microfoundations of unemployment: Evidence from Duncan village October 2004 Patrick Duff and David Fryer There is significant consensus that unemployment and more generally, exclusion from the labour market, is the central socio-economic problem in South Africa. Joblessness is strongly implicated in such socio-economic problems as crime, poverty, alcoholism, HIVAIDS, and even poor educational outcomes and low skill levels (see for example Bhorat et al. 2001; Fryer and Vencatachellum, 2004; Nattrass, 2003). The literature flowing from household survey data has however tended to confine itself to measuring unemployment and its consequences. In doing this, it tends to treat unemployment as something that happens to individuals and communities. However, factors such as unemployment and poverty will have obvious feedback effects on the current capabilities of individuals, on the intergenerational transmission of capital (and especially human capital) and on social and market structure. Below critical threshold levels, such factors can generate market and coordination failures. The distortions generated by unemployment can become endogenized in the sense that they become part of the cause of unemployment. To date, there is no clear understanding in the South African literature as to whether such endogenous factors are important and how they interact with other factors such as so-called imposed distortions (caused, for example by labour legislation and union wage premia) and other macroeconomic causes of unemployment. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Have Minimum Wages Benefited South Africa’s Domestic Service Workers? October 2004 Tom Hertz In September of 2002 South Africa’s roughly one million domestic workers – about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners1 – were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The economy-wide impacts of the labour intensification of infrastructure expenditure October 2004 Anna McCord and Dirk van Seventer This paper examines the performance of public works in addressing both micro and macroeconomic policy objectives relating to growth, employment and poverty reduction in South Africa. Survey data on the micro-economic impact of public works programme participation is used alongside a social accounting matrix (SAM) for the South African economy which models the impact of a demand stimulus to the South African economy reflecting a hypothetical annual public works programme of R3 billion, using data from a labour based road rehabilitation programme. Drawing on recent survey data from two public works programmes in South Africa, the microeconomic impacts of public works programme participation in terms of income poverty, non income poverty and labour market performance are reviewed. These microeconomic findings are then linked to recent research examining the macro-economic impacts of public works programmes and the two are considered together in order to assess the micro-macro linkage of public works programmes and theircontribution to development and poverty reduction. This analysis is particularly relevant given the popularity of public works as an instrument for labour market and social protection intervention throughout the continent. The microeconomic analysis suggests that while participation in a public works programme may contribute to a reduction in the depth of poverty, with improvements in participation in education and nutrition, and have positive psychosocial benefits, the impact of a short term programme may not be significant in terms of a reduction in headcount poverty or improvements in asset ownership (material or financial). In this case the public works programme income may function essentially as a temporary wage shock, since the insurance function of the transfer is limited by the short duration of the employment period. If targeted to poorer groups, with lower levels of school participation and poorer nutrition, impact may be greater per unit of wage transferred, interms of contributing to human capital, but is still not likely to move participants out of poverty, but rather reduce the depth of their poverty. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Capital Flight from South Africa, 1980 to 2000 October 2004 Seeraj Mohamed and Kade Finnoff Capital flight is a serious problem for South Africa, which if not addressed will continue to impede its ability to deal with structural issues such as high unemployment and concentration of wealth. This paper presents an estimate of the wealth that left South Africa in the form of capital flight during the period 1980 to 2000. We find that from 1980 to 2000 average capital flight as a percentage of GDP was 6.6 percent a year. In this paper, we deviate from the existing literature on capital flight from South Africa by suggesting that the motivation of people involved in capital flight before and after the fall of apartheid may have changed. We find that capital flight as a percentage of GDP was higher after the democratic elections in 1994, even though, there was much more political and economic instability during the period investigated before the democratic elections. The increase in capital flight as a percentage of GDP may reflect the discomfort of those involved in capital flight in the post-apartheid democratic process. We also consider how international capital flows and structural weaknesses in the economy have influenced capital flight. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Have labour market outcomes affected household structure in South Africa? A preliminary descriptive analysis of households October 2004 Farah Pirouz In this paper we comprehensively examine household size and structures in the October Household Survey 1995, 1997, 1999 and the Labour Force Survey September 2001 and 2002. Over the 1995-2002 period, the average household size has decreased significantly, by 0.4 household members. A rising share of single households from 12.6% to 21% of all households mostly drives this result. We investigate the question of how such changes in the patterns of household composition could be correlated to changes in labour force participation rates, unemployment rates, and employment rates. We further trace the distribution of unemployment andemployment over South African households over time. The shares of workless households where no member is employed, and full employment households, where all working age adult members earn income from work, tell about employment polarisation. Not surprisingly, the share of households with unemployed members has doubled to 27% in 2002. Findings may also provide explanations for why rising household inequality and household poverty are observed. Given the absence of a comprehensive social security net, a rising number of workless households in which no member earns work income may explain an increase in inequality measures over the same period. The paper aims to be a starting point for further econometric investigation on how households’ demography is influenced by individual labour market outcomes and vice versa. Therefore the explorations are general and the argumentation follows several avenues. To further explore household dynamics in conjunction with labour forcedynamics, panel data is required. In South Africa, panel data is limited to a two-wave survey of African households in KwaZulu-Natal (KIDS). The Labour Force Survey is designed as a rotating panel, and Statistics SA is still in the process of matching household and individual observations. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Trade liberalisation and regional integration in SADC: policy synergies assessed in an industrial organisation framework October 2004 Martine Visser and Trudi Hartzenberg Trade liberalisation has a significant impact on firm-market dynamics in a regional context. The purpose of this paper is to use an industrial organisation framework, focusing on the analytical units, the firm and the market, to assess the impact of trade liberalisation within the Southern African region, SADC. It is specifically the firm-level responses to various policies that will provide insight into changes in national industrial configurations, regional patterns of industrialisation and the potential for sustainable supplychain development in Southern Africa. The purpose of intra-regional trade liberalisation is to facilitate trade within a regional economic space, and through enhanced trade opportunities to elicit firm-level decisions to expand productive capacity. Such expansion of productive capacity, through various modalities of investment, can have important implications for the development of markets and market processes, resulting in robust, sustainable regional development. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Labour migration and households: a reconsideration of the effects of the social pension on labour supply in South Africa September 2004 Dorrit Posel, James Fairburn and Frances Lund This paper re-examines the effect of the South African social pension on the labour supply of working-age adults using data from 1993. We take account of the fact that households may include non-resident members, and therefore that the pension may play a role in facilitating migration to work or look for work. We find that rural African women are significantly more likely to be migrant workers when they are members of a household in receipt of a pension, and that it is female pension income that drives this result. We explore a number of possible reasons why pension income might have this effect. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa "Two million net new jobs": A reconsideration of the rise in employment in South Africa, 1995-2003 April 2004 Daniela Casale, Colette Muller and Dorrit Posel In this paper we investigate labour market trends in South Africa between October 1995 and March 2003. In particular, we evaluate the South African government’s claim that over this period, the economy created two million net new jobs. Using the same household survey data as that used to generate official employment estimates, we also find an almost two million net increase in employment. However, we show that this increase is likely to have been inflated by changes in data capture and definitions of employment over the years, and that the real increase may be considerably less, with a lower bound of approximately 1.4 million jobs. We argue further that the rise in employment over the period must be evaluated in the context of a dramatically larger growth in labour supply and therefore rising rates of unemployment, declining real earnings, and an increase in the number of the working poor, particularly among Africans. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Community, comparisons and subjective well-being in a divided society April 2004 Geeta Gandhi Kingdon and John Knight The paper poses six questions about the determinants of subjective well-being in South Africa. Much of the paper is concerned with the role of relative concepts. We find that comparator income – measured as average income of others in the local residential cluster – enters the household’s utility function positively but that income of more distant others (others in the district or province) enters negatively. The probit equations indicate that, as well as comparator groups based on spatial proximity, race-based comparator groups are important in the racially divided South African society. It is also found that relative income is more important to happiness at higher levels of absolute income. Potential explanations of these results, and their implications, are considered. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Labour force withdrawal of the elderly in South Africa February 2004 David Lam, Murray Leibbrandt and Vimal Ranchhod The elderly in South Africa face a complex set of challenges. South Africans over age 50 spent most of their lives under apartheid. Levels of inequality in education between races and within races are far greater among these older cohorts than they are for younger South Africans. Elderly black South Africans lived their most productive years under the restrictions on employment, residency, and other opportunities that apartheid imposed. As they now enter retirement they face new pressures caused by the impact that HIV/AIDS and high unemployment rates are having on the next generation. At the same time, South Africa’s elderly have access to an old age pension system that is among the most generous in the developing world. The old age pension helps lift many older South Africans out of the most extreme forms of poverty, and puts many of them in a position supporting their children and grandchildren. Decisions of the elderly about work and retirement are made in this complex set of circumstances. Older workers face an increasingly competitive labor market characterized by high unemployment, with limited opportunities for those with poor education and training. They often live in large extended households in which their own resources may be an important source of economic support. The pension provides an important source of support, without necessarily competing with work. The state old age pension program has spawned a considerable body of research. This research is reviewed in the next section of the paper. The review shows that state old age pension is the key plank of South Africa’s social safety net, that these pensions are well targeted at the poor and, because of the large number of three-generation and skip-generation households in South Africa, this includes many poor children. In addition, it seems that many of the unemployed survive through their links to related pensioners. More recent research has begun to explore the impact of these pensions on labor participation behavior. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Well-Being poverty versus income poverty and capabilities poverty in South Africa? December 2003 Geeta Kingdon and John Knight The conventional approach of economists to the measurement of poverty in poor countries is to use measures of income or consumption. This has been challenged by those who favour broader criteria for poverty and its avoidance. These include the fulfilment of ‘basic needs’, the ‘capabilities’ to be and to do things of intrinsic worth, and safety from insecurity and vulnerability. This paper asks: to what extent are these different concepts measurable, to what extent are they competing and to what extent complementary, and is it possible for them to be accommodated within an encompassing framework? There are two remarkable gaps in the rapidly growing literature on subjective well-being. First, reflecting the availability of data, there is little research on poor countries. Second, within any country, there is little research on the relationship between well-being and the notion of poverty. This paper attempts to fill these gaps. Any attempt to define poverty involves a value judgement as to what constitutes a good quality of life or a bad one. We argue that an approach which examines the individual’s own perception of well-being is less imperfect, or more quantifiable, or both, as a guide to forming that value judgement than are the other potential approaches. We develop a methodology for using subjective well-being as the criterion for poverty, and illustrate its use by reference to a South African data set containing much socio-economic information on the individual, the household and the community, as well as information on reported well-being. We conclude that it is possible to view subjective well-being as an encompassing concept, which permits us to quantify the relevance and importance of the other approaches and of their component variables. The estimated well-being functions for South Africa contain some variables corresponding to the income approach, some to the basic needs (or physical functioning) approach, some to the relative (or social functioning) approach, and some to the security approach. Thus, our methodology effectively provides weights of the relative importance of these various components of well-being poverty. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Inequality in South Africa: Nature, Causes and Responses November 2003 Stephen Gelb Speaking in South Africa’s parliament in 1998 in the debate on the report of the Truth and Reconciliation Commission, (then-Deputy) President Thabo Mbeki argued that "material conditions have divided our country into two nations, the one black, the other white. [the latter] is relatively prosperous and has ready access to a developed economic, physical, educational, communication and other infrastructure...The second, and larger, nation of South Africa is black and poor, [and] lives under conditions of a grossly underdeveloped infrastructure... Neither are we becoming one nation. Unlike the German people [after unification in 1990] we have not made the extra effort to generate the material resources we have to invest to change the condition of the black poor more rapidly than is possible if we depend solely on severely limited public funds, whose volume is governed by the need to maintain certain macroeconomic balances and the impact of a growing economy." This paper examines the nature of the divide which Mbeki pointed to between the ‘two nations’ and the reasons for the limited response to this divide during the post-apartheid era since 1994 at which he hints. This paper argues that this response can be understood only through an historical analysis of the transition to democracy. Section 2 provides an overview of inequality, poverty and economic growth in South Africa and their trends during the past ten years. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa RETURN TO MAIN PUBLICATIONS BY GEOGRAPHY PAGE

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