A comparative analysis of the dangers of capital inflows.
This report examines the effects of running a high current account deficit in conjunction withlarge short term capital inflows into South Africa. In order to gain a better understanding ofsuch effects, a comparative analysis with the Argentinean economy shall be undertaken.Argentina has experienced episodes of large capital inflows, preceded by periods of minimalcapital inflows. This caused an economic slowdown in Argentina. Similarities are evidentbetween the types of inflows into both South Africa and Argentina, with short term portfolioinflows being dominant. Nevertheless, Argentina received roughly 1.75 times the amount ofportfolio inflows at its peak capital inflow as compared to South Africa. These figuressuggest that South Africa is at a lesser risk (of being overly reliant on short-term inflows)compared to Argentina owing to the lower amount of portfolio inflows, however this is notthe case. South Africa has extremely low foreign direct investment (FDI) numbers, whichelucidates instability in terms of capital inflows (FDI provides stable inflows of capital for along period of time). FDI is considered to be a source of long term inflows and thus morestable. Low FDI figures and, high portfolio inflows along with the high current accountdeficit figures indicate that South Africa may be in danger of being over-reliant on portfolioinflows to finance its high current account deficit. South Africa has been running an averagecurrent account deficit of 4.9 percent from 2006-2010, with portfolio inflows as a percentageof total capital inflows from 2006 until 2009, averaging 54 percent.
|Year of publication:||
|Authors:||Segall, Lawrence Mark|
|Type of publication:||Book / Working Paper|
|Type of publication (narrower categories):||Thesis|
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