Kgomo & Ncanywa, 2019

The Effects of Government Stock on Investment Activity in BRICS Countries

Synopsis

Brazil, Russia, India, China and South Africa (BRICS) are distinguished as having the fast growing markets in the universe compared to other markets of emerging economies, according to their promising economic prospective and demographic power. This study investigated the effects of government stock on investment activity in BRICS countries. This study used panel autoregressive distributed lag model (PARDL), Engel-Granger causality test, impulse response functions (IRF) and variance decomposition tests. Such techniques were applied to the annual data for the periods 2001 to 2016 in order to determine the effects of government stock on investment activity. The PARDL showed that in the long-run investment activity was positively influenced by government stock on mutual banks and government stock on liquid assets, and negatively related to government stock on bonds and government stock on corporations. The Engel-Granger causality test revealed existence of unidirectional movement between investment activity and government stock on corporations as well as from government stock on bonds to liquid assets. The impulse response functions showed the impulse percentage of fluctuation that the variables did contribute to each other, from various periods both in the short and long run. While the variance decomposition of investment indicated that investment was mainly shocked by its own innovations throughout all the periods. A critical evaluation is needed to avoid investment shocks, instability of investment activity, instability of financial markets and the economy as a whole.

List of Figures

List of Tables

List of Acronyms

Introduction

Statement of the problem

Research aim and objectives

Research questions

Significance of the study

Literature Review

Theoretical framework

Keynes Theory of Investment

Neoclassical Theory of Investment Behaviour

Tobin’s Q Theory of Investment Behaviour

Financial Theory of Investment Behaviour

Empirical literature

Estimation of government stock on investment activity

Long-run relationship between government stock and investment activity

Causal relationship between government stock and investment activity

Overview of the BRICS economy

Trends in gross fixed capital formation

Trend of the indicators of government stock (2010-2016)

Overview of the individual BRICS countries government stock

Brazil

Russia

India

China

South Africa

Research methodology

Data

Model specification

Estimation techniques

Panel unit root test

Lag length criteria

Panel cointegration test

Panel Autoregressive Distributed Lag (PARDL) model

Engel-Granger causality test

Diagnostic tests

Impulse response function

Variance decomposition

Emprical Resulst and Discussions

Panel unit root results

Lag length criteria results

Panel cointegration test results

Panel Autoregressive Distributed Lag (PARDL) model results

Engel-Granger causality test results

Diagnostic test results

Impulse response function

Variance decomposition results

Summary and Conclusion

Recommendation and the Book

References

About Author(s)

Ms Dintuku Maggie Kgomo obtained her Bachelor of Commerce degree majoring in Economics and Business Management at the Nelson Mandela University. For postgraduate studies she went to the University of Limpopo where she obtained her Bachelor of Commerce Honours in Economics (Cum Laude) and her Master of Commerce in Economics. She is passionate about the study of economics and financial markets. A continued field of interest for her is how the economy has a major impact on the society at large and how it influences daily life decisions.

Prof Thobeka Ncanywa is an Associate Professor and HOD in the Department of Economics at the University of Limpopo. She has expertise in the field of Applied Economics, Development Economics, Econometrics, Micro Economics, Education Economics and Macro Economics. She has been involved into teaching and learning, community engagement activities, published in local and international journals and also presented research articles in Conferences.