Economic Globalisation and Public Debt: What Implications Does an Integrated South African Economy Hold for Fiscal Policymakers?
Abstract
Globalisation is a deep-rooted phenomenon that has significantly shaped developed and developing economies alike. Characterised by its controversial past, South Africa provides a unique case when considering how global integration has affected the country’s economy. Among the more intriguing relationships has been the interlinkage between the country’s public debt levels and the manner in which it has globalised. On one hand, advocates suggest that economic integration has enabled the government to provide greater social assistance in the hope of rectifying its controversial past. On the other hand, however, globalisation is believed to increase pressure on the fiscal budget with increased levels of debt needed to mitigate the pressure of external shocks. The primary objective of this study was to analyse the relationship between public debt and economic globalisation in South Africa. It followed a quantitative research approach using secondary time-series data from 1980 to 2020. Long-run relationships were evaluated through the use of a Bayer–Hanck combined cointegration test, while FMOLS, DOLS and CCR estimation techniques were employed to estimate elasticity relationships. The results corroborate the existence of a positive relationship between higher levels of economic globalization and public debt. Moreover, the causality results revealed a unidirectional causal link between these variables emanating from the economic integration of the country. This implies significant consequences for fiscal policymakers towards balancing its role as a crucial macroeconomic role player. The findings in fact point to noteworthy implications surrounding the restricting effects of the integration process, pertaining to higher borrowing costs, increased external vulnerability and limited fiscal capability in the context of improving the country’s social environment.
