MACROECONOMIC POLICY DIRECTIONS IN THE SOUTHERN AFRICAN CUSTOMS UNION

Abstract

This study examines the causal relationship that characterizes some major macroeconomic variables in the Southern African Customs Union (SACU) over the period 1990 to 2019. The technique of the Dumitrescu and Hurlin (2012) Granger non-causality established the direction of causality. The empirical findings among others show that the major capital flow components of foreign portfolio investment and foreign direct investment respectively generate a unidirectional causality in respect of GDP per capita with causation running from the respective capital flow components. Moreover, the globalization index has been established to granger cause foreign direct investment while one-way causation runs from money supply to inflation rate. Additional evidence proves that GDP per capita causes monetary policy rate differential and not otherwise. The respective governments in the Southern African Customs Union need to provide a sound macroeconomic environment that will enable more capital flows for the regional economy to thrive. Moreover, the effective management of the monetary system and the state of the real sector is sine qua non for the soundness of the macroeconomy.