Revisiting the Causal link Between Agriculture, Industrial output and Financial Sector Development in South Africa

Authors

  • Mabutho Sibanda Finance, College of Law & Management Studies, University of KwaZulu-Natal, Durban
  • Zamanguni Gumede Taxation, College of Law & Management Studies, University of KwaZulu-Natal, Durban
  • Bomi Nomlala Auditing, College of Law & Management Studies, University of KwaZulu-Natal, Durban
  • Msizi Mkhize Financial Accounting, College of Law & Management Studies, University of KwaZulu-Natal, Durban
  • Hlengiwe Ndlela Auditing, College of Law & Management Studies, University of KwaZulu-Natal, Durban

Keywords:

Granger Causality, agricultural output, industrial output, financial development.

Abstract

This study seeks to establish the relationship between agriculture, industrial output and financial sector development in South Africa. It uses the Autoregressive Distributed Lag, Error Correction models and Granger causality techniques to test for long- and short-run relationships. The evidence from the models indicates the presence of a long-run relationship between industrial output and agriculture, which suggests that these sectors depend on each other for raw materials and inputs. In addition, stock market development represented by market capitalization has a long-run relationship with agriculture. However, no long-run relationship is established between credit extension and agriculture; and between gross fixed capital formation and agriculture, suggesting that an increase in agricultural output does not impact investment in long-term fixed assets. The evidence also shows a long-run relationship between exports and agricultural output, which is consistent with the export-led growth hypothesis. These findings have implications for policy formulation and allocation of resources.

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Published

2019-12-31

Issue

Section

Special Issue - Africa’s Economic Development Agenda and Sustainable Growth