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Political Institutions, finance and the efficient allocation of capital in South Africa
By Zivanemoyo Chinzara(1)

Abstract

n December 2012, the African National Congress (ANC) will be holding a conference to elect new leadership that is likely to lead the country for the next five years.  This conference comes at the backdrop of a deteriorating political environment. This article assesses the economic implication of the political developments and highlights the challenges for the elected leadership. More specifically, the article focuses on the impact of deteriorating political and economic institutions on two conduits through which economic growth takes place, financial development and efficient allocation of resources. Using data from the 1991 to 2008, we find that weak institutions as characterised by high levels of corruption and government ineffectiveness have negated financial development and efficient allocation of resources. However, improvements in regulatory quality, rule of law, civil liberty, and political stability have enhanced financial development and efficient allocation of resources. We argue that the elected leaders need to ensure commitment to fix the deteriorating political and economic institutions. Furthermore, based on some of our empirical findings, we also suggest supply-side interventions that the government can use to solve the unsustainable levels of poverty and inequality without compromising efficient allocation of resources.

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(1) PhD Student, School of Economics and Finance, Queensland University of Technology, Garden Point Campus, Brisbane QLD 4000, Australia. Former lecturer in Econometrics, and Banking and International Finance, Rhodes University, South Africa. Email: zchinzara@yahoo.com

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