South Africa Economy and Finance

The first question that requires addressing is the question of growth relationships between economic growth and financial expansion. According to Stengos, Ketteni et al, "We find that, in contrast to recent research, the finance-growth relationship is linear when the previously documented nonlinearity between initial per capita income and human capital, on the one hand, and economic growth, on the other, is taken into account." They discovered that when these apparently non-linear elements are ignored, that the finance-economic growth appears non-linear. (Stengos, Ketteni, Mamuneas, & Savvides, 2004) This is at odds with other findings and indicates that these elements are relevant in the overall growth situation. They point out that the empirical evidence supports the contention that economic and financial growth are linked which is the intuitive answer to the question. Econometricians have raised questions concerning the linear properties of these growth assumptions.

King and Levine in a study that covers the 29 years from 1960 to 1989 constructed four measures of the level of financial development and related these to economic growth. Their conclusion was that there was a strong correlation between each of the measures and economic growth.

There are numerous other works that provide additional support for the proposition that there is a relationship between economic and financial growth such as Rioja and Va

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clays bank, and Standard Bank is 20% owned by Commercial Bank of China. (FMD South African banks 2008) At year-end 2007, Barclays Bank had assets of £1,227,361 million and net income of £5,126 million. What is impressive about the South African Banks is the rate of return on total assets as compared to banks in more developed economies. This should make them attractive to major banks in spite of their modest size. There is considerable growth potential in the market as the vestiges of apartheid are reduced and finally hopefully eliminated. The political, social and economic consequences of the end of apartheid are only now being fully resolved and produced decades of problems that impacted the national economy severely. All of the major financial rating services have downgraded all four of the major South African banks in recent weeks in spite of their conservative financial ratios and lack of exposure to external asset problems. (Njobeni & Bonorchis, 2008) This is no doubt a function of the insular nature of the banking system and its inability to properly hedge risks through the diversification of assets. This leaves the eventual takeover of the South African Banking System as the only logical out
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Approximate Word count = 2616
Approximate Pages = 10 (250 words per page)

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