Sean Gossel | University of Cape Town (original) (raw)

Papers by Sean Gossel

International Journal of Emerging Markets, 2024

Purpose-This study investigates (1) whether democratization drives sovereign credit ratings (SCR)... more Purpose-This study investigates (1) whether democratization drives sovereign credit ratings (SCR) changes (the "democratic advantage") or whether SCR changes affect democratization, (2) whether the degree of democratization in sub-Saharan African (SSA) countries affects the associations and (3) whether the associations are significantly affected by resource dependence. Design/methodology/approach-This study investigates the effects of SCR changes on democracy in 22 SSA countries over the period of 2000-2020 VEC Granger causality/block exogeneity Wald tests, and impulse responses and variance decomposition analyses with Cholesky ordering and Monte Carlo standard errors in a panel VECM framework. Findings-The full sample impulse responses find that a SCR shock has a long-run detrimental effect on the democracy and political rights but only a short-run positive impact on civil liberties. Among the sub-samples, it is found that the extent of natural resource dependence does not affect the magnitude of SCR shocks on democratization mentioned above but it is found that a SCR shock affects long-run democracy in SSA countries that are relatively more democratic but is more likely to drive democratic deepening in less democratic SSA countries. The full sample variance decompositions further finds that the variance of SCR to a political rights shock outweighs the effects of all the macroeconomic factors, whereas in more diversified SSA countries, the variances of SCR are much greater for democracy and political rights shocks, which suggests that democratization and political rights in diversified SSA economies are severely affected by SCR changes. In the case of the high and low democracy sub-samples, it is found that the variance of SCR in the relatively higher democracy sub-sample is greater than in the low democracy sub-sample. Social implications-These results have three implications for democratization in SSA. First, the effect of a SCR change is not a democratically agnostic and impacts political rights to a greater extent than civil liberties. Second, SCR changes have the potential to spark a negative cycle in SSA countries whereby a downgrade leads to a deterioration in socio-political stability coupled with increased financial economic constraints that in turn drive further downgrades and macroeconomic hardship. Finally, SCR changes are potentially detrimental for democracy in more democratic SSA countries but democratically supportive in less democratic SSA countries. Thus, SSA countries that are relatively politically sophisticated are more exposed to the effects of SCR changes, whereas less politically sophisticated SSA countries can proactively shape their SCRs by undertaking political reforms. Originality/value-This study is the first to examine the associations between SCR and democracy in SSA. This is critical literature for the Africa's scholarly work given that the debate on unfair rating actions and claims of subjective rating methods is ongoing.

The Journal of International Trade & Economic Development An International and Comparative Review, 2022

This study investigates the relationship between FDI, political risk, and institutional quality i... more This study investigates the relationship between FDI, political risk, and institutional quality in 20 sub-Saharan African countries over the period from 2003 to 2019. GMM analysis finds that FDI is attracted to SSA by declining political risk and improved institutional quality but resource extractive SSA economies tend to attract more FDI. The results further show that although FDI investors are more concerned about regulatory and institutional investment protection than with political risk in resource dependent SSA countries, political risk is a more efficient intermediator than institutional quality in attracting FDI to resource dependent SSA countries.

Journal of African Business

ABSTRACT This study investigates the net effect of sovereign credit rating announcements on long-... more ABSTRACT This study investigates the net effect of sovereign credit rating announcements on long-term foreign currency denominated bonds and stock markets in 19 African countries over the period of 1994 to 2014. Using a combination of Granger Causality tests and Dynamic Conditional Correlation (DCC) models, the results show that there is a positive relationship between Africa’s stock and bond markets, and weak positive associations between sovereign credit ratings and bond and stock markets. These results imply that both stocks and bonds react negatively (positive) to sovereign credit downgrade (upgrade) announcements. The study further finds that sovereign rating changes affect bond prices more than stock prices because of the volatility in the magnitude of a sovereign downgrade on the default risk premium and bond yields in African markets.

International Journal of Emerging Markets, 2022

Purpose-This paper investigates whether democracy plays a mediating role in the relationship betw... more Purpose-This paper investigates whether democracy plays a mediating role in the relationship between foreign direct investment (FDI) and inequality in Sub-Saharan Africa (SSA). Design/methodology/approach-The empirical analysis is conducted using fixed effects and system GMM (Generalised Method of Moments) on a panel of 38 Sub-Saharan African countries covering the period of 1990-2018. Findings-The results find that FDI has no direct effect on inequality whereas democracy reduces inequality directly in both the short run and the long run. The sensitivity analyses find that democracy improves equality regardless of the magnitude of FDI, resource endowment or democratic deepening whereas FDI only reduces inequality once a moderate level of democracy has been achieved. Social implications-The results discussed above thus have four policy implications. First, these results show that although democracy has inequality reducing benefits, SSA is unlikely to significantly reduce inequality unless the region purposefully diversifies its trade and FDI away from natural resources. Second, the region should continue to expand credit access to reduce inequality and attract FDI. Third, policymakers should undertake reforms that will reduce youth inequality. Lastly, the region should focus on long-run democratic reforms rather than on short-run democratization to improve governance and investor confidence. Originality/value-Although there are existing studies that examine the association between FDI and inequality, FDI and democracy and democracy and inequality, this is the first study to explicitly examine the effect of democracy on the association between FDI and inequality in SSA, and the first study to separately consider the possible varied effects of contemporaneous democratization versus the long-run accumulation of democratic capital. In addition, rather than measure inequality by income alone, this study uses the more appropriate Human Development Index to account for SSA's sociological, education and income disparities.

International Journal of Sustainable Economies, 2020

This study investigates the weak-form efficiency of long-term foreign currency denominated bonds ... more This study investigates the weak-form efficiency of long-term foreign currency denominated bonds and stocks in incorporating long-term foreign currency sovereign credit rating announcements in 19 African countries over the period of 1994 to 2014. The results of Ljung-Box Q autocorrelation, runs and variance ratio tests find that sovereign credit ratings do not significantly impact bond market efficiency. In contrast, stock markets show evidence of weak form efficiency implying that long-term sovereign credit ratings positively affect equities market efficiency in Africa.

European Journal of Development Research, 2020

In recent decades, Sub-Saharan Africa has experienced significant political and economic liberali... more In recent decades, Sub-Saharan Africa has experienced significant political and economic liberalisations, and thus foreign direct investment (FDI) is likely to react to the acute policy implications associated with elections. Hence, in the present work, the relationship between FDI and elections is investigated among 37 countries in Sub-Saharan Africa (SSA) over the period 1972-2012. The results of the general-ised method of moments (GMM) analysis show that FDI is deterred by both executive and legislative/parliamentary elections, as well as by behavioural unfairness and liberation elections but less affected by perceptual unfairness and post-election violence. Sensitivity analysis further shows that these negative effects are not significantly affected by the extent of resource endowment or political liberalisation.

Journal of African Business, 2019

This study investigates the net effect of sovereign credit rating announcements on long-term fore... more This study investigates the net effect of sovereign credit rating
announcements on long-term foreign currency denominated
bonds and stock markets in 19 African countries over the period
of 1994 to 2014. Using a combination of Granger Causality tests
and Dynamic Conditional Correlation (DCC) models, the results
show that there is a positive relationship between Africa’s stock
and bond markets, and weak positive associations between sovereign
credit ratings and bond and stock markets. These results
imply that both stocks and bonds react negatively (positive) to
sovereign credit downgrade (upgrade) announcements. The study
further finds that sovereign rating changes affect bond prices
more than stock prices because of the volatility in the magnitude
of a sovereign downgrade on the default risk premium and bond
yields in African markets.

This study examines whether new foreign currency sovereign credit rating announcements are valuab... more This study examines whether new foreign currency sovereign credit rating announcements are valuable and relevant information to bond and equity markets in 24 African countries that received a sovereign credit rating during the period 1994 to 2014. The results of applying a combination of GARCH models and event study techniques show that the financial markets do not significantly react to SCR announcements. These findings suggest that there is a very weak relationship between
sovereign credit rating changes and security yields in African markets, possibly because these African markets are already perceived to be risky. Hence, it can be concluded that sovereign credit rating
announcements is not relevant information to financial markets in low credit rated countries as investors would have already discounted the risk into current security prices.

This study investigates the relationship between the six World Governance Indicators and foreign ... more This study investigates the relationship between the six World Governance Indicators and foreign portfolio investment in 33 Sub-Saharan African (SSA) countries over the years of 1998–2015. GMM analysis finds that portfolio inflows are most significantly attracted by the ability of SSA governments to implement policies effectively, strengthening the quality of institutions, and controlling corruption; but are deterred by the regions poor record of the rule of law and political stability.

Journal of Policy Modeling

This paper investigates the relationship between FDI, democracy and corruption among 30 countries... more This paper investigates the relationship between FDI, democracy and corruption among 30 countries in Sub-Saharan Africa (SSA) over the period of 1985–2014 to determine whether the 'helping hand' or 'grabbing hand' hypothesis is most applicable. The results of GMM analysis show that corruption is used by FDI investors to overcome the region's weak democratic regulatory and institutional status and thus the 'helping hand' is more prevalent. However, the results further show that as democratic capital accumulates, this association may outlive its usefulness and thus corruption as a 'helping hand' in time becomes a 'grabbing hand' instead. These results imply that SSA countries should focus on integrating into the international economy so as to take advantage of existing financial enforcement legislation while reconstructing and strengthening domestic constitutional anti-corruption legislation and institutions.

This study investigates the spillover effects of long-term foreign currency sovereign credit rati... more This study investigates the spillover effects of long-term foreign currency sovereign credit rating announcements on foreign currency-denominated bonds and stock markets in 19 African countries during the period of 1994–2014. Using a combination of Granger causality tests and impulse response function, the results show that there is
marginal regional sovereign rating spillover impacts that are quickly absorbed into capital markets trading long-term securities. The analysis further shows marginal spillover effects that persist over longer time periods in sovereign ratings of other countries in the same region from a sovereign rating change in one country. These results imply that the
regional bilateral linkages between countries serve as channels of capital and sovereign credit rating information flow. Thus, it is imperative for regional countries to pursue prudent developmental macroeconomic policies to avoid negative ratings that will have regional spillover effects.

This study investigates the relationship between democratic capital, democratic rights and foreig... more This study investigates the relationship between democratic capital, democratic rights and foreign direct investment (FDI) in 42 Sub-Saharan African (SSA) countries over the period of 1972–2014. The results show that FDI is affected by the accumulation of democratic capital to a greater extent than by contemporaneous democratic reforms or the components of democracy (civil liberties and political rights). Furthermore, FDI is found to respond positively to the recent accumulation of democratic capital in more democratic SSA countries, to the durable accumulation of democracy in less democratic countries, and by political repression in more democratic countries. Finally, sensitivity analysis shows that although the results are not significantly affected by the extent of resource dependence, they are susceptible to socio-cultural variations, particularly among the European heritage SSA countries.

This study uses a VECM with impulse response, variance decomposition and block Granger causality ... more This study uses a VECM with impulse response, variance decomposition and block Granger causality analysis to investigate the effects of international and domestic factors on the production of platinum group metals (PGM) in South Africa from 1980 to 2011. The results of the impulse responses show that shocks to the international factors negatively affect production while domestic shocks positively affect production. The variance decompositions find that in the long-run, production is most significantly impacted by international demand, domestic electricity tariffs, and salary shocks. The block Granger causality analysis further finds that the international factors causally affect the domestic factors, but production is driven by PGM price fluctuations, electricity tariffs, and output per employee.

— This study investigates the effects of aid inflows and the volatility of public investment on e... more — This study investigates the effects of aid inflows and the volatility of public investment on economic growth in 26 Sub-Sah-aran African countries over the period from 1992 to 2011. Three volatility variables comprising aid, government revenue, and public investment are incorporated into an aid-growth model to test for their effect on economic growth. Using the Generalized Method of Moments (GMM) technique and averaged data for five four-year sub-periods, we show that although foreign aid has a positive impact on growth once potential endogeneity has been accounted for, aid effectiveness may have been eroded by volatility in public investment.

This paper explores the factors that influence capital structure decisions in South Africa from t... more This paper explores the factors that influence capital structure
decisions in South Africa from the perspective of the Chief
Financial Officer (CFO). The results of a survey of 33 CFOs of JSE
listed companies find that South African CFOs are equally likely to
follow the Pecking Order and Static Trade-Off theories. However,
small companies are more likely to follow the Pecking Order
theory while large companies are more likely to follow the Static
Trade-Off theory. In addition, the results show that South African companies are more likely to follow the Static Trade-Off theory than companies in other emerging countries.

This study uses the cross-correlations in the daily closing prices of the South African Top 100 c... more This study uses the cross-correlations in the daily closing prices of the South African Top 100 companies listed on the JSE All share index (ALSI) from June 2003 to June 2013 to compute minimum spanning tree maps. In addition to the full sample, the analysis also uses three sub-periods to investigate the topological evolution before, during, and after the 2008 financial crisis. The findings show that although there is substantial clustering and homogeneity on the JSE, the most connected nodes are in the financial and resources sectors. The sub-sample results further reveal that the JSE network tree shrank in the run-up to, and during the financial crisis, and slowly expanded afterwards. In addition, the different clusters in the network are connected by various nodes that are significantly affected by diversification and credit market dynamics.

This paper uses a vector error correction model to examine the effects of foreign (push) and dome... more This paper uses a vector error correction model to examine the effects of foreign (push) and domestic (pull) factors on South Africa’s capital inflows over the period of 1986–2013. The
results show that foreign direct investment is pushed in the short-run but pulled in the long-run;
portfolio inflows are pushed in both the short-run and the long-run, while in contrast, the other
inflows are pulled in the short-run and the long-run. The results further show that South Africa’s capital inflows are particularly vulnerable to foreign business cycle shocks in the short-run but to domestic output and investment shocks in the long-run.

Emerging Markets Finance & Trade

This paper investigates the cyclical relationships between South Africa’s post-liberalization net... more This paper investigates the cyclical relationships between South Africa’s post-liberalization net capital inflows and fiscal and monetary policies. Correlation analysis shows that the bulk of South Africa’s capital inflows do not have a significant cyclical relationship with fiscal policy but have a procyclical and reactive cyclical relationship with monetary policy. Furthermore, causality analysis finds that fiscal policy reacts to monetary policy and
capital flows, whereas capital flows react to monetary policy. Hence, these results suggest that South Africa’s policymakers are in a better position to control the country’s capital inflows using monetary policy than using fiscal policy.

Journal of International Trade and Economic Development