Chapter

Capital Flows, Financial Markets, and the External Balance Sheet

Jonathan Leape and Lynne Thomas

in South African Economic Policy under Democracy

Published in print March 2009 | ISBN: 9780199551460
Published online May 2009 | e-ISBN: 9780191720376 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199551460.003.0005
Capital Flows, Financial Markets, and the External Balance Sheet

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This chapter examines the volume and composition of capital flows in South Africa, distinguishing between net flows of foreign (non-resident) capital and net flows of domestic (resident) capital. Two key themes are the response of investors to capital account liberalization and the role of domestic capital markets in influencing the composition of flows. Section 2 assesses exchange control reform in South Africa, emphasizing the gradual nature of the liberalization strategy and the priority given to macroeconomic and financial sector stability. Section 3 examines the composition of foreign capital inflows, in particular the high levels of inward portfolio investment supported by developed local capital markets. Section 4 focuses on outward investment by South African residents in the form of institutional investors, companies, and individuals. Section 5 concludes with an assessment of the implications of the changes in the financial account since 1994 for the external balance sheet and for macroeconomic policy.

Keywords: South Africa; capital inflows; foreign capital; domestic capital; exchange control; foreign investment

Chapter.  13437 words.  Illustrated.

Subjects: Public Economics

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