The causal relationship between house prices and growth in the nine provinces of South Africa: evidence from panel - Granger causality tests

Abstract

This paper analyses the causal relationship between housing activity and growth in nine provinces of South Africa for the period 1995-2011, using panel causality analysis, which accounts for cross-section dependency and heterogeneity across provinces. Our empirical results support unidirectional causality running from housing activity to economic growth for most of the provinces studied; bi-directional causality between housing activity and economic growth for Gauteng; and no causality in any direction between housing activity to economic growth in Eastern Cape and KwaZulu-Natal. Our findings provide important insights for housing policies and strategies for South Africa. Specifically, housing sector might be an efficient growth-led instrument for all the provinces except Eastern Cape and KwaZulu-Natal.

Banking sector development and economic growth in developing countries: a bootstrap panel Granger causality analysis

“…The recent world economic situation has shown that turbulence in a country can easily be transmitted to other countries through international trade and economic and financial integration (Nazilioglu et al 2011). As pointed out by Pesaran (2006) ignoring cross-section dependency leads to substantial bias and size distortions implying that testing for the cross-section dependence is a crucial step in a panel data analysis (Nazilioglu et al 2011;Chu and Chang, 2012;Boubtane et al 2013;Chang et al 2013).…”

“…The first step in analyzing panel data Granger causality is testing for cross-sectional dependence. Following Kónya (2006); Kar et al (2011); Boubtane et al (2013); Chang et al (2013) we employ four different cross-sectional dependence test statistics. The first is the Lagrange Multiplier (LM) test developed by Breusch and Pagan (1980) which requires the estimation of the following panel data model:…”

“…For the details and exposition of the estimation and testing procedures, see Kónya (2006), Kar et al (2011).  are zero (Chang et al 2013).…”

“…Third, this study is the first researches used a bootstrap panel Granger causality test to investigate the causal relationship between banking sector development and economic growth. This allows testing for Granger causality on each individual panel member separately by taking into account the possible contemporaneous correlation across countries (Kònya, 2006;Chang et al 2013;Menyah et al 2014). Fourth, we take into consideration cross sectional dependence and country-specific heterogeneity across the forty countries.…”

Housing and the business cycle in South Africa

“…2 Though, there exist quite a number of studies that have looked at the spillover of real house prices on consumption in both constant and time-varying parameter models. See for instance: Aron et al, (2006), Das et al, (2011), Ncube andNdou (2011), Peretti et al, (2012), Simo-Kengne et al, (forthcoming), and Aye et al, (forthcoming a) .3 panel data regressions (Simo-Kengne et al, 2012), and panel-Granger causality between real house prices and per capita economic growth at the provincial level (Chang et al, 2013) based on annual data. 4 However, to the best of our knowledge, we are not aware of any analyses that have simultaneously looked at all three of the above-mentioned housing variables and the business cycle in South Africa using a time-varying approach.…”