IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v33y2013icp482-492.html
   My bibliography  Save this article

What causes household debt to increase in South Africa?

Author

Listed:
  • Meniago, Christelle
  • Mukuddem-Petersen, Janine
  • Petersen, Mark A.
  • Mongale, Itumeleng P.

Abstract

The 2007–2008 US subprime mortgage crisis evolved into a financial crisis that negatively affected many economies in the world and was afterwards widely referred to as the global financial crisis. Since the beginning of this financial crisis of 2008–2009, South Africa experienced a significant increase in its household debt to income ratio. In the main, this paper investigates the prominent factors contributing to the rise in the level of household debt in South Africa. Specifically, we construct a model for South African household debt through the application of a Vector Error Correction Model (VECM). We employ quarterly time series data throughout the timeline 1985 Q1 to 2012 Q1 and all the econometric tests are analyzed using the statistical software package EViews 7. Our results confirmed the existence of a long run cointegrating relationship between household debt and other macroeconomic determinants. Increasing household debt was found to be significantly affected by positive changes in consumer price index, gross domestic product and household consumption. Also, house prices and household savings were found to positively contribute to a rise in household debt but this relationship was found to be statistically insignificant. Alternatively, household borrowing was found to be significantly and insignificantly affected by negative changes in income and prime rate, respectively. Ultimately, the existence of a long run cointegrated relationship enabled us to build an error correction model for household debt which will facilitate future forecasting.

Suggested Citation

  • Meniago, Christelle & Mukuddem-Petersen, Janine & Petersen, Mark A. & Mongale, Itumeleng P., 2013. "What causes household debt to increase in South Africa?," Economic Modelling, Elsevier, vol. 33(C), pages 482-492.
    • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:482-492
    DOI: 10.1016/j.econmod.2013.04.028
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999313001594
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2013.04.028?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Keese, Matthias, 2012. "Who feels constrained by high debt burdens? Subjective vs. objective measures of household debt," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 125-141.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Naranjo, Andy & Toevs, Alden, 2002. "The Effects of Purchases of Mortgages and Securitization By Government Sponsored Enterprises on Mortgage Yield Spreads and Volatility," The Journal of Real Estate Finance and Economics, Springer, vol. 25(2-3), pages 173-195, Sept.-Dec.
    4. Franklin Allen and Giorgia Giovannetti, 2010. "Fragile Countries And The 2008-2009 Crisis," EUI-RSCAS Working Papers 13, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    5. Christian L Dunis & Richard Ho, 2005. "Cointegration portfolios of European equities for index tracking and market neutral strategies," Journal of Asset Management, Palgrave Macmillan, vol. 6(1), pages 33-52, June.
    6. Anderson, Richard G. & Hoffman, Dennis L. & Rasche, Robert H., 2002. "A vector error-correction forecasting model of the US economy," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 569-598, December.
    7. Thanasis Stengos & Ximing Wu, 2010. "Information-Theoretic Distribution Test with Application to Normality," Econometric Reviews, Taylor & Francis Journals, vol. 29(3), pages 307-329.
    8. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
    9. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    10. Fernando Nieto, 2007. "The determinants of household credit in Spain," Working Papers 0716, Banco de España.
    11. Guy Debelle, 2004. "Macroeconomic implications of rising household debt," BIS Working Papers 153, Bank for International Settlements.
    12. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    13. Karen Dynan, 2012. "Is a Household Debt Overhang Holding Back Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 299-362.
    14. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    15. Karen Dynan, 2012. "Is a Household Debt Overhang Holding Back Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 299-362.
    16. Oikarinen, Elias, 2009. "Household borrowing and metropolitan housing price dynamics - Empirical evidence from Helsinki," Journal of Housing Economics, Elsevier, vol. 18(2), pages 126-139, June.
    17. Chu, Patrick Kuok-Kun, 2011. "Relationship between macroeconomic variables and net asset values (NAV) of equity funds: Cointegration evidence and vector error correction model of the Hong Kong Mandatory Provident Funds (MPFs)," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 792-810.
    18. Gimeno, Ricardo & Martí­nez-Carrascal, Carmen, 2010. "The relationship between house prices and house purchase loans: The Spanish case," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1849-1855, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benyan Tan & Yingzhu Guo & Yan Wu, 2024. "The influence and mechanism of female-headed households on household debt risk: empirical evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-15, December.
    2. Enache Calcedonia, 2022. "Macroeconomic Determinants of Household Indebtedness in Romania: An Econometric Approach," Journal of Social and Economic Statistics, Sciendo, vol. 11(1-2), pages 102-117, December.
    3. Berrak Bahadir & Neven Valev, 2021. "Credit information sharing and the shift in bank lending towards households," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 60-72, January.
    4. Juniours Marire, 2024. "Interactive influence of house prices and the repo rate on household debt in South Africa," Journal of Economic Analysis, Anser Press, vol. 3(1), pages 58-78, March.
    5. Deng, Xin & Yu, Mingzhe, 2021. "Does the marginal child increase household debt? – Evidence from the new fertility policy in China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    6. Abigail Stiglingh & Lerato Mothibi, 2019. "The link between government expenditure and debt as potential drivers of economic growth in South Africa," Proceedings of International Academic Conferences 9912043, International Institute of Social and Economic Sciences.
    7. Bogdan Andrei Dumitrescu & Adrian Enciu & Cătălina Adriana Hândoreanu & Carmen Obreja & Florin Blaga, 2022. "Macroeconomic Determinants of Household Debt in OECD Countries," Sustainability, MDPI, vol. 14(7), pages 1-14, March.
    8. Kwon, Yujin & Park, Sung Y., 2023. "Modeling an early warning system for household debt risk in Korea: A simple deep learning approach," Journal of Asian Economics, Elsevier, vol. 84(C).
    9. Rahman, Sharezan & Masih, Mansur, 2014. "Increasing household debts and its relation to GDP, interest rate and house price: Malaysia’s perspective," MPRA Paper 62365, University Library of Munich, Germany.
    10. Paravee Maneejuk & Sopanid Teerachai & Atinuch Ratchakit & Woraphon Yamaka, 2021. "Analysis of Difference in Household Debt across Regions of Thailand," Sustainability, MDPI, vol. 13(21), pages 1-24, November.
    11. Anelisa Nomatye & Andrew Phiri, 2018. "Investigating the Macroeconomic Determinants of Hosehold Debt in South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 62-69.
    12. Cesar Leandro, Julio & Botelho, Delane, 2022. "Consumer over-indebtedness: A review and future research agenda," Journal of Business Research, Elsevier, vol. 145(C), pages 535-551.
    13. Suhal Kusairi & Suriyani Muhamad & M Musdholifah & Shu-Chen Chang, 2019. "Labor Market and Household Debt in Asia Pacific Countries: Dynamic Heterogeneous Panel Data Analysis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 1-15, June.
    14. Weiou Wu & Apostolos Fasianos & Stephen Kinsella, 2015. "Differences in Borrowing Behaviour between Core and Peripheral Economies — Economic Environment versus Financial Perceptions," Working Papers 201516, Geary Institute, University College Dublin.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eriko Hoshino & Caleb Gardner & Sarah Jennings & Klaas Hartmann, 2015. "Examining the Long-Run Relationship between the Prices of Imported Abalone in Japan," Marine Resource Economics, University of Chicago Press, vol. 30(2), pages 179-192.
    2. Ashley Dunstan & Hayden Skilling, 2015. "Commercial property and financial stability," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 78, pages 1-10, March.
    3. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    4. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2005. "Testing for Long Memory and Nonlinear Time Series: A Demand for Money Study," Trinity Economics Papers tep20021, Trinity College Dublin, Department of Economics.
    5. Ruixiaoxiao Zhang & Geoffrey QP Shen & Meng Ni & Johnny Wong, 2020. "The relationship between energy consumption and gross domestic product in Hong Kong (1992–2015): Evidence from sectoral analysis and implications on future energy policy," Energy & Environment, , vol. 31(2), pages 215-236, March.
    6. Bernardina Algieri, 2014. "A roller coaster ride: an empirical investigation of the main drivers of the international wheat price," Agricultural Economics, International Association of Agricultural Economists, vol. 45(4), pages 459-475, July.
    7. Erdal Demirhan & Banu Demirhan, 2015. "The Dynamic Effect of ExchangeRate Volatility on Turkish Exports: Parsimonious Error-Correction Model Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 429-451, September.
    8. Murthy, N. R. Vasudeva & Phillips, Joseph M., 1996. "The relationship between budget deficits and capital inflows: Further econometric evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 36(4), pages 485-494.
    9. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    10. Sulaiman, Saidu & Masih, Mansur, 2017. "Is liberalizing finance the game in town for Nigeria ?," MPRA Paper 95569, University Library of Munich, Germany.
    11. Matias Piaggio & Emilio Padilla & Carolina Roman, 2015. "The long-run relationshiop between C02 emissions and economic activity in a small open economy: Uruguay 1882-2010," Working Papers wpdea1506, Department of Applied Economics at Universitat Autonoma of Barcelona.
    12. Alexander Schätz, 2010. "Macroeconomic Effects on Emerging Market Sector Indices," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 131-169, August.
    13. Juan Gabriel Brida & Diego Giuliani, 2013. "Empirical Assessment of the Tourism-Led Growth Hypothesis: The Case of the Tirol—Südtirol—Trentino Europaregion," Tourism Economics, , vol. 19(4), pages 745-760, August.
    14. Esther Stroe-Kunold & Joachim Werner, 2009. "A drunk and her dog: a spurious relation? Cointegration tests as instruments to detect spurious correlations between integrated time series," Quality & Quantity: International Journal of Methodology, Springer, vol. 43(6), pages 913-940, November.
    15. Ge, Yuanlong & Wang, H. Holly & Ahn, Sung K., 2008. "Implication of Cotton Price Behavior on Market Integration," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37623, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    16. Bushara, Mohammed O. A. & Abdelmahmod, Murtada Kh. A., 2016. "Efficiency of selected camel markets in Sudan: A multivariate approach (1995-2011)," 2016 Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246910, African Association of Agricultural Economists (AAAE).
    17. Cheam Chai Li & Rosli Mahmood & Hussin Abdullah & Ong Soon Chuan, 2013. "Economic Growth, Tourism and Selected Macroeconomic Variables: A Triangular Causal Relationship in Malaysia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(2), pages 185-206, May.
    18. Ghazi Al-Assaf & Bashier Al-Abdulrazag, 2015. "The Validity of Export-Led Growth Hypothesis for Jordan: A Bounds Testing Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 199-211.
    19. Dipesh Karki & Hari Gopal Risal, 2019. "Asymmetric Impact of Oil Price on Inflation: Evidence from Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 31(1), pages 21-46, April.
    20. Hamdi, Helmi & Sbia, Rashid, 2013. "Dynamic relationships between oil revenues, government spending and economic growth in an oil-dependent economy," Economic Modelling, Elsevier, vol. 35(C), pages 118-125.

    More about this item

    Keywords

    (Global) Financial crisis; Household indebtedness; Cointegration; Vector Error Correction Model; South Africa;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:482-492. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.