Institutionalisation of derivatives trading and economic growth : evidence from South Africa

Abstract

Given ongoing advocacy for the institutionalisation of derivatives trading in sub- \nSaharan Africa (SSA) as a convenient way for enhancing regional countries’ growth \nprospects, this study examines the impact of derivatives trading on the economy of \nSouth Africa, with reference to output growth and growth volatility, in order to \nillustrate the likely developmental impact that derivatives markets could ensue for \nSSA countries. The literature of the study essentially explores the possible ways of \nderivatives markets’ influence on economic growth, alongside the infrastructural \nrequirements for ensuring well-functioning derivatives markets. While accounting for \nimplied capital market development, the GMM estimation could not evidence a \nsignificant relationship between the existing derivatives exchange and real GDP \ngrowth using South Africa’s data. Similarly, a causal relationship from SAFEX’s \ntrading volumes to GDP growth could not be inferred. However, the study shows \nevidence of the reducing effect of derivatives trading on growth volatility.

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