Board of Governors of the Federal Reserve System
International Finance Discussion Papers
Number 839
September 2005
Effects of Financial Autarky and Integration: The Case of the
South Africa Embargo
Brahima Coulibaly*
September 2005
Abstract
The economic embargo imposed on South Africa between 1985 and 1993 brought the country
closer to financial isolation. This paper interprets the imposition and removal of the embargo as
financial autarky and financial integration ‘natural experiments’, and studies the effects on the
economy. The aggregate data indicate a decrease in the levels and growth rates of investment,
capital, and output during the embargo period relative to the pre-embargo and post-embargo
periods. To further rationalize the findings in the aggregate data, we calibrate a neoclassical
growth model to the South African economy. During the transition to steady-state, we model the
embargo by limiting the country’s ability to borrow for a period corresponding to the duration of
the embargo. The derived dynamics for investment, capital, and output support the view of a
positive (negative) link between financial integration (isolation) and economic growth.
Between 1985 and 1993 the world imposed economic sanctions on South Africa to put pressure
on its apartheid regime (a political system that granted different rights to citizens based on race).
At that time, foreign investors withdrew their capital from the country and stopped making new
investments in and loans to South Africa. As a result, net capital inflows declined drastically. In
this paper, we exploit the unique reversion toward financial autarky during the embargo period and
reintegration into the world economy in the post-embargo period to study the economic benefits of
financial integration for an emerging economy.
and so on..........
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Man, I hate quoting Noam Chomsky
The United States and the "Challenge of Relativity"
Noam Chomsky
[snip]
As an outgrowth of the popular movements of the 1960s, Congress imposed human rights conditions on military aid and trade privileges, compelling the White House to find various modes of evasion. These became farcical during the Reagan years, with regular solemn pronouncements about the "improvements" in the behavior of client murderers and torturers that elicited much derision from human rights organizations, but no policy change. The most extreme examples, hardly worth discussing, involved U.S. clients in Central America. There are other less egregious cases, beginning with the top recipient of U.S. aid (Israel) and running down the list. Israel's "systematic torture and ill-treatment of Palestinians under interrogation" has repeatedly been condemned by Human Rights Watch and Amnesty International (along with apparent extrajudicial execution; legalization of torture; imprisonment without charge, for as long as nine years for some of those kidnapped in Lebanon; and other abuses). U.S. aid to Israel is therefore illegal under U.S. law, HRW and AI have insistently pointed out (as is aid to Egypt, Turkey, Colombia and other high-ranking recipients). In the most recent of its annual reports on U.S. military aid and human rights, AI observes -- once again -- that "Throughout the world, on any given day, a man, woman or child is likely to be displaced, tortured, killed or `disappeared,' at the hands of governments or armed political groups. More often than not, the United States shares the blame," a "practice that "makes a mockery of [congressional legislation] linking the granting of US security assistance to a country's human rights record." Such contentions elicit no interest or response in view of the "general tacit agreement" that laws are binding only when power interests so dictate.
The strongest popular support for sanctions was with regard to South Africa. After much delay and evasion, sanctions were finally imposed in 1985 and (over Reagan's veto) in 1986, but the Administration "created glaring loopholes" that permitted U.S. exports to increase by 40% between 1985 and 1988 while U.S. imports increased 14% in 1988 after an initial decline. "The major economic impact was reduced investment capital and fewer foreign firms."
[snip]
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Bottom line, South Africa got embargoed for apartheid, and there went the PMP.
And the Cheetah brass cased 7.62x39 from Zimbabwe.......