The Role of Institutional Structure in Mediating the Impact of the Financial Crisis on the South African Business Cycle

Abstract

In a highly integrated world, an emerging economy such as South Africa cannot insulate itself from crisis. It can, however, strengthen those forces that mitigate external shocks. We develop an analytical framework to study the transmission mechanisms of a global crisis to an individual economy and then analyse how the South African economy was affected by the Lehman crisis. We consider both pure economic aspects, such as trade, employment, and fiscal policies, as well as governance aspects, among them economic freedom and corruption. We show specifically how structural factors mediate the intensity of business cycle fluctuations following a crisis. This is followed by an assessment of South Africa’s readiness to manage a potential future crisis.