The welfare effects of a boycott on investment in South African securities¶
R A Brealey; E C Kaplanis (1989). The welfare effects of a boycott on investment in South African securities. Investment Analysts Journal (Summer 1989/90). Investment Analysts Society of Southern Africa.
| Type | journal article |
| Scope | Wider apartheid literature |
| Method | theoretical or conceptual |
| Period studied | 1980s–1989 |
| Regions | South Africa, United States, international capital markets |
| Themes | sanctions divestment, comparative theory |
| Citation key | brealey1989 |
Argument¶
The paper uses portfolio theory, with the algebra omitted, to ask what a boycott of South African securities does to the welfare of boycotters and boycotted. Boycotters lose because their portfolios are less diversified and because they must sell at a relative price cut. South African investors suffer reduced diversification but are paid a price discount to absorb the shares, which more than compensates them. The direct effect is therefore to raise the welfare of South African investors, so the boycott is unlikely to coerce policy change. It can still work as a costly signal of the boycotter's opposition. The authors say the analysis covers securities boycotts only, not direct investment or trade sanctions.
Evidence and method¶
No empirical data beyond brief illustrative figures, such as the share of S&P market capitalisation exposed to South Africa. The argument is a theoretical equilibrium analysis of international portfolio choice, with a more technical companion paper on exchange controls cited.
Place in the debates¶
- Sanctions effectiveness (do investment boycotts hurt the target?) (see Sanctions, disinvestment and the anti-apartheid movement). Sceptical. The direct welfare effect on South African investors is positive, so a securities boycott is unlikely to impose hardship that pressures the government.
- Motives for boycott: coercion vs signalling (see Sanctions, disinvestment and the anti-apartheid movement). Rejects coercion as a plausible mechanism but accepts that a boycott is a credible, costly signal of opposition.
Findings¶
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The authors flag the narrow scope of the conclusions. (p. 2)
We should stress the limited nature of these conclusions.
Evidence ledger¶
Inference¶
Quantification: Illustrative figures.
Theoretical argument based on portfolio theory (CAPM-type international diversification and equilibrium relative price adjustment). The authors state the algebra is omitted and the results are derived verbally from a separate formal model. The two statistics on US market exposure are illustrative only.
The author's caveats¶
The authors stress the limited nature of their conclusions: they cover only securities boycotts, not direct investment or trade sanctions, and exclude indirect effects such as firms unbundling South African assets and the cost of capital. They state it is difficult to judge how important the diversification effects are in practice, and they assume that risk-adjusted expected returns on the world market portfolio are unaffected.
Gaps in the evidence¶
The paper has no empirical test of price effects, so it needs event-study or price-discount evidence on South African and exposed US stocks around divestment campaigns, and data on the actual size of divestment flows. Evidence on South African investors' holdings, exchange controls and the financial rand would test the assumption that they could freely hold the world portfolio. JSE and international price data, plus US institutional divestment records, existed at the time and are available now.
Replicability: Not applicable.