Contents of the volume

2016, Volume 69 - Issue 4

ISSN: 2499-8265
RSS feed citation: At RePEc
Publication date: 13 October 2016


Miroslav N. Jovanovic

Read the article


Matti Viren

Read the article


David Mayes, Maritta Paloviita, Matti Viren

Read the article


Imad Moosa

Read the article


Yu Hsing

Read the article


Safa Al-Mohana, Abdulnasser Hatemi-J

Read the article


Themba Chirwa, Nicholas Odhiambo

Read the article

Genoa Chamber of Commerce
Economia Internazionale / International Economics

< Back

Corresponding author

Themba CHIRWA, Department of Economics, University of South Africa, Pretoria, South Africa


Nicholas ODHIAMBO, Department of Economics, University of South Africa, Pretoria, South Africa

What Drives Long-Run Economic Growth? Empirical Evidence from South Africa




In this study, we examine empirically the key determinants of economic growth in South Africa – using the ARDL bounds-testing approach. The paper has been motivated by the low and dwindling economic growth that South Africa has been experiencing in recent years. Our study finds that the key macroeconomic determinants that are significantly associated with economic growth in South Africa include, amongst others, investment, human capital development, population growth, government consumption, inflation, and international trade. The study finds that in the short-run, investment is positively associated with economic growth, while population growth and government consumption are negatively associated with economic growth. However, in the long-run, the study finds investment, human capital development and international trade to be positively associated with economic growth, while population growth, government consumption, and inflation are negatively associated with economic growth. These results have important policy implications. They imply that economic strategies pursued in the short-run should include policies that attract investment, and reduce population growth and government consumption. However, long-run strategies to be adopted should include those that attract long-term investments, improve the quality of education, as well as trade liberalization; and ensure a reduction in population growth, government consumption and inflation.

JEL classification

F43, N17, O47, O55


South Africa, Autoregressive Distributed Lag Model, Economic Growth


  1. Introduction
  2. The Sources of Growth in South Africa
  3. Empirical Model Specification and Estimation Techniques
  4. Empirical Estimation Results
  5. Conclusion


Acikgoz, S. and M. Mert (2014), “Sources of Growth Revisited: The Importance of the Nature of Technological Progress”, Journal of Applied Economics, 17(1), 31-62.
Anaman, K.A. (2004), “Determinants of Economic Growth in Brunei Darussalam”, Journal of Asian Economics, 15(4), 777-796.
Anyanwu, J.C. (2014), “Factors Affecting Economic Growth in Africa: Are there any Lessons from China?”, African Development Review, 26(3), 468-493.
Barro, R.J. (1990), “Government Spending in a Simple Model of Endogenous Growth”, Journal of Political Economy, 98(5), S103-S125.
Barro, R.J. (1999), “Determinants of Economic Growth: Implications of the Global Evidence for Chile”, Cuadernos de Economía, 36(107), 443-478.
Barro, R.J. (2003), “Determinants of Economic Growth in a Panel of Countries”, Annals of Economics and Finance, 4(2), 231-274.
Barro, R.J. and X. Sala-i-Martin (1992), “Public Finance in Models of Economic Growth”, The Review of Economic Studies, 59(4), 645-661.
Barro, R.J. and X. Sala-i-Martin (2004), Economic Growth, McGraw-Hill: New York.
Bayoumi, T. (1990), “Output, Employment and Financial Sanctions in South Africa”, IMF Working Paper WP/90/113, European Department.
Bhaskara-Rao, R. and G. Hassan (2011), “Determinants of the Long-Run Growth Rate of Bangladesh”, Applied Economics Letters, 18(7), 655-658.
Bleaney, M., N. Gemmell and R. Kneller (2001), “Testing the Endogenous Growth Model: Public Expenditure, Taxation, and Growth over the Long-run”, Canadian Journal of Economics, 34(1), 36-57.
Bruno, M. and W. Easterly (1998), “Inflation Crises and Long-Run Growth”, Journal of Monetary Economics, 41(1), 3-26.
Burdekin, R.C.K., A.T. Denzau, M.W. Keil, T. Sitthiyot and T.D. Willett (2004), “When does Inflation Hurt Economic Growth? Different Nonlinearities for Different Economies”, Journal of Macroeconomics, 26(3), 519-532.
Burnham, K.P. and D.R. Anderson (2004), “Multimodel Inference: Understanding the AIC and BIC in Model Selection”, Sociological Methods and Research, 33(2), 261-304.
Burnside, C. and D. Dollar (2000), “Aid, Policies, and Growth”, The American Economic Review, 90(4), 847-868.
Chang, C. and M. Mendy (2012), “Economic Growth and Openness in Africa: What is the Empirical Relationship?” Applied Economics Letters, 19(18), 1903-1907.
Checherita-Westphal, C. and P. Rother (2012), “The Impact of High Government Debt on Economic Growth and its Channels: An Empirical Investigation for the Euro Area”, European Economic Review, 56(7), 1392-1405.
Chen, B. and Y. Feng (2000), “Determinants of Economic Growth in China: Private Enterprise, Education, and Openness”, China Economic Review, 11(1), 1-15.
Collier, P. and B. Goderis (2012), “Commodity Prices and Growth: An Empirical Investigation”, European Economic Review, 56(6), 1241-1260.
Department of Finance (1996), Growth, Employment and Redistribution. A Macroeconomic Strategy, Republic of South Africa: Pretoria.
Dickey, D.A. and W.A. Fuller (1979), “Distribution of the Estimators for Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74(366), 427-431.
Dollar, D. (1992), “Outward-Oriented Developing Economies Really do Grow more Rapidly: Evidence Form 95 LDCs, 1976-1985”, Economic Development and Cultural Change, 40(3), 523-544.
Easterly, W.R. and D.L. Wetzel (1989), “Policy Determinants of Growth: Survey of Theory and Evidence”, World Bank Policy, Planning and Research Working Papers Series No. 343.
Elliott, G., T.J. Rothenberg and J.H. Stock (1996), “Efficient Tests for an Autoregressive Unit Root”, Econometrica, 64(4), 813-836.
Fedderke, J.W. (2005), “South Africa: Sources and Constraints of Long-Term Growth 1970-2000”, World Bank Working Paper Series No. 94.
Fischer, S. (1992), “Macroeconomic Stability and Growth”, Cuadernos de Economía, 29(87), 171-186.
Fischer, S. (1993), “The Role of Macroeconomic Factors in Growth”, Journal of Monetary Economics, 32(3), 485-512.
Frankel, M. (1962), “The Production Function in Allocation and Growth: A Synthesis”, The American Economic Review, 52(5), 996-1022.
Freire-Seren, M.J. (2002), “On the Relationship between Human Capital Accumulation and Economic Growth”, Applied Economic Letters, 9(12), 805-808.
Gylfason, T. and T.T. Herbertsson (2001), “Does Inflation Matter for Growth?” Japan and the World Economy, 13(4), 405-428.
Hamilton, J.D. and J. Monteagudo (1998), “The Augmented Solow Model and the Productivity Slowdown”, Journal of Monetary Economics, 42(3), 495-509.
Hirnissa, M., M. Habibullah  and A. Baharom (2009), “Military Expenditure and Economic Growth in 5 Asian Countries”, Journal of Sustainable Development, 2(2), 192-202.
Islam, N. (1995), “Growth Empirics: A Panel Data Approach”, The Quarterly Journal of Economics, 110(4), 1127-1170.
Kearney, M. and A. Odusola (2011), Assessing Development Strategies to achieve the MDGs in the Republic of South Africa, United Nations Department for Social and Economic Affairs, March.
Knight, M., N. Loayza and D. Villanueva (1993), “Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach”, Staff Papers (International Monetary Fund), 40(3), 512-541.
Kreutz, J. (2005), Hard Measures by a Soft Power? Sanctions Policy of the European Union 1981-2004, Bonn International Centre for Conversion.
Levy, P.I. (1999), “Sanctions on South Africa: What Did They Do?” Center Discussion Paper No. 796, Yale University: Connecticut.
Lowenberg, A.D. (1989), “An Economic Theory of Apartheid”, Economic Inquiry, 27(1), 57-74.
Lowenberg, A.D. (1997), “Why South Africa’s Apartheid Economy Failed”, Contemporary Economic Policy, 15(3), 62-72.
Lucas, R.E. Jr. (1988), “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22(1), 3-42.
Mankiw, N.G., D. Romer and D.N. Weil (1992), “A Contribution to the Empirics of Economic Growth”, The Quarterly Journal of Economics, 107(2), 407-437.
McMillan, S.M. (1992), “Economic Growth and Military Spending in South Africa”, International Interactions, 18(1), 35-50.
Most, S. J. and H. Vann de Berg (1996), “Growth in Africa: Does The Source of Investment Financing Matter?”,  Applied Economics, 28(11), 1427-1433.
Narayan, P.K. (2005), “The Savings and Investment Nexus from China: Evidence from Cointegration Tests”,  Applied Economics, 37(17), 1979-1990.
National Planning Commission (2012), National Development Plan 2030: Our Future – Make it Work, Department of the Presidency: Sherino Printers.
Odhiambo, N.M. (2013), “Financial Systems and Economic Growth in South Africa: A Dynamic Complementarity Test”, International Review of Applied Economics, 28(1), 83-101.
Perron, P. (1990), “Testing for a Unit-root in a Time Series with a Changing Mean”, Journal of Business and Economic Statistics, 8(2), 153-162.
Pesaran, M. and Y. Shin (1999), An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis, in: S. Strom (Ed.), “Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium”, Cambridge University Press: Cambridge.
Pesaran, M. H., Y. Shin and R. J. Smith (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, 16(3), 289-326.
Radelet, S., J. Sachs and J. Lee (2001), “The Determinants and Prospects of Economic Growth in Asia”, International Economic Journal, 15(3), 1-29.
Republic of South Africa (1994), The Reconstruction and Development Programme, The Presidency of South Africa: Pretoria.
Republic of South Africa (1996), Growth, Employment and Redistribution. A Macroeconomic Strategy, Department of Finance: Pretoria.
Rodrik, D. (2008), “The Real Exchange Rate and Economic Growth”, Brookings Papers on Economic Activity, 39(2), 365-439.
Romer, P.M. (1986), “Increasing Returns and Long-Run Growth”, Journal of Political Economy, 94(5), 1002-1037.
Sachs, J. D. and A. M. Warner (1997), “Fundamental Sources of Long-Run Growth”, The American Economic Review, 87(2), 184-188.
Solow, R. M. (1956), A Contribution to the Theory of Economic Growth”, Quarterly Journal of Economics, 70(1), 65-94.
The Presidency of South Africa (2010), The New Growth Path, Republic of South Africa: Pretoria.
UNESCO (2015), Education (full dataset), UNESCO Institute of Statistics: Montreal.
Vieira, F.V., M. Holland, C.G. da Silva and L.C. Bottecchia (2013), “Growth and Exchange Rate Volatility: A Panel Data Analysis”, Applied Economics, 45(26), 3733-3741.
World Bank (1990), Adjustment Lending Policies for Sustainable Growth, Policy and Research Series, World Bank: Washington, DC.
World Bank (2015), World Development Indicators 2015, World Bank: Washington, DC.
Yang, Y. (2005), “Can the Strengths of AIC and BIC be Shared? A Conflict between Model Identification and Regression Estimation”, Biometrika, 92(4), 937-950.