South Africa: Identifying the Binding Constraint on Shared Growth¶

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Dube, Oeindrila; Hausmann, Ricardo; Rodrik, Dani (2007). South Africa: Identifying the Binding Constraint on Shared Growth.


Type	working paper
Scope	Post-1994 South African economy
Method	synthesis review
Period studied	1960–2006
Regions	South Africa
Themes	transition post apartheid, inequality poverty unemployment, labour markets wages, manufacturing industrial policy, unions strikes, education human capital, macro fiscal finance debt, comparative theory
Citation key	`dube2007`

Argument¶

The paper applies a growth-diagnostics approach to ask why South Africa's growth and employment have been disappointing since 1994 despite prudent macro policy and the end of sanctions. It tests five hypotheses: manufacturing profitability and an overvalued exchange rate, market failures in structural transformation, weak competition, labour regulation and skills shortage, and a post-apartheid labour supply shock combined with falling demand for low-skill labour. It leans on the CID South Africa Project reports and the product-space literature. It argues that the decline of mining and a peripheral position in the product space slowed structural transformation, and that low-skill unemployment is now largely structural. Apartheid appears mainly as a legacy: it limited skills supply and left a mining-dependent export structure.

Evidence and method¶

Mostly secondary and derived data: World Development Indicators, TIPS sectoral data, Labour Force Surveys (via Banerjee et al. 2006), World Bank Investment Climate Assessment and Doing Business data, product-space and export data from Hausmann and Klinger, Aghion-Braun-Fedderke markup estimates, and the Rama-Artecona cross-country panel. Most analysis is drawn from companion CID reports, not original estimation.

Findings¶

Post-1994 per-capita growth was weak despite scope for recovery after the sanctions-era decline. (p. 2)

In the decade since 1994, per-capita GDP has grown at an average rate of 1.2 per cent per annum.
Per-capita income fell sharply in the late apartheid period and had not recovered by 2006. (p. 2)

GDP per capita had fallen by 18.5 percent between 1981 and 1993
Real exports per capita have stagnated for decades, which the authors say dragged growth. (p. 6)

the real purchasing power of exports per capita remains at virtually the same level today as it achieved in 1960.
Unemployment is very high and has risen sharply since 1995. (p. 8)

The unemployment rate including discouraged workers is 40 percent, which is one of the highest anywhere in the world.
South Africa's structural-transformation predicament is attributed to its placement in the product space, since the country dummy is insignificant. (p. 22)

in the case of South Africa, there is no statistically significant tendency towards rapid or slow structural transformation, controlling for open forest.
Skilled labour is scarce partly because of apartheid-era education policy. (p. 28)

The wages of skilled workers are high in part because apartheid reduced the available supply of skilled workers
Demographic change in the labour force explains a substantial share of rising unemployment. (p. 32)

these demographic changes in the labor force alone can account for 31 percent of the increase in unemployment over 1995 to 2005.
Agriculture and mining shed their share of employment between 1970 and 2005, lowering demand for unskilled labour. (p. 33)

agriculture went from 33 percent of employment in 1970 to 11 percent in 2005, while mining declined from 9 to 4 percent over this period.
Unionisation expanded rapidly from the 1970s and the union premium has grown since 1995. (p. 35)

The percent of urban African workers who were unionized was 2.5 percent in 1975, 5.5 percent in 1980 and 19 percent in 1985 (Moll, 1993).
The labour market is close to steady state, so high unemployment is largely structural. (p. 39)

the evidence above indicates that most of the unemployment is in fact structural, rather than transitional.