Sustainable Growth in South Africa

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Fedderke, Johannes W. (2010). Sustainable Growth in South Africa.

Type	other
Scope	Post-1994 South African economy
Method	mixed
Period studied	1960–2009
Regions	South Africa, BRICS comparators, Zimbabwe (neighbourhood effects), emerging-market consumption comparators
Themes	macro fiscal finance debt, manufacturing industrial policy, inequality poverty unemployment, transition post apartheid, labour markets wages, education human capital, comparative theory, methods data sources
Citation key	fedderke2010

Argument

A conference slide deck assessing whether South African growth after the transition is sustainable. It identifies investment uncertainty, weak institutions (property rights above all), the lack of competitive pressure in output markets, inflexible and mispriced labour markets, and persistent human capital and R&D constraints as the main obstacles. Two themes get extended treatment. The first is the unusually large, partly reintegrated financial system, where credit rationing persists. The second is whether an early, extensive social security system is affordable alongside infrastructure and human capital needs. The case rests on SARB time series, growth-accounting comparisons, consumption-correlation tests of financial integration, a Philippon (2008) model calibration and BRICS comparisons. The deck is largely descriptive and offers little narrative.

Evidence and method

South African Reserve Bank series (investment, savings, sectoral value added, employment, public capital stock, government expenditure), World Development Indicators for BRICS and income-group comparisons, and survey results from other studies (growth accounting, Aghion et al. on margins and productivity, risk measures from Fedderke and Pillay 2008, capital-flow regressions from Fedderke and Gwenhamo). Original regressions of domestic on world consumption growth for 1960-79 and 1980-99, and a calibration of Philippon's financial-sector model.

Findings

• Weak competition in output markets is tied to lower productivity growth, with industry-level estimates. (p. 14)

  a 1.6 percentage point decrease in productivity growth for UNIDO industry level data

• Firm-level data give a larger productivity cost of high margins. (p. 14)

  a 2.4 percentage point decrease in productivity growth for Worldscope firm level data,

• Deteriorating property rights shift the composition of foreign liabilities away from FDI, consistent with expropriable resource-based FDI. (p. 13)

  Worsening SA property rights lowers FDI share of total liabilities (expropriable natural resource based)

• Risk and uncertainty in the investment context are incompletely addressed in the literature. (p. 4)

  Risk and uncertainty in investment context incompletely dealt with:

• Human capital creation and R&D remain binding constraints on growth. (p. 52)

  Human capital creation and R&D activity continued constraint.

• In the Philippon model, efficiency gains have an ambiguous effect on financial-sector size, dependent on the sector's starting size. (p. 33)

  Where the financial sector is small, the demand effect dominates the supply effect;

• South Africa built an extensive social security system early in its development, raising fiscal sustainability questions given infrastructure needs. (p. 46)

  Development of extensive social security system relatively early in development trajectory.