What drives long-run economic growth? Empirical evidence from South Africa

Abstract

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.