Public and private investment and economic growth in South Africa:An empirical investigation

Abstract

This paper examines the relative impact of public and private investment on economic growth in South Africa during the period from 1970 to 2014. The paper also estimates the crowding effect between the two components of investment in the study country. Applying the recently developed Autoregressive Distributed Lag (ARDL)-bounds testing approach, the study finds that private investment has a positive impact on economic growth both in the long run and short run, while public investment has a negative effect on economic growth in the long run. Further, in the long run, gross public investment is found to crowd out private investment, while its infrastructural component is found to crowd in private investment. The results of the study also reveal that both gross public investment and infrastructural public investment crowd out private investment in the short run. Overall, the study finds private investment to be more important than public investment in the South African economic growth process and that the importance of infrastructural public investment in stimulating private investment in the long run cannot be over-emphasised