Saving and investment in South Africa: 1994-2018

Abstract

South Africa has relatively low saving and investment rates compared to other upper middle-income countries. In addition, limited information is available on the magnitude of the correlation between these variables. The aim of the study is to determine the relationship between saving and investment in South Africa from 1994 to 2018. During this period, investment increased from 16.1% to 18.2% as a percentage of gross domestic product (GDP). At the same time, gross saving decreased from 17.7% to 14.4%. These diverging trends are concerning because it contradicts the expectations of economic theory. The study adopts an autoregressive distributed lag (ARDL) methodology to empirically test the long-run and short-run relationship between saving and investment. Additional control variables used include the interest rates, gross domestic product, and inflation. The results reveal a cointegrating relationship between all the variables. Furthermore, the results show a weak positive short-run effect that saving has on investment and no long-run effect. Recommendations include that policy measures should be directed towards curtailing inflation and increasing GDP, in order to support long term investment.