Wits School of Governance (ETDs)

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Subject: search.filters.subject.Economic growth

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    Measuring the Fiscal Space for South Africa to Support Economic Growth and Development
    (University of the Witwatersrand, Johannesburg, 2023) Motsepe, Dikgang; Pillay, Pundy
    A number of developing and emerging market economies are faced with economic challenges that will require governments to access additional resources in order to invest in their economies. This thesis seeks to answer two research questions: 1) Should governments increase fiscal spending or government debt to finance the investment in the productive capacity of the economy in order to support and drive economic growth? and 2) Will an increase in government debt reduce investment and economic growth? Time series data of emerging market economies were used from the period 1994 – 2017 to answer the research questions. The key findings from the emerging market economies analysis confirm the positive relationship between government debt and economic growth across all the identified countries. The research findings indicate that in the identified emerging market economies, economic growth was high, showing an average growth of 5.0% when debt levels were below the 90% ratio. For debt levels above 90% of GDP, economic growth was significantly low, averaging 0.5%. The study’s findings indicate that the emerging market economies showed an average public sector investment to GDP ratio of 23.6% at debt levels below 90% of GDP. For debt above 90% of GDP, public sector investment to GDP was slightly lower, averaging 15.3%. The key findings with regard to measuring debt sustainability using the debt limit of 68% to 97% to GDP as calculated by Ganiko, Melgarejo and Montoro (2016), is that all the emerging market economies have significant room to increase their debt levels, with South Africa obtaining an average debt ratio of 41% for the study period. The findings from the emerging market economies support the themes in the literature review that government debt can influence economic growth through the total factor productivity channel. This will entail increased government investment in infrastructure development, industrial development, education, health and nutrition. The thesis acknowledges that increases in debt levels will increase interest rates, thus reducing the fiscal space available to government. The increase in interest rates calls for a more effective utilisation of monetary policy instead of fiscal policy via the reduction of interest rates and purchasing of zero interest rate government bonds. To achieve this, this study calls for the increased role of monetary policy to use interest rates to achieve debt sustainability and to support economic growth. The thesis provides the policy direction for both fiscal and monetary policy on how to increase the ‘fiscal space’ available to government to raise additional resources to support economic growth and development. The study’s contribution to knowledge is the call for a change to the orthodox paradigm and narrative that debt is bad for economic growth and to promote the policy direction of using debt and increased spending to get economies to full employment. The policy directive seeks to support the use of government debt to fund structural reforms, to recapitalise State-Owned Entities, to support industrial development as well as to promote infrastructure and human capital development, with the objective to support economic growth. The thesis argues that debt is not harmful if directed towards the productive side of the economy. The paradigm is embedded within the Keynesian approach which is supported by the new growth theory, functional finance and modern monetary theory on fiscal stimulus and how to finance it. The paradigm shift also talks to moving away from conventional monetary policy and recommends that central banks decrease interest rates, monetise government debt, and create sovereign money in order to support government debt sustainability. The paradigm shift also seeks to change the conventional policy direction of central banks of increasing money supply indirectly using the banking sector, to directly increase money supply through fiscal policy in order to support economic growth. This will give central banks the tool to direct and influence spending in the economy to meet the objectives of economic growth and job creation. As argued by various economists, this can be achieved through better policy coordination between monetary and fiscal policy, and improved institutional arrangements which will ensure that the creation of money is directed towards economic growth and job creation
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    An evaluation of the impact of transport infrastructure investment on the economic performance of South Africa
    (University of the Witwatersrand, Johannesburg, 2023) Magoiwa, Mathapelo Refilwe
    The decision to invest in economic infrastructure has far-reaching benefits for the South African economy, including innovation, economic growth, job creation, increased productivity, poverty alleviation, and an improvement in the standard of living. Therefore, the current study was conducted to determine the causal impact of selected critical economic variables for positive economic performance. The focus of the study was to evaluate how rail infrastructure investment impacts economic performance by assessing indicators such as economic growth, competitiveness, and unemployment rate using time series data from 1989 to 2018. As a quantitative study, the research employed correlational and causal- effect designs. Quantitative data was collected from credible secondary sources, including the websites and reports of Statistics South Africa, the South African Reserve Bank, the South African Revenue Services, and the World Economic Forum. Data analysis was conducted using descriptive analysis to identify the series of trends. In contrast, multivariate time series analysis generated inferential statistics to assess the direction and significance of the relationship between the variables. The study discovered that rail infrastructure investment, competitiveness, and economic growth are significant causal relationships to unemployment and were found to have substantial causal relationships to economic growth. The study findings also confirmed the single-direction hypothesis that rail infrastructure investment Granger causes economic growth, competitiveness, and employment. Bidirectional Granger causal effects were proven between competitiveness and economic growth, competitiveness and unemployment, and economic growth and unemployment.
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    An evaluation of the impact of transport infrastructure investment on the economic performance of South Africa
    (University of the Witwatersrand, Johannesburg, 2023) Mogoiwa, Mathapelo Refilwe
    The decision to invest in economic infrastructure has far-reaching benefits for the South African economy, including innovation, economic growth, job creation, increased productivity, poverty alleviation, and an improvement in the standard of living. Therefore, the current study was conducted to determine the causal impact of selected critical economic variables for positive economic performance. The focus of the study was to evaluate how rail infrastructure investment impacts economic performance by assessing indicators such as economic growth, competitiveness, and unemployment rate using time series data from 1989 to 2018. As a quantitative study, the research employed correlational and causal-effect designs. Quantitative data was collected from credible secondary sources, including the websites and reports of Statistics South Africa, the South African Reserve Bank, the South African Revenue Services, and the World Economic Forum. Data analysis was conducted using descriptive analysis to identify the series of trends In contrast, multivariate time series analysis generated inferential statistics to assess the direction and significance of the relationship between the variables. The study discovered that rail infrastructure investment, competitiveness, and economic growth are significant causal relationships to unemployment and were found to have substantial causal relationships to economic growth. The study findings also confirmed the single-direction hypothesis that rail infrastructure investment Granger causes economic growth, competitiveness, and employment. Bidirectional Granger causal effects were proven between competitiveness and economic growth, competitiveness and unemployment, and economic growth and unemployment
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    Foreign direct investment and economic growth in South Africa during the Covid-19 era
    (University of the Witwatersrand, Johannesburg, 2023-03) Chigeza, Tinotenda Lina; Pillay, Pundy
    Foreign Direct Investment (FDI) has been an essential source of sustainable and inclusive economic growth in South Africa. The need to attract FDI to boost economic growth, create employment opportunities, and supplement domestic expenditure is embedded in South Africa's past and present economic policies and frameworks. FDI can bring numerous benefits to various stakeholders including the host country government, which gains increased tax revenues; local businesses through partnerships and supply opportunities and local communities through improved infrastructure development and access to resources and services. FDI inflows to South Africa have been volatile over the past decade, with periods of significant inflows followed by downturns. The COVID-19 pandemic had a significant negative impact on the South African economy, leading to a decrease in FDI inflows and a contraction in GDP. This report provides an overview of FDI inflows in South Africa, its contribution to economic growth, and the impact of the COVID-19 pandemic on FDI in South Africa. The report reviews existing literature on the relationship between FDI and economic growth and discusses the factors influencing FDI inflows to South Africa. Furthermore, the report examines the measures implemented by the South African government to attract FDI. To truly promote inclusive and sustainable economic growth the South African government must address the challenges investors face, such as policy uncertainties, regulatory hurdles, and infrastructure limitations. Furthermore, the government must channel efforts into empowering local businesses, improving education and healthcare, and investing in infrastructure that benefits all citizens. While FDI can bring some advantages, it should not come at the cost of neglecting domestic initiatives that foster self-reliance and equitable development. The report recommends that the government should promote sectors with high potential for FDI, such as renewable energy, and ensure that FDI contributes to technology transfer and knowledge sharing with domestic industries. The COVID-19 pandemic has significantly impacted FDI, but the country has the potential to recover and attract long-term FDI in the future
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    Exploring the consequences of foreign aid on economic performance in sub-Saharan Africa
    (2022) Sawyerr, David Toluwani
    Economic growth is embedded in the DNA of governments with the objective of creating shared prosperity between the state and society. Fundamental principles of political economics dictate that capital is an essential aspect of creating economic growth. In Sub-Saharan Africa (SSA), capital has often been in the form of foreign aid provided by donors. These donors often attach governance conditions to their aid, to bolster the effectiveness of aid which, it is believed, will promote economic growth and development. One of the governance conditions is the participation of civil society in public discourse and the legislative process between the state and society. To facilitate the vertical accountability between the state and society, Civil Society Organisations (CSOs) were established globally, and particularly, in Sub-Saharan Africa, to represent the interests of society, as governments enact policies that should enable economic growth. This study investigates the conditioning effect of CSO consultation on the impact of foreign aid on economic growth. Furthermore, data from 41 SSA countries, between 1960 and 2018, for which data was available, are utilised. The main purpose of the study was to examine CSO’s effect on the nexus between aid and growth as the nexus itself has been well examined. Some studies have also investigated CSOs but this study presents novel arguments on the role of CSOs in the aid-growth discourse. The study used time series cross sectional analysis to determine the conditioning effect of CSO consultation on aid and economic growth by utilising over 1,700 observations. Contrary to general assumption by donors and policymakers, the results of the econometric analysis show that while foreign aid statistically contributes positively to economic growth in SSA, the conditioning effects of CSO consultation yielded a negative relationship between foreign aid and economic growth. The results were largely consistent with varying timeframes and country classifications.