Policy Variables and Economic Growth in South Africa: Understanding the Nexus

Abstract

The South African economy witnessed profound transformation in the post-apartheid era. This transformation was
attributed to a lot of factors, particularly the various economic and development policies that accompanied the end of apartheid
and the political liberation of 1994. This paper investigates the impact of macroeconomic variables on economic growth in South
Africa; and identifies policy variables that have been significant in influencing economic growth in the country. The research
adopts a dynamic regression model within the framework of the neo-classical growth model, specifically the adjusted neoclassical
model as applied by Ghura & Hadjimichael (1996) and Calanitsis, Basu & Ghura to sub-Sahara Africa. The study found
that the political liberation of 1994, government investment, maintenance of fiscal discipline and stable exchange rate have a
positive impact on economic growth. On the other hand, private investment and terms of trade have negative impact on
economic growth. The paper recommends that the fiscal and monetary adopted in South Africa should be consolidated, while
the investment and trade policy should be reviewed to make it growth-inducing.