The impact of public debt on economic growth in South Africa
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Date
2024-11
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Faculty of Management and Commerce
Abstract
This study investigates the impact of public debt on economic growth in South Africa between 1990 -2022. The study employed the ARDL model to estimate the long run and ECM for the short run. After performing an ARDL bounds test, co-integration was determined. The long-run model was estimated, and the results showed that government debt and investment negatively impact economic growth and the impacts are statistically significant. On the other hand, government expenditure showed a positive coefficient, it lacked statistical significance, suggesting that its impact on GDP growth may not be robust. The dummy variable representing structural breaks, particularly the transition to democracy in 1994. In the short run, public debt and investment has an impact on economic growth and the impact is negative. Government expenditure is the only variable that has short run positive impact on economic growth. Several policy implications emerged from the empirical results. In South Africa investments are directed towards unproductive sectors or are subject to high levels of inefficiency and corruption. The economic instability can lead to underutilization of capital and resources, further dampening the growth effects of investment. Therefore, it is essential for policymakers to focus not only on the quantity of investment but also on improving its quality and ensuring a stable economic environment. In this study, the non-significant results might indicate inefficiencies or the presence of offsetting negative factors, such as high levels of corruption or misallocation of resources. Hence the government should reduce corruption by effectively implementing the rule of law.
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Keywords
Economic development, Debts, Public