| Abstract: |
This paper conducted pairwise Granger causality tests between economic growth,
economic infrastructure investment, and employment in South Africa for the
period 1960-2009 using bivariate vector autoregression (VAR) model with and
without a structural break. The result indicates that there is a strong
causality between economic infrastructure investment and GDP growth that runs
in both directions implying that economic infrastructure investment drives the
long term economic growth in South Africa while improved growth feeds back
into more public infrastructure investments. We also found a strong two way
causal relationship between economic infrastructure investment and public
sector employment reflecting the role of such investments on job creation
through construction, maintenance and the actual operational activities, while
increased employment could in turn contribute to further infrastructure
investments indirectly through higher aggregate demand and economic growth.
Further, there is a strong unidirectional causal link between economic growth
and public sector employment that runs from the former to the latter; and a
strong one way causal link between private sector employment and economic
growth that runs from the former to the latter. Economic growth appears to be
one of the main drivers of public sector jobs but not the private sector ones
and that while the private sector employment remains one of the key drivers of
growth, the latter does not seem to have translated into more jobs, reflecting
the much criticized scenario of jobless growth in the economy. The pairwise
causality test results were assessed further using autoregressive distributed
lag (ARDL) or bounds testing approach for cointegration to assess both the
short-and long-run relationships among the variables in question. The bounds
test results indicate the presence of steady-state long-run equilibrium
relationship between economic growth, economic infrastructure investment,
formal employment, and exports and imports of goods and services providing a
theoretical foundation for the empirical results of the pairwise Granger
causality tests. |