South Africa's Growth Revival After 1994

Abstract

This paper aims to describe, identify underlying factors and seek explanations for South Africa's economic recovery since 1994, as evidenced by trends in growth and investment. Compared with an international peer group, the initial conditions for a dramatic growth recovery were inauspicious in 1994. Growth accounting methods are applied to distinguish the relative contributions of capital, labour and total factor productivity (TFP) to the growth revival, employing a broader range of measures for the contribution of labour at the aggregate level than used previously, and data of a more recent vintage. Sectoral developments since 1997 are also analysed using growth accounting. We find that TFP growth accounts for 50% or more of South Africa's economic recovery, with the result mainly holding at the sectoral level too. Examination of empirical studies suggests that this result is primarily explained by openness to trade and capital flows, lower uncertainty and lower interest rates. Finally we consider policy implications.