Review Article

Impacts of productive and recurrent public expenditure on economic growth in South Africa: An analysis using the autoregressive distributed lag – error correction model

Temitope L. Leshoro
Journal of Economic and Financial Sciences | Vol 13, No 1 | a563 | DOI: https://doi.org/10.4102/jef.v13i1.563 | © 2020 Temitope L. Leshoro | This work is licensed under CC Attribution 4.0
Submitted: 05 March 2020 | Published: 23 September 2020

About the author(s)

Temitope L. Leshoro, Department of Economics, School of Economic and Financial Sciences, College of Economic and Management Sciences, University of South Africa, Pretoria, South Africa


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Abstract

Orientation: The weak economic growth experienced by South Africa in the face of increased government spending is a concern.

Research purpose: Investigating different components of government spending helps to observe their relationships with economic growth and conclude whether or not government spending contributes to the lower economic growth.

Motivation for the study: Earlier studies in South Africa considered the effects of total government spending on economic growth; however, estimating this effect does not depict reality.

Research approach/design and method: This study used annual data from 1976 to 2017 to observe this relationship. The autoregressive distributed lag bounds-test approach to cointegration and the ARDL-based error correction method were adopted.

Main findings: The results showed that the two components of government spending positively affect economic growth in the short and long run. Government investment spending has a greater effect on economic growth in the long run than in the short run. The results showed that government consumption expenditure outweighs government investment expenditure, with the latter having lesser effect on economic growth.

Practical/managerial implications: This shows that increased government spending is not to be blamed for the slow growth in South Africa, supporting theory.

Contribution/value-add: Some studies did not disaggregate government spending into government investment and consumption spending in South Africa; and observed how each component affects economic growth; and other studies used econometric techniques that are different from the one used in the current study. This study therefore contributes to the ongoing discussion of the effect of government spending on economic growth.


Keywords

ARDL; consumption; economic growth; error correction method; disaggregated government spending; government expenditure; investment; South Africa

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