The Interdependence between the Saving Rate and Technology across Regimes: Evidence from South Africa

24 March 2017
Publication Type: Policy Brief, Working Paper
JEL Code: C22, E21, N7, N77, O11, O33, O41, O47, O55

This paper hypothesises that the saving rate and technological progress are interdependently determined by a common exogenous source, so that an exogenous shock to the saving rate determines long-run growth transitions. In an open economy, the saving rate measures the quality of capital investment. The evidence shows that the down-break across South Africa’s ‘faster-growing’ regime (1952-1976) and ‘slower-growing’ regime (1977-2003) was caused by a negative exogenous shock to the saving rate that simultaneously led to a slowdown in the growth rate of technology through a structural decrease in the learning-by-doing parameter. The down-break results suggest that the saving rate is potentially an important policy variable to engineer a sustainable up-break. To assess this prediction with real data, the analysis looks at the post-2003 period (2004-2012). The results show that the up-break in the fixed investment rate was not matched by the saving rate, which implies that capital investment did not generate a faster rate of technological progress. The stylised facts suggest that a sustained increase in the total investment rate, which includes infrastructure investment, machinery and equipment investment and complementary foreign direct investment, may be an effective investment-led strategy to raise the economy’s growth rate on a sustainable basis.

Working paper 674
1 March 2017
Journal: Empirical Economics Journal
27 December 2017
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