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

Author(s)
Kevin S. Nell and Maria M. De Mello
Publication date
March 2017

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.

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