nach oben

Empirical Economics

Erschienen in:

27.12.2017

The interdependence between the saving rate and technology across regimes: evidence from South Africa

verfasst von: Kevin S. Nell, Maria M. De Mello

Erschienen in: Empirical Economics | Ausgabe 1/2019

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

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 setting, the saving rate measures the quality of investment-led policies. 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 shock to the saving rate that simultaneously led to a slowdown in the growth rate of technology via 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 what happened in 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 not only includes infrastructure investment, but also 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.

Vorheriger Artikel Resampling and bootstrap algorithms to assess the relevance of variables: applications to cross section entrepreneurship data

Nächster Artikel The cyclical behavior of R&D investment during the Great Recession

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Similarly, studies that use nonparametric production-frontier techniques also provide conflicting evidence on the importance of physical capital accumulation. For example, Kumar and Russell (2002) and Henderson and Russell (2005) find that labour productivity growth is primarily driven by physical and human capital accumulation. In contrast, Badunenko and Romero-Ávila (2013) emphasise the importance of financial development.

Pritchett’s (2000) influential study shows that, in contrast to industrialised countries, most developing economies exhibit shifts in growth rates that lead to distinct patterns and that these patterns remain unexplained in cross-country growth regressions. Motivated by Pritchett and earlier work by Easterly et al. (1993), several recent studies, such as Hausmann et al. (2005), Jerzmanowski (2006), Jones and Olken (2008), Rodrik (2000), and Kerekes (2012) have attempted to identify the key determinants of growth transitions.

Odhiambo (2007) finds no causal effect of the saving rate on per capita income over the period 1950–2005. Romm (2005), in contrast, shows that there is bidirectional causality between the private saving rate, private investment rate and per capita income over the period 1946–1992. Both studies, however, do not control for regime changes in the South African economy.

For a critical evaluation of the ASGI-SA programme, see Frankel et al. (2008).

The South African Reserve Bank’s real GDP per capita series dates back to 1946. However, due to excessive growth volatility in the immediate aftermath of World War II, we exclude the 3-year period 1946–1948 from the sample and only consider the period 1949–2012. In addition, the use of lagged and differenced variables in the econometric section further reduces the effective sample period to 1952–2012.

The Bai and Perron test is computed with EViews 9. We specify a trimming parameter of 15%, a breakpoint detection significance level of 5%, and allow the time trend in Eq. (1) to vary across regimes but not the constant.

For more on the Soweto uprising, see Ndlovu (2006).

The main reason why the Bai and Perron test in this study detects a break in 1976 and not in 1981 could be related to the way in which we specify our growth equation. The log-linear trend model in Eq. (1) may be less sensitive to outlying growth associated with the high dollar gold price when compared to Jones and Olken’s (2008) specification, in which per capita income growth is simply regressed on an intercept term.

FDI liabilities are defined as investment by foreigners in undertakings in South Africa in which they have at least 10% of the voting rights. FDI assets are investment by South African residents in undertakings abroad in which they have at least 10% of the voting rights (data source and definitions: South African Reserve Bank).

In his 1985 speech, the then president P.W. Botha alienated his Western allies by refusing to consider immediate and major changes to the country’s apartheid system.

FDI is included in gross domestic investment when it is used to finance fixed capital formation in the recipient economy. On the other hand, FDI may also be used to cover a deficit in the recipient company or to pay off a loan.

Some parts of the modelling framework in the next section draw on Nell (2015).

The elasticity of output with respect to capital is obtained by substituting Eq. (3) into Eq. (2): \(Y_t =K_t^{\alpha +\phi (1-\alpha )} B_t^{1-\alpha } L_t^{1-\alpha } \).

From the available sources, such as the South African Reserve Bank and Penn World Tables 8.1 (PWT 8.1), data on South Africa’s workforce are only available from 1960 and not the full sample period (1952–2012) covered in this paper. Output is therefore expressed in per capita rather than per worker terms.

Note from Eq. (4\(^\prime )\), holding everything else constant, that an increasing saving/investment rate (s) implies an accelerating growth rate of the capital stock. However, unit root tests that allow for structural breaks suggest that the growth rates of the capital stock and output (as well as their rates in per capita terms) are stationary during South Africa’s FGR. From these results it can be inferred that although the rising s generates faster rates of growth of capital and output than otherwise would have been the case with a constant s, these rates do not accelerate during the FGR because they are offset by a falling output-capital ratio (\(Y_{t}\)/\(K_{t})\) in equation (4\(^\prime )\). A falling output-capital ratio, in turn, implies diminishing returns to capital, which is consistent with our assumption that the learning-by-doing parameter (\(\phi \)) is less than one in the FGR. In contrast, a learning-by-doing parameter equal to one would give constant returns to capital. The proposition that 0 \({<}\phi {<}\) 1 in the FGR will be tested formally in Sect. 5.

For simplicity, it is assumed that the post-1976 down-break in the exogenous rate of technological progress occurred instantaneously. Theoretically, however, a negative exogenous shock to technological progress will generate dynamics via a falling output-capital ratio in Eq. (4\(^\prime )\), which then transmits itself into slower output per capita growth via the production function in Eq. (2). This implies that the observed growth rate of − 0.40% will capture not only the dynamics of a decelerating saving/investment rate for a given output-capital ratio in Eq. (4\(^\prime )\), but also those related to a slowdown in the exogenous rate of technological progress. For ease of exposition, but without loss of generality, it is assumed that the observed growth rate only reflects the transition dynamics related to a falling saving/investment rate.

In fact, following Aghion and Howitt’s (2007) proposition that the demand-creating effect of investment spending stimulates research and development (R&D) activities, residential investment may also be regarded as productive under certain conditions. In their model, investment-induced demand raises the returns to innovation. Harris and Arku (2007), on the other hand, emphasise the growth and development impact of residential investment via human capital accumulation.

The unit root tests include those developed by Dickey and Fuller (1979), Phillips and Perron (1988), Kwiatkowski et al. (1992), and Ng and Perron (2001). We also employed unit root tests that allow for an endogenous structural break in the spirit of Vogelsang and Perron (1998). All the unit root test results were calculated with the software programme, EViews 9, and are available on request.

The cointegration results are computed with Microfit 4.0 (Pesaran and Pesaran 1997).

Because the VECM controls for endogeneity bias, valid inferences on the long-run saving rate coefficient can still be drawn, even though there is bidirectional causality. Long-run feedback effects from per capita income to the saving rate in South Africa’s SGR may capture the desire by households to maintain their consumption levels in the face of falling incomes. Further note that the ecm coefficient of 1.13 in the SGR is not significantly different from unity based on a Wald test [\(\chi ^{2}\)(1) = 0.12]. This shows that the saving rate adjusts towards its long-run equilibrium value in the same year.

The breakpoint Chow tests are computed with PcGive version 14 (see Doornik and Hendry 2013).

Note that the per capita income growth rate of the error-correction model is calculated as \(\Delta \)ln(\(y_{p/c})_{t}\). Thus, the averages derived from the growth rate defined in this way will differ somewhat from those in Table 1, which are derived from the estimates of the log-linear trend model in Eq. (1).

The capital share of 0.40 is the average over the period 1952–2003. Over South Africa’s FGR and SGR the corresponding values are 0.40 and 0.41, respectively.

As an additional robustness check, we also examine what happens when population growth is included in the VECM specifications. The population growth rate variable turns out to be an insignificant determinant in all the specifications, which supports the zero restriction in Eqs. (8, 8\(^\prime )\). The zero restriction, of course, does not literally mean that population growth is zero. Rather, the insignificance of population growth suggests that its scale effects in the learning-by-doing model may operate in conjunction with other growth determinants that appear in the long-run growth rate component of \(g_{\mathrm{FGR}}^B \) in Eq. (8\(^\prime )\).

Recall from the discussion in Sect. 3.4 that one can only observe the rate of technological progress directly when the saving/investment rate is constant.

Of course, to fully utilise the productive potential of machinery and equipment investment would also require supportive investment in infrastructure (Fedderke and Bogetić 2009). This is illustrated in Fig. 7. The machinery and equipment investment rate already starts to increase since the mid-1990s, but the strong growth surge over the period 2004–2007 is only visible when the total fixed investment rate increases as well, suggesting that investment in structures is also important.

Aghion P, Howitt P (2007) Capital, innovation, and growth accounting. Oxf Rev Econ Policy 23(1):79–93CrossRef

Aghion P, Comin D, Howitt P, Tecu I (2009) When does domestic saving matter for economic growth? In: Harvard business school working papers, 09-080, Harvard Business School

Akaike H (1974) A new look at the statistical model identification. IEEE Trans Autom Control 19(6):716–723

Attanasio OP, Picci L, Scorcu AE (2000) Saving, growth, and investment: a macroeconomic analysis using a panel of countries. Rev Econ Stat 82(2):182–211CrossRef

Badunenko O, Romero-Ávila D (2013) Financial development and the sources of growth and development. Int Econ Rev 54(2):629–663CrossRef

Bai J, Perron P (1998) Estimating and testing linear models with multiple structural changes. Econometrica 66(1):47–78CrossRef

Bai J, Perron P (2003) Computation and analysis of multiple structural change models. J Appl Econ 18(1):1–22

Baier SL, Dwyer GP, Tamura R (2006) How important are capital and total factor productivity for economic growth? Econ Inq 44(1):23–49CrossRef

Berg A, Ostry JD, Zettelmeyer J (2012) What makes growth sustained? J Dev Econ 98(2):149–166CrossRef

Bond S, Leblebicioglu A, Schiantarelli F (2010) Capital accumulation and growth: a new look at the empirical evidence. J Appl Econom 25(7):1073–1099CrossRef

Borensztein E, De Gregorio J, Lee J-W (1998) How does foreign direct investment affect economic growth? J Int Econ 45(1):115–135CrossRef

Bosworth BP, Collins SM (2003) The empirics of growth: an update. Brookings Pap Econ Act 34(2):113–206CrossRef

Caselli F, Feyrer J (2007) The marginal product of capital. Q J Econ 122(2):535–568CrossRef

Coakley J, Kulasi F, Smith R (1996) Current account solvency and the Feldstein–Horioka puzzle. Econ J 106(436):620–27CrossRef

De Mello LR Jr (1997) Foreign direct investment in developing countries and growth: a selective survey. J Dev Stud 34(1):1–34CrossRef

De Mello LR, Jr (1999) Foreign direct investment-led growth: evidence from time series and panel data. Oxf Econ Pap 51(1):133–151CrossRef

Deaton A (1999) Saving and growth. In: Schmidt-Hebbel K, Servén L (eds) The economics of saving and growth: theory, evidence, and implications for policy. Cambridge University Press, Cambridge, pp 33–70CrossRef

DeLong JB, Summers LH (1992) Equipment investment and growth: how strong is the nexus? Brookings Pap Econ Act 23(2):157–199CrossRef

DeLong JB, Summers LH (1993) How strongly do developing economies benefit from equipment investment? J Monet Econ 32(3):395–415CrossRef

Dickey DA, Fuller WA (1979) Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc 74(366):427–431CrossRef

Doornik JA, Hendry DF (2013) Empirical econometric modelling, PcGive 14, vol 1. Timberlake Consultants, London

Du Plessis S, Smit B (2007) South Africa’s growth revival after 1994. J Afr Econ 16(5):668–704CrossRef

Easterly W, Levine R (2001) It’s not factor accumulation: stylized facts and growth models. World Bank Econ Rev 15(2):177–219CrossRef

Easterly W, Kremer M, Pritchett L, Summers LH (1993) Good policy or good luck? Country growth performance and temporary shocks. J Monet Econ 32(3):459–483CrossRef

Fedderke JW, Liu W (2002) Modelling the determinants of capital flows and capital flight: with an application to South African data from 1960 to 1995. Econ Model 19(3):419–444CrossRef

Fedderke JW, Romm AT (2006) Growth impact and determinants of foreign direct investment into South Africa, 1956–2003. Econ Model 23(5):738–760CrossRef

Fedderke JW, Bogetić Z (2009) Infrastructure and growth in South Africa: direct and indirect productivity impacts of 19 infrastructure measures. World Dev 37(9):1522–1539CrossRef

Frankel J, Smit B, Sturzenegger F (2008) South Africa: macroeconomic challenges after a decade of success. Econ Transit 16(4):639–677CrossRef

Garratt A, Lee K, Pesaran MH, Shin Y (2000) A structural cointegrating VAR approach to macroeconometric modelling. In: Holly S, Weale M (eds) Econometric modelling: techniques and applications. Cambridge University Press, Cambridge, pp 94–146

Gollin D (2014) The Lewis model: a 60-year retrospective. J Econ Perspect 28(3):71–88CrossRef

Granger CWJ (1988) Some recent developments in a concept of causality. J Econom 39(1–2):199–211CrossRef

Gwenhamo F, Fedderke JW (2013) The composition of foreign capital stocks in South Africa: the role of institutions, domestic risk and neighbourhood effects. Econ Model 35:763–770CrossRef

Harding T, Javorcik BS (2011) Roll out the red carpet and they will come: investment promotion and FDI inflows. Econ J 121(557):1445–1476CrossRef

Harris R, Arku G (2007) The rise of housing in international development: the effects of economic discourse. Habitat Int 31(1):1–11CrossRef

Hausmann R, Pritchett L, Rodrik D (2005) Growth accelerations. J Econ Growth 10(4):303–329CrossRef

Helpman E (2004) The mystery of economic growth. Harvard University Press, Cambridge

Henderson DJ, Russell R (2005) Human capital and convergence: a production-frontier approach. Int Econ Rev 46(4):1167–1205CrossRef

Herrerias M, Orts V (2012) Equipment investment, output and productivity in China. Empir Econ 42(1):181–207CrossRef

Hsieh C-T, Klenow PJ (2010) Development accounting. Am Econ J Macroecon 2(1):2017–223CrossRef

Jerzmanowski M (2006) Empirics of hills, plateaus, mountains and plains: a Markov-switching approach to growth. J Dev Econ 81(2):357–385CrossRef

Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12(2–3):231–54CrossRef

Johansen S (1992) Cointegration in partial systems and the efficiency of single equation analysis. J Econom 52(3):389–402CrossRef

Johansen S, Juselius K (1992) Some structural hypotheses in a multivariate cointegration analysis of purchasing power parity and uncovered interest parity for the UK. J Econom 53(1–3):211–44CrossRef

Jones BF, Olken BA (2008) The anatomy of start–stop growth. Rev Econ Stat 90(3):582–587CrossRef

Kaldor N (1955–56) Alternative theories of distribution. Rev Econ Stud 23(1):83–100

Kaldor N (1957) A model of economic growth. Econ J 67(268):591–624CrossRef

Kaldor N (1961) Capital accumulation and economic growth. In: Lutz F (ed) The theory of capital. Macmillan, London

Kar S, Pritchett L, Raihan S, Sen K (2013) Looking for a break: identifying transitions in growth regimes. J Macroecon 38(PB):151–166CrossRef

Kerekes M (2012) Growth miracles and failures in a Markov switching classification model of growth. J Dev Econ 98(2):167–177CrossRef

King RG, Levine R (1994) Capital fundamentalism, economic development, and economic growth. In: Carnegie–Rochester conference series on public policy, vol 40, no 1, pp. 259–292

Kumar S, Russell R (2002) Technological change, technological catch-up, and capital deepening: relative contributions to growth and convergence. Am Econ Rev 92(3):527–548CrossRef

Kwiatkowski D, Phillips PCB, Schmidt P, Shin Y (1992) Testing the null hypothesis of stationarity against the alternative of a unit root: how sure are we that economic time series have a unit root? J Econom 54(1–3):159–178CrossRef

Lodge T (2011) Sharpeville: an apartheid massacre and its consequences. Oxford University Press, Oxford

Mankiw NG, Romer D, Weil DN (1992) A contribution to the empirics of economic growth. Q J Econ 107(1):407–438CrossRef

Mohr P, Rogers C (1995) Macroeconomics. Lexicon, Johannesburg

Ndlovu SM (2006) The Soweto uprising. In: South African Democracy Education Trust (ed) The road to democracy in South Africa: volume 2 (1970–1980). UNISA Press, Pretoria

Nell KS (2015) The complementary nature between technological progress and capital accumulation in India’s long-run growth transitions. Metroeconomica 64(4):565–605CrossRef

Nell KS, Delfim Santos L (2008) The Feldstein–Horioka hypothesis versus the long-run solvency constraint model: a critical assessment. Econ Lett 98(1):66–70CrossRef

Ng S, Perron P (2001) Lag length selection and the construction of unit root tests with good size and power. Econometrica 69(6):1519–1554CrossRef

Odhiambo NM (2007) Saving and economic growth in South Africa: a multivariate causality test. J Policy Model 31(5):708–718CrossRef

Pesaran MH, Pesaran B (1997) Working with microfit 4.0: interactive econometric analysis. Oxford University Press, Oxford

Pesaran MH, Shin Y (2002) Long-run structural modelling. Econom Rev 21(1):49–87CrossRef

Pesaran MH, Shin Y, Smith R (2000) Structural analysis of vector error correction models with exogenous I(1) variables. J Econom 97(2):293–344CrossRef

Phillips PCB, Perron P (1988) Testing for a unit root in time series regression. Biometrika 75(2):335–346CrossRef

Pritchett L (2000) Understanding patterns of economic growth: searching for hills among plateaus, mountains, and plains. World Bank Econ Rev 14(2):221–250CrossRef

Rodrik D (2000) Saving transitions. World Bank Econ Rev 14(3):481–507CrossRef

Romm AT (2005) The relationship between saving and growth in South Africa: a time series analysis. South Afr J Econ 73(2):171–189CrossRef

Schwarz G (1978) Estimating the dimensions of a model. Ann Stat 6(2):461–464CrossRef

Smit B, Grobler C, Nel C (2014) Sudden stops and current account reversals: potential macroeconomic consequences for South Africa. South Afr J Econ 82(4):616–627CrossRef

Solow RM (1956) A contribution to the theory of economic growth. Q J Econ 70(1):65–94CrossRef

Sørensen PB, Whitta Jacobsen HJ (2010) Introducing advanced macroeconomics: growth and business cycles, 2nd edn. McGraw-Hill, London

Tang CF, Tan BW (2014) A revalidation of the savings-growth nexus in Pakistan. Econ Model 36(C):370–377CrossRef

Vogelsang TJ, Perron P (1998) Additional test for a unit root allowing for a break in the trend function at an unknown time. Int Econ Rev 39(4):1073–1100CrossRef

Titel: The interdependence between the saving rate and technology across regimes: evidence from South Africa
verfasst von: Kevin S. Nell
Maria M. De Mello
Publikationsdatum: 27.12.2017
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 1/2019
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-017-1354-y

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 1/2019

The social costs of gun ownership: a reply to Hayo, Neumeier, and Westphal

When does specification or aggregation across consumers matter for economic impact analysis models? An investigation into demand systems

The cyclical behavior of R&D investment during the Great Recession

Effects of the agricultural commodity and the food price volatility on economic integration: an empirical assessment

Does apprenticeship improve job opportunities? A regression discontinuity approach

The social costs of gun ownership revisited