AN EMPIRICAL EXAMINATION OF SOUTH AFRICA'S PUBLIC DEBTECONOMIC GROWTH NEXUS: THE EMERGENCE OF CLASSICAL ECONOMISTS’ IDEOLOGY

Nkosinathi Emmanuel Monamodi () and Sibongile Goliath ()
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Nkosinathi Emmanuel Monamodi: University of the Free State, South Africa
Sibongile Goliath: University of the Free State, South Africa

Eurasian Journal of Economics and Finance, 2024, vol. 12, issue 2, 64-82

Abstract: This study uses the Vector Error Correction (VEC) technique and secondary quarterly time-series data to examine the nexus between public debt and economic growth in South Africa. The findings confirm classical economists' ideology, since this study found a long-term negative relationship between economic growth and both domestic and foreign debt, with economic growth and domestic debt being causally related. Inflation, economic growth, and fiscal deficits also have negative long-term relationships. The Impulse Response Functions (IRFs) show that shocks to inflation and domestic debt have a negative reaction on South Africa's economic growth rate, whereas shocks to gross fixed capital formation have a partially positive reaction. The shocks to South Africa's fiscal deficit and foreign debt have also had a mixed reaction on the country's economic growth rate. Variance decomposition analysis show a significant decline in South Africa's economic growth rate variance, with domestic debt and inflation increasing and the fiscal deficit declining marginally, while foreign debt declined marginally before increasing significantly. This study recommends that South Africa should enhance its fiscal management strategies, including financial repression, debt restructuring, cost cutting, and improved capital spending. Enhancing these strategies could boost the economy's productive capacity.

Keywords: South Africa; Public Debt; Economic Growth; VEC; IRFs; Variance Decomposition (search for similar items in EconPapers)
Date: 2024
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