The effect of fiscal policy on economic growth in South Africa: a nonlinear ARDL model analysis

Naser Yenus Nuru and Hayelom Yrgaw Gereziher

Journal of Economic and Administrative Sciences, 2021, vol. 38, issue 2, 229-245

Abstract: Purpose - The main purpose of this study is to investigate the short-run and long-run asymmetric effects of fiscal policy, namely government spending on economic growth over the sample period 2004Q2 up to 2018Q1 for the South African economy. Design/methodology/approach - Nonlinear autoregressive distributive lag model is used to examine the short-run and long-run asymmetric effects of government spending on economic growth. Findings - The results exhibit the negative change effect of government spending is found to be greater than the positive change effect of government spending on economic growth. Real effective exchange rate is found to have a positive and significant effect on economic growth both in the short run and long run. Whereas, inflation rate affects economic growth negatively and significantly in the short run and long run. Originality/value - Previous empirical studies on the effect of fiscal policy on growth, at least for South Africa, consider only the asymmetric short-run effect while this paper extends the literature by incorporating asymmetries into the long-run effect. It provides a detailed analysis to the recent controversies on the effects of fiscal policy on growth.

Keywords: Economic growth; Fiscal policy; Government spending; Nonlinear ARDL model; South Africa (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-06-2020-0088

DOI: 10.1108/JEAS-06-2020-0088

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