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

Kevin Nell and Maria M. De Mello
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Maria M. De Mello: Center for Economics and Finance of the University of Porto (CEF.UP)

Empirical Economics, 2019, vol. 56, issue 1, No 11, 269-300

Abstract: 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.

Keywords: Growth transitions; Investment rate; Learning-by-doing parameter; Multiple regimes; Saving rate; South Africa; Technological progress; Time-series econometrics (search for similar items in EconPapers)
JEL-codes: C22 O11 O41 O49 O55 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s00181-017-1354-y

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