Poverty and Inequality Effects of a High Growth Scenario in South Africa: A Dynamic Microsimulation CGE Analysis

Ramos Mabugu and Margaret Chitiga ()
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Margaret Chitiga: Department of Economics, University of Pretoria
Authors registered in the RePEc Author Service: Margaret Mabugu

No 200716, Working Papers from University of Pretoria, Department of Economics

Abstract: The debate about the consequences of economic growth on poverty and welfare was recently rekindled in South Africa by announcements that the government would be targeting a sustainable growth rate of 6 percent per annum under the Accelerated and Shared Growth Initiative for South Africa (ASGISA). This paper uses a sequential dynamic computable general equilibrium model linked to a nationally representative household survey to assess the poverty and economic consequences of a higher economic growth scenario. The main findings are that higher economic growth induces reductions in poverty both in the short and long run. It enhances capital accumulation, particularly in the agriculture and textiles sectors. An interesting observation is that the Mining industry benefits the least from a high economic growth scenario. However, this is not related to domestic savings/investment. Mining is strongly dependent on foreign investments and the industry return to capital is less profitable to domestic institutions, particularly households and this is what explains the lower benefits to the sector. African and Coloured households reap most of the benefits, with greater gains among urban unskilled dwellers. These findings suggest that lifting of growth constraints rather than macroeconomic stimulation would induce higher growth with the resulting beneficial effects. Economic growth of the levels simulated does not appear to be inconsistent with macroeconomic balance, as reflected in price stability, balance of payments and sectoral effects.

Keywords: Sequential dynamic CGE; microsimulation; ASGISA; poverty; welfare; growth; South Africa (search for similar items in EconPapers)
JEL-codes: D58 E27 F17 I32 O15 O55 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-09
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Citations: View citations in EconPapers (1)

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Working Paper: Poverty and inequality effects of a high growth scenario in South Africa: A dynamic microsimulation CGE analysis (2007)
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