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Estimating and explaining changes in potential growth in South Africa

Johannes Kemp () and Ben Smit

No 14/2015, Working Papers from Stellenbosch University, Department of Economics

Abstract: Estimates of potential output growth in SA have declined from over 3% prior to the Global Financial Crisis (GFC) to just over 2% currently (Ehlers et al, 2013; Anvari et al, 2014; IMF, 2014; SARB MPC statement, March 2015; Kemp, 2015). A similar slowdown has been experienced in several other countries, including most members of the G20 (IMF, 2015). The purpose of this paper is to (i) estimate SA’s level of potential output growth both before and after the GFC using a multi-variate filter technique based on Blagrave et al (2015) and (ii) attempt to explain the apparent decline in the growth potential by investigating the underlying drivers of potential GDP growth using a Cobb-Douglas-type production function (similar to IMF, 2015). It is found that potential growth has declined to around 2.2% post-GFC. It is also determined that the biggest driver of the post-crisis decline in potential growth has been lower productivity growth.

Keywords: Macroeconomic modelling; Potential output; Multivariate filter; Cobb-Douglas (search for similar items in EconPapers)
JEL-codes: C51 E31 E52 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eff and nep-mac
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