The nexus between social spending and economic growth in South Africa: a cointegration approach

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Date
2019
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University of Zululand
Abstract
South African government has been utilizing expansionary expenditure for the past two decades to tackle the declining growth and the prevailing socioeconomic challenges. This policy stance is heavily grounded in the Keynesian theory which proposes that government spending stimulates economic growth. Several empirical studies testing the Keynesian proposition are generally affirmative but these studies do not tell us how disaggregated and particular components of government spending affect economic growth. Against this background, this study contributes to existing knowledge by using a disaggregate measure of government spending to establish the association between government social spending and economic wellbeing, which is measured by economic growth, income distribution inequality and household consumption expenditure. The autoregressive distributed Lag (ARDL) econometric modelling approach is employed to estimate the impact of disaggregated government social spending on economic growth (growth model), income inequality (Gini model) and household consumption expenditure (consumption model). Therefore, the three models utilise time series data spanning from 1983 to 2016. The results showed that education spending improves economic growth during the short run, but has an insignificant impact on economic growth in the long run. Health spending has a negative impact on economic growth during the short run, however, stimulates growth in the long run. Social protection spending boosts economic growth during both in the short run and the long run. On the other hand, social spending on education and health have an equalizing impact on income distribution during the long run, except for social protection spending. While during the short run only health and social protection spending reduce income inequality. The long-run results for consumption model indicate that education spending has an insignificant effect on household consumption and public spending on health has a negative impact on household consumption respectively. While social protection spending promoted household consumption. Notably, all government social spending variables are unsuccessful in promoting household consumption expenditure during the short run as the impact is statistically insignificant. iv Therefore, the overall results revealed that government social spending variables have a significant impact on economic wellbeing, especial during the long-run. However, the impact caused by disaggregated social spending is small. Even though the social spending components are inelastic, most have a significant impact, which makes social spending has an important role in the variation of economic growth, income distribution and household consumption spending. Another important finding is that government cannot overall rely on government social spending to boost its economic perspective therefore, may need to focus on other economic fundamentals to raise economic wellbeing.
Description
A dissertation submitted in fulfilment of the requirement for the Degree of Masters (MCom) in the Economics Faculty of Commerce, Administration and Law at the University if Zululand, 2019.
Keywords
Economic Growth, Cointegration Approach
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