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Which investment (private or public) does contribute to economic growth more? a case study of South Africa

Abbas, Aadil and Masih, Mansur (2017): Which investment (private or public) does contribute to economic growth more? a case study of South Africa.

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Abstract

Economic growth is an important driver for the well-being of the citizens of a country. Despite a common view that investment is a key driver of economic growth, there are conflicting views on whether it is Public investment which drives Private Investment, or whether it is the other way around. Both theoretical views as well as empirical studies tend to have divergent views on this matter, and it is therefore important to try to understand which causes which, in order to help the policymakers. Using the standard time-series techniques, this study uses annual data and tests the relationship between Investment and economic growth, and also the direction of any causal link between Public and Private investment. This study contributes to the existing studies on the effects of Public and Private investment, with particular reference to South Africa, which is classified as a developing economy. The contribution of this study to the general body of empirical studies is important because, to date, there is no clear answer with regard to the causal link between public and private investment in developing countries. This paper attempts to provide further clarity on the issue. The findings of this study are that both Public and private Investment play a significant role in enhancing economic growth. As to which of these two plays a greater role, this study tends to indicate that Private Investment plays relatively a greater role in explaining economic growth than Public Investment.

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