Autonomous Expenditure Multipliers and Gross Value Added in South Africa

Arogundade, Sodiq and Bila, Santos and Jan Derkacz, Arkadiusz (2021): Autonomous Expenditure Multipliers and Gross Value Added in South Africa.

Abstract

Empirical evidence from the literature suggest that autonomous expenditure multipliers are crucial in modern economic development. This study answers two main questions. What is the South African fiscal, export and investment multipliers? Is obtaining the impact of autonomous expenditure on gross value-added growth rate possible? In achieving this, we use the principle of aggregate demand and data from different sources such as Stats SA, South African Reserve Bank, WDI as well as OECD data from 1992 to 2019. The results suggest that autonomous expenditure multipliers exert a positive effect on the change in gross value added. These multipliers are however driven by several factors. First, the import intensity level - the import intensities of each autonomous expenditure reduce their significance. This means that the leakage of aggregate demand in the form of expenditure on the purchase of imported goods increases. Secondly, the value of the fiscal, investment and export multipliers is determined by the propensity for total private consumption. The value of the propensity for total private consumption depends on the household income taxes and the propensity to save. An increase in these two ratios decreases the value of the propensity to private consumption. This indicates that the leakage of aggregate demand is driven by a decline in total private consumption in the economy, and this may be caused by an increase in savings and/or an increase in the average household income tax.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal multiplier, export multiplier, investment multiplier, GVA, South Africa
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; F - International Economics > F0 - General

References

Akerlof, G.A. (2007). The Missing Motivation in Macroeconomics. American Economic Review 97: 5–36.

Barro, R. J. (1990). Government spending in a simple model of endogeneous growth. Journal of Political Economy, 98(S5), pp. S103–S125.

Blanchard, O., and R. Perotti. (2002). “An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output.” Quarterly Journal of Economics 117 (4): 1329–1368.

BTDIxE. (2017). OECD Bilateral trade database by industrial and end-use category. Pp 45. Burrows, L.R. and Botha, A.P. (2013). ‘Explaining the changing input-output multipliers in South African: 1980-2010.’ Available at:file:///C:/Users/sstorm/Downloads/essa2013_2636.pdf.

De March, Marco, ed. (2008). Eurostat Manual of Supply, Use and Input-Output Tables. Methodologies and Working Papers. Luxembourg: O_ce for O_cial Publications of the European Communities.

Dequech, D. (2007). Neoclassical, Mainstream, Orthodox, and Heterodox Economics. Journal of Post Keynesian Function. Nonlinear Dynamics 88: 1147–61.

Derkacz, A.J. (2020). Autonomous expenditure multiplier and Gross Value Added. Jounal of Risk and Financial Management. Pp. 13-213. Economics 30: 279–302.

Fedderke, J.W. and Mengisteab, D.K. (2017). ‘Estimating South Africa’s output gap and potential growth rate.’ South African Journal of Economics 85 (2): 161-177.

Girardi, D., W. Paternesi Meloni and A. Stirati. (2018). ‘Persistent effects of autonomous demand expansions.’ INET Working Paper No. 70. New York: Institute for New EconomicThinking.https://www.ineteconomics.org/research/researchpapers/persistent-effects-of-autonomous-demand-expansions.

Kavese, K. and Erero, J.L. (2018). Impact of fiscal expansion in South Africa – the case of the Eastern Cape Province. Journal of Economics and Management, 34(4), pp. 103 – 127.

Kavese, K. and Phiri, A. (2020). Micro-simulations of a dynamic supply and use tables economy-wide Leontief-based model for the South African economy. South African Journal of Economic and Management Sciences, 23(1), pp. 1-13.

Łaski, K, Jerzy O; and Jolanta Z. (2010a). Czynniki Wzrostu PKB w Polsce i w Czechach w (2009) r. Ekonomista 6: 805–30. Łaski, K; Jerzy, O and Jolanta Z. (2010b). Mno˙znik Wydatków Pa´nstwowych i Szacunki Jego Wielko´sci Dla Polski. Warsaw: Narodowy Bank Polski, Departament Edukacji i Wydawnictw.

Łaski, K; Jerzy O; and Jolanta Z. (2010c). The Government Expenditure Multiplier and Its Estimates for Poland in 2006–2009. Working Paper No. 63. Wien: Vienna Institute for International Economic Studies.

Łaski, K. (2019). Lectures in Macroeconomics: A Capitalist Economy without Unemployment. Oxford: Oxford University Press.

Magubu, R., V. Robichaud, H. Maisonnave and M. Chitiga. (2013). ‘Impact of fiscal policy in an intertemporal CGE model for South Africa.’ Economic Modelling 31: 775-782.

Makrelov, K., C. Arndt, R. Davies and L. Harris. (2018). ‘Fiscal multipliers in South Africa. The importance of financial sector dynamics.’ WIDER Working Paper 2018/6. Helsinki:UNU-WIDER.

Naimzada, A.K., and Nicolo, P. (2017). Dynamics of a Multiplier–Accelerator Model with Nonlinear Investment.

Palley, T. I. (2009). Imports and the Income-Expenditure Model: Implications for Fiscal Policy and Recession Fighting. Journal of Post Keynesian Economics 32: 311–22.

Pusch, T. (2012). Fiscal Spending Multiplier Calculations Based on Input-Output Tables–an Application to EU.

Rueda-Cantuche, J.M., Antonio M. Amores, J. B, and Isabelle Remond-Tiederez. (2017). Assessment of European Use Tables at Basic Prices and Valuation Matrices in the Absence of Official Data. Economic Systems Research 30: 252–70.

United Nations. (2002). Classification by Broad Economic Categories. New York: United Nations Publication.