A multiplier analysis of the South African economy: 1980-2010

Botha, Anthonie (2012-12)

Thesis (MBA)--Stellenbosch University, 2012.

Thesis

ENGLISH ABSTRACT: The aim of this study is to calculate and analyse GDP multipliers for the South African economy from input-output tables for seven data sets for the 1980-2010 period. The paper commences with a discussion of the nature, limitations, uses and underlying assumptions of input-output tables, followed by a presentation of the basic input-output model. The theory and methodology of the calculation of output multipliers is discussed. The basic open and closed model methods used in this study are developed and distinguished. All the steps of the basic calculation of the multipliers are explained within the context of the two mathematical models used. The four sets of multipliers generated by the model, namely simple GDP multipliers, simple type II GDP multipliers, total GDP multipliers, and total type II GDP multipliers are discussed and analysed for all seven data sets. The most significant trend identified is the steady decline in the value of the total GDP multiplier over the three decades reviewed. This is primarily attributed to the increasing openness of the South African economy following the end of the apartheid era. The composition of the total GDP multipliers, in terms of the relative and absolute proportions of the direct, indirect and induced impacts are presented and analysed. The decline in the value of the total GDP multiplier was primarily due to a reduction in the relative and absolute contribution of the induced effect over the period reviewed. This trend reflects the structural changes in the South African economy, the hallmark of which is the decline in the secondary industries, whose declining profitability was due to increased competitive discipline. This trend was compounded by overvalued and volatile real exchange rates, and resulted in low levels of investment and employment creation in this sector. An examination of the intra-sector multipliers for the same period also showed a marked and consistent declining trend in the multiplier effect over the period under review. This was especially pertinent in the case of the secondary industries, for which a very similar pattern emerged across industries, with the time paths of the mean multiplier effect showing a very similar movement for almost all manufacturing industries. It is suggested that policy makers should consider the significance and desirability of these structural changes. A combination of monetary and fiscal policy measures could do much to revitalise South Africa’s ailing manufacturing sector. The turnaround thereof could aid government’s objectives of employment creation and economic growth.

AFRIKAANSE OPSOMMING: Die doel van hierdie studie is om, op grond van inset-uitset tabelle, BBP vermenigvuldigers vir die Suid Afrikaanse ekonomie te bereken en te ontleed, vir die 1980-2010 periode. Die skripsie begin met ‘n bespreking van die aard, beperkings, gebruike en onderliggende aannames van inset-uitset tabelle, gevolg deur ‘n voorlegging van die basiese inset-uitset model. Die teorie en metodologie van die berekening van uitset vermenigvuldigers word bespreek. Die basiese oop en geslote model metodes wat in die studie gebruik word, word ontwikkel and onderskei. Al die stappe in die basiese berekening van die vermenigvuldigers word verduidelik binne die konteks van die wiskundige modelle wat hier gebruik word. Die vier stelle vermenigvuldigers wat deur die model gegenereer word, naamlik die eenvoudige BBP vermenigvuldigers, die eenvoudige tipe II BBP vermenigvuldigers, die totale BBP vermenigvuldigers en die totale tipe II BBP vermenigvuldigers, word bespreek en ontleed vir al sewe data stelle. Die volgehoue dalende tendens van die totale BBP vermenigvuldiger, is die betekenisvolste tendens wat hier waargeneem is. Dit word primêr toegeskryf aan die toenemende “oopheid” van die Suid-Afrikaanse ekonome na die einde van die apartheid era. Die samestelling van die totale BBP vermenigvuldigers, in terme van die relatiewe en absolute proporsies, van die direkte, indirekte en afgeleide impak word gewys en ontleed. Die daling in die waarde van die totale BBP vermenigvuldiger, kan grootliks toegeskryf word aan ‘n afname in die relatiewe en absolute bydrae van die afgeleide effek oor die relevante periode. Hierdie tendens wys op die strukturele veranderinge binne die Suid-Afrikaanse ekonomie, wat gekenmerk is deur die kwynende bydrae van die sekondêre industrieë, veral weens hul dalende winsgewendheid wat toegeskryf kan word aan ‘n toename in internasionale kompetisie. Hierdie tendens word versterk deur ‘n oorgewaardeerde en onstabiele reële wisselkoers wat aanleiding gee tot laer vlakke van belegging en werkskepping in hierdie sektor. ‘n Ontleding van die intra-industrie vermenigvuldigers wys verder op ‘n volgehoue en dalende tendens in die vermenigvuldiger effek oor die hele termyn. Dit is weereens veral pertinent in die geval van die sekondêre industrieë, waar ‘n baie soortgelyke patroon te voorskyn kom vir byna die hele sektor. Dit word voorgestel dat beleidmakers die belangrikheid en wenslikheid van hierdie strukturele veranderinge in oënskou sal neem. ‘n Kombinasie van monetêre en fiskale beleidsmaatreëls kan baie doen om die kwynende plaaslike vervaardigingsbedryf te ondersteun, en ‘n meer lewensvatbare bedryf kan die owerheid help om sy doelwitte van groei en werkskepping te bereik.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/95666
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