Estimating and explaining changes in potential growth in South Africa

Stellenbosch Working Paper Series No. WP14/2015
 
Publication date: 2015
 
Author(s):
[protected email address] (Bureau for Economic Research, University of Stellenbosch)
[protected email address] (Bureau for Economic Research, University of Stellenbosch)
 
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.

 
JEL Classification:

C51, E31, E52

Keywords:

Macroeconomic modelling, Potential output, Multivariate filter, Cobb-Douglas

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BER Weekly

27 March 2017
Domestically, the economic data released last week was on the positive side. High commodity prices supported exports handsomely in the final quarter of 2016, resulting in a reduction in the deficit on the current account (CA). Meanwhile, consumer inflation eased in February as annual food price inflation moderated. Internationally, the March flash Purchasing...

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