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Empirical Economics

, Volume 56, Issue 1, pp 269–300 | Cite as

The interdependence between the saving rate and technology across regimes: evidence from South Africa

  • Kevin S. NellEmail author
  • Maria M. De Mello
Article

Abstract

This paper hypothesises that the saving rate and technological progress are interdependently determined by a common exogenous source, so that an exogenous shock to the saving rate determines long-run growth transitions. In an open-economy setting, the saving rate measures the quality of investment-led policies. The evidence shows that the down-break across South Africa’s ‘faster-growing’ regime (1952–1976) and ‘slower-growing’ regime (1977–2003) was caused by a negative shock to the saving rate that simultaneously led to a slowdown in the growth rate of technology via a structural decrease in the learning-by-doing parameter. The down-break results suggest that the saving rate is potentially an important policy variable to engineer a sustainable up-break. To assess this prediction with real data, the analysis looks at what happened in the post-2003 period (2004–2012). The results show that the up-break in the fixed investment rate was not matched by the saving rate, which implies that capital investment did not generate a faster rate of technological progress. The stylised facts suggest that a sustained increase in the total investment rate, which not only includes infrastructure investment, but also machinery and equipment investment and complementary foreign direct investment, may be an effective investment-led strategy to raise the economy’s growth rate on a sustainable basis.

Keywords

Growth transitions Investment rate Learning-by-doing parameter Multiple regimes Saving rate South Africa Technological progress Time-series econometrics 

JEL Classification

C22 O11 O41 O49 O55 

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.College of Business and Economics, School of EconomicsUniversity of JohannesburgJohannesburgSouth Africa
  2. 2.Faculty of EconomicsCenter for Economics and Finance of the University of Porto (CEF.UP)PortoPortugal

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