Analysis of Government Expenditure and Sectoral Employment in the Post-apartheid South Africa: Application of ARDL Model
Keywords:
ARDL model, employment, job creation, government spending, South Africa
Abstract
The current study has been designed to analyse the interactions between real government spending and job creation in South Africa focusing on five major economic sectors, namely construction, financial, manufacturing, mining, and retail sectors. The main objective of the study was to determine how job creation in different economic sectors responds to changes in real government spending. To achieve this objective, the study used five different autoregressive distributed lag (ARDL) models to analyse the long-run and shot-run relationships between government spending and employment rate in each of the aforementioned five economic sectors. The sample period consisted of quarterly observations starting from the first quarter of 1994 to last quarter of 2015. The study found a long-run relationship between government spending and job creation in the mining sector but there was no evidence of long-run relationships between government spending and jobs creation in construction, financial, manufacturing, and retail sectors. The short-run analysis showed that government spending could create jobs in all five sectors. This paper concluded that increasing government spending can only create short-term jobs but does not create lasting jobs in most sectors, except the mining sector. To increase the number of durable jobs, the South African government should therefore increase spending on mining sector.
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References
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Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.
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Ramey, V. A. (2012). Government spending and private activity. NBER, San Diego: University of California. Ranchhod, V. & Finn, A. (2016). Estimating the short-run Effects of South Africa's Employment Tax Incentive on youth employment probabilities using a differenceâ€inâ€differences approach. South African Journal of Economics, 84(2), 199-216.
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Wessels, J. & Ellis, W. (2012). Are SMEs the answer for job creators? Towards the operationalization of a SME Observatory. Paper presented at Towards Carnegie III at the University of Cape Town from3 to7 September 2012.
World Bank. (2013). Jobs, a world development report. Washington, DC. World Bank.
African Economic Outlook. (2015). Regional development and spatial inclusion. http://dx.doi.org/10.1787/aeo-2015-en pdf. Date of access: 21 June2016. Ahlgren, P., Jarneving, B. & Rousseau, R. (2003). Requirements for a cocitation similarity measure, with special reference to Pearson's correlation coefficient. Journal of the American Society for Information Science and Technology, 54(6), 550-560.
Asmundson, I. (2011). Back to basics: what are financial services? https://www.imf.org/external/pubs/ft/fandd/2011/03/pdf/basics.pdf, Date of access: 11March.2016. Atkinson, A. B. & Stiglitz, J. E. (2015). Lectures on public economics. Princeton University Press. Beard, T. R., Ford, G. S., Kim, H. & Spiwak, L. J. (2011). Can government spending get America working again? An empirical investigation. Phoenix Center Policy Bulletin, 31, 1-15. Bertolis, D. E. & Hayes, M. (2014). An investigation into South African general equity unit trust performance during different economic periods. South African actuarial journal, 14, 73-99.
Botha, R. (2015). Economic outlook. In navigating a volatile landscape: Major Banks analysis –South Africa. https://www.pwc.co.za/en/assets/pdf/bank-analysis-march-2015.pdf. Date of access: 11 March.2016. Boushey, H. & Ettlinger, M. (2011). Government spending can create jobs and it has. Center for American progress.https://cdn.americanprogress.org/wpcontent/uploads/issues/2011/09/pdf/yes_we_can.pdf. Date of access 17 July. 2016. Brooks, C. (2014). Introductory econometrics for finance 3rd Ed. Cambridge University Press.
Cogan, J. F., Cwik, T., Taylor, J. B. & Wieland, V. (2010). New Keynesian versus old Keynesian government spending multipliers. Journal of Economic dynamics and control, 34(3), 281-295.
Cray, A., Nguyen, T., Pranka, C., Schildt, C., Sheu, J. & Whitcomb, E. R. (2011). Job Creation: A review of policies and strategies. IRLE working paper, 11(105), 1-57.
Dlamini, S. (2012). Relationship of construction sector to economic growth. In International Congress on Construction Management. Canada.
Dornbusch, R., Fischer, S. & Startz, R. (2014). Macroeconomics, New York: McGraw-Hill Education. Dube, S. & Zhou, Y. (2013). South Africa’s short term and long term interest iates: A threshold cointegration analysis. Business and Economic Research, 3(1), 187-211.
Edelberg, W., Eichenbaum, M. & Fisher, J. D. M. (2002). Understanding the effects of a shock to government purchases. Review of Economic Dynamics, 2, 166-206.
Estache, A., Perrault, J. F. & Savard, L. (2012). The impact of infrastructure spending in Sub-Saharan Africa: a CGE Modelling Approach. Policy Research Working Paper Series 5386. Washington, DC: The World Bank. Farmer, R. E. (2010). How to reduce unemployment: A new policy proposal. Journal of Monetary Economics, 57(5), 557-572. Ferreira, L. & Rossouw, R. (2016). South Africa's economic policies on unemployment: a historical analysis of two decades of transition. Journal of Economic and Financial Sciences, 9(3): 807-832.
Girma, S., Görg, H., Strobl, E. & Walsh, F. (2007). Creating jobs through public subsidies: An empirical analysis. IZA Discussion Paper, no. 3168.
Habanabakize, T. & Muzindutsi, P. F. (2015). Time series analysis of interaction between aggregate expenditure and job creation in South Africa. Journal of Governance and Regulation, 4(4), 649-657.
Haltiwanger, J., Jarmin, R. & Miranda, J. (2010). Who creates jobs? Small vs. large vs. young. NBER Working Paper 16300. National Bureau of Economic Research, Cambridge, MA. Hassen, E. K. (2000). Infrastructure delivery and employment creation in South Africa: In TIPS Conference 2000 Annual Forum.Glenburn Lodge: Trade and industrial policy secretariat.
Holden, S. & Sparrman, V. (2016). Do government purchases affect unemployment? University of Oslo. Retrieved from http://folk.uio.no/sholden/wp/fiscal-U.pdf, Date of access 11April. 2016.
Houseman, S. N. (2014). The role of manufacturing in a jobs recovery. Washington, D.C: Center on Budget and Policy Priorities.
International Labour Conference (ILC). (2015). Small and medium-sized enterprises and decent and productive employment creation. Report IV. Geneva: International Labour Office.
International Labour Organization. (2009). World employment and social outlook. http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/---publ/documents/publication/wcms_337069.pdf, Date of Access: 17July.2016.
Johansen, S. & Juselius, K. (1990). Maximum Likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
Kenyon, P. (1997). Infrastructure spending and unemployment: government responsibility for growth and jobs. Australian Economic Review, 30(4), 421-32.
Kerr, A., Wittenberg, M. & Arrow, J. (2014). Job creation and destruction in South Africa. South African Journal of Economics, 82, 1-30.
Kingdon, G. G. & Knight, J. (2004). Unemployment in South Africa: The nature of the beast. World Development, 32(3), 391-408. Leigh, A. & Neill, C. (2011). Can national infrastructure spending reduce local unemployment? Evidence from an Australian roads program. Economics Letters, 113(2), 150-153. Levine, L. (2009). Job loss and infrastructure job creation during the recession. Congressional Research Service, Cornell University ILR School. Federal Publications.
Loizides, J. & Vamvoukas, G. (2005). Government expenditure and economic growth: evidence from trivariate causality testing. Journal of Applied Economics, 8(1), 125-152.
Mabugu, R. E. (2016). Responding to South Africa’s infrastructure challenge. file:///C:/Users/NWUUser/Downloads/Pages%20from%20SUBMISSION%202016_2017%20Chapter%201.pdf . Date of access: 11August.2016. Mahmood, H. & Khalid, S. (2013). Fiscal Policy for growth and employment generation in Pakistan. Academic Research International, 4(6), 372-381.
Maia, J. (2013). The interface between mining and manufacturing sectors in South Africa. Industrial Development Corporation. Department of Research and Information.
Maisonnave, H., Mabugu, R., Chitiga, M. & Robichaud, V. (2013). Analysing job Creation effects of scaling up infrastructure spending in South Africa. Cahier de recherche/Working paper, 10(13), 1-28. Meyer, D. F. (2014). Job creation, a mission impossible? The South African case. Mediterranean Journal of Social Sciences, 5(16), 65-77.
Muzindutsi P. F. & Maepa M. M. (2014) Manufacturing Production and Non-Agricultural Employment rate in South Africa: Time Series Analysis. Journal of Economics and Behavioral Studies, 6(10), 779-786. Neumark, D. (2011). Policies to encourage job creation: hiring credits vs. worker subsidies. Cambridge: National Bureau of Economic Research.
OECD. (2015). New evidence on the role of young firms in creating jobs. http://www.oecd.org/sti/young-SME-growth-and-job-creation.pdf, Date of access: 14. 03. 2016.
Padayachee, A. & Desai, A. (2011). Post-Apartheid South Africa and the crisis of expectation–DPRN Fourhttp://rozenbergquarterly.com/post-apartheid-south-africa-and-the-crisis-of-expectation-dprn-four/.Date of access 16 June. 2016. Pesaran, M. H. & Shin, Y. (1995). Long-run structural modelling. Department of Applied Economics, Cambridge: University of Cambridge. Pesaran, M. H. & Shin, Y. (1996). Cointegration and speed of convergence to equilibrium. Journal of econometrics, 71(1), 117-143.
Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.
Praveen, M. V. (2011). Financial services. School of distance education. University of Calicut.
Ramey, V. A. (2012). Government spending and private activity. NBER, San Diego: University of California. Ranchhod, V. & Finn, A. (2016). Estimating the short-run Effects of South Africa's Employment Tax Incentive on youth employment probabilities using a differenceâ€inâ€differences approach. South African Journal of Economics, 84(2), 199-216.
Riedl, B. (2008). Why government spending does not stimulate economic growth. The Heritage Foundation.http://www.heritage.org/research/reports/2008/11/why-government-spending-does-not-stimulate-economic-growth. Date of access: 15 November.2016. Roberts, R. (2010). Does government spending create jobs? http://cafehayek.com/2010/10/does-government-spending-create-jobs.htmlDate of access: 16 September 2016.
Saks, R. E. (2008). Job creation and housing construction: Constraints on metropolitan area employment growth. Journal of Urban Economics, 64(1), 178-195.
Statistics South Africa (StatsSA). (2015). Quarterly Labour Force Survey. Pretoria.
South African Reserve Bank (SARB). (2015). Full Quarterly Bulletin. December 2015, no. 278. Pretoria.
StatsSA see Statistics South Africa.
South African Revenue Services (2016). Employment tax incentive (ETI). http://www.sars.gov.za/TaxTypes/PAYE/ETI/Pages/default.aspx.Date of access: 15 August 2016.
Tcherneva, P. R. (2008). Keynes's approach to full employment: aggregate or targeted demand?
Wessels, J. & Ellis, W. (2012). Are SMEs the answer for job creators? Towards the operationalization of a SME Observatory. Paper presented at Towards Carnegie III at the University of Cape Town from3 to7 September 2012.
World Bank. (2013). Jobs, a world development report. Washington, DC. World Bank.
Published
2017-05-18
How to Cite
Habanabakize, T., & Muzindutsi, P.-F. (2017). Analysis of Government Expenditure and Sectoral Employment in the Post-apartheid South Africa: Application of ARDL Model. Journal of Economics and Behavioral Studies, 9(2(J), 224-233. https://doi.org/10.22610/jebs.v9i2(J).1663
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