The impact of investment on economic growth and employment in South Africa : a sectoral approach

MCom (Economics), North-West University, Vaal Triangle Campus, 2018The growing unemployment rate and slow economic growth rates has raised concerns for researchers into broadening research into factor that would increase economic growth and employment. The South Africa government has formulated strategies to stimulate growth and employment. This strategies are aimed at creating an inclusive growth independent of the foreign direct investment. The country is trying to create an economy that is labour absorptive and sustainable. As a result the use of economic sectors are crucial in achieving such objectives. The creation of employment in sectors require the increase in the sector productivity and be labour absorptive. Studies have investigated the relationship of sectoral production on economic growth and not much have investigated the impact that investment in sectors has on economic growth and employment. Studies have reached a consensus that economic growth does not necessarily result to increase in employment, hence the study investigates the impact of sectoral investment on economic growth and employment. Furthermore, the study is grounded on the ideology of Says law, stipulating that investment in significant contributor to economic growth. Linking investment to sectors, the study aims to determine the relationship between investment in sectors and economic growth and determine if sectors are robust in creating employment and growth. This study seeks to fill the gap of investment in sectors impact on economic growth and employment and seeks to broaden the knowledge of sectoral investment impact on growth and employment in South Africa. As a result, the study used quarterly data from 1994 to 2016 to analyse the impact of investment on economic growth and employment in South Africa. The study focused on theories of investment, growth and employment which all are significant in discussing the impact of sectoral investment on economic growth and employment. The investment theories confirmed that investment is crucial in influencing economic growth. The growth theories made use of labour, capital and technological advances as factors that will enhance economic growth. The employment theories explained the relationship between economic growth and employment. The study made of Autoregressive Distributed Lag (ARDL) and Vector Autoregressive (VAR) model to determine the impact of sectoral investment on economic growth and employment. Under the use of a VAR model a Granger causality and impulse responds were employed to determine the shocks between the variables. The results showed that investment in sectors has a positive significant impact to economic growth and employment. The study established that there is no significant relationship between the variables in the short-run. The Granger causality test established that there is a bidirectional causality between investment in finance and mining to economic growth and further established that there is a unidirectional relationship between investment in finance and manufacturing to employment. As a result, the study concludes that sectoral investment has a significant impact on employment and economic growth. This means that an increase in sectoral investment will increase economic growth and employment. This calls for stricter measure in enhancing sectoral investment in South Africa.Master