Growth and employment impacts of public economic infrastructure investment in South Africa : a dynamic CGE analysis

Abstract

Public infrastructure investment is believed to be one of the key factors in addressing South Africa’s main socio-economic challenges of high unemployment, income inequality and poverty. The country’s economic growth has not been able to create enough jobs to reduce these ills. The South African government believes that a labour-absorbing growth path can be realised by improving public infrastructure investment. This study uses a dynamic CGE analysis to quantify the impacts of increasing public economic infrastructure investment on economic growth and employment. The results indicate that increasing public infrastructure investment is in general beneficial for the South African economy. GDP increases while the price level declines. Aggregate labour demand increases across all formal labour categories resulting in a decline in unemployment.