Essays on the feasibility of industrial policy in South Africa : a comparative analysis between South Korea and South Africa

Abstract

Post 1994, South Africa adopted various industrial policy interventions aimed at supporting labour-intensive manufacturing to promote job creation, albeit with limited success. This thesis investigates the feasibility of industrial policy in promoting labour absorbing growth in South Africa based on lessons from South Korea’s success with economic development using a dynamic general equilibrium model. The analysis employs selective industrial policy strategies to create conducive conditions associated with good labour market outcomes.

Firstly, competitive labour market conditions are simulated by lowering the economy-wide labour cost relative to capital through the provision of low-skilled labour wage subsidies. Simulation results reveal that although aggregate employment returns to the baseline in the long-run, there is a net increase in low-skilled employment contributing to a more labour-intensive economy.

Secondly, free-trade and flexible labour market conditions are simulated in an export-oriented Special Economic Zone (SEZ) specialising in labour-intensive activities. Free-trade conditions are simulated by removal of import duties and import value-added tax (VAT) on inputs used in producing exports in the SEZ. Flexible labour market conditions are simulated using labour productivity improvements. Simulation results under free-trade conditions show a minimal positive increase in demand for low-skilled labour in the long-run. Combining free-trade simulation with flexible labour market conditions increases the demand intensity for low-skilled labour.

In conclusion, the study findings suggest that adopting an export-led industrial policy regime, underpinned by competitive labour market conditions, promotes more labour-absorbing growth in South Africa than a targeted export-oriented SEZ under free-trade and labour market flexibility.