Estimation of the private investment functions for the South African economy

[摘要] In recent years, private investment has been recognised as a vital engine foreconomic growth. This growing significance of private investment is largely dueto the need to revive global economic growth and consequent job creationfollowing the 2008 global recession. Governments are operating at, or close to,the limits of their respective fiscal budgets because of the stimulus packages. Ithas therefore become critical to completely understand the drivers of privateinvestment given the different macroeconomic contexts of different countries.Historically, much of the policies to stimulate private investment were based oninvestment theories established in the developed economies. However,performance of the investment theories in developing countries yielded mixedresults. That led to studies focussed on developing countries with a view todevelop relevant neoclassical investment theories for developing countries.Initially, such studies were based on a group of developing countries such asSub-Saharan African countries. The heterogeneity of developing countrieswithin the group impacted on the validity of the results, necessitating the needfor a focus on specific individual countries.This study follows this latter approach and is an attempt to estimate the privateinvestment function for South African economy using the multiple regressionmodel. This study is relevant because recently, private investment in SouthAfrica has declined from the peak of 74% of total investment in 2005 to thecurrent level of 63%. This study contributes to the debate on how to reverse thisdeclining trend of private investment. To this end, the relevant data wascollected and analysed. The results of the study revealed that privateinvestment in South Africa is positively influenced by an increase in publicinvestment, in savings rate, and the narrowing of the output gap whilenegatively influenced by increasing uncertainty, interest rates and to a limitedextent real exchange rate appreciation.These empirical results suggest that public investment in core infrastructure-though declining-does 'crowd in' private investment. Reduction of uncertainty,together with improved quality and policy certainty, will enhance South Africa'sinternational standing as an attractive investor destination. This way, SouthAfrica will be able to attract some of the huge global savings for domesticinvestment- one of the benefit of being an open economy. This is despite SouthAfrica's relatively low domestic savings rate. The significance of economicgrowth cannot be overemphasised in terms of creating investmentopportunities. Economic growth creates investment opportunities. Further,managing inflation and inflation expectations should be conducted with dueconsideration for impact of monetary policy on private investment.

[发布机构] University of Pretoria