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Analysing Job Creation Effects of Scaling Up Infrastructure Spending in South Africa

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  • Hélène Maisonnave
  • Ramos Mabugu
  • Margaret Chitiga
  • Véronique Robichaud

Abstract

In a first for South Africa, we draw on literature on infrastructure productivity to model dynamic economywide employment impacts of infrastructure investment funded with different fiscal tools. According to the South African investment plan, the policy will affect the stock of infrastructure as well as the stock of capital of some private and public sectors. Increased government deficit financed infrastructure spending improves GDP and reduces unemployment. However, in the long term, the policy reduces investment and it is not sustainable for South Africa to let its deficit grow unabated. Increased investment spending financed by tax increases has contrasting implications on unemployment. In the long run, unemployment decreases for all types of workers under one of the scenarios. In the short run, only elementary occupation workers benefit from a decrease in unemployment; for the rest, unemployment rises. Findings have immediate policy implications in various policy modelling areas.

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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 1310.

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Date of creation: 2013
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Handle: RePEc:lvl:lacicr:1310

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Keywords: Employment; dynamic CGE model; infrastructure scale up; externalities; South Africa;

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References

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  1. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  2. Nabil Annabi & John Cockburn & Bernard Decaluwé, 2006. "Functional Forms and Parametrization of CGE Models," Working Papers MPIA 2006-04, PEP-MPIA.
  3. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  4. Christopher Adam & David Bevan, 2004. "Aid, Public Expenditure and Dutch Disease," Development and Comp Systems 0409027, EconWPA.
  5. Alberto Behar & Lawrence Edwards, 2004. "Estimating elasticities of demand and supply for South African manufactured exports using a vector error correction model," CSAE Working Paper Series 2004-04, Centre for the Study of African Economies, University of Oxford.
  6. Mabugu, Ramos & Robichaud, Veronique & Maisonnave, Helene & Chitiga, Margaret, 2013. "Impact of fiscal policy in an intertemporal CGE model for South Africa," Economic Modelling, Elsevier, vol. 31(C), pages 775-782.
  7. Fedderke, J.W. & Perkins, P. & Luiz, J.M., 2006. "Infrastructural investment in long-run economic growth: South Africa 1875-2001," World Development, Elsevier, vol. 34(6), pages 1037-1059, June.
  8. Luc Savard, 2010. "Scaling up infrastructure spending in the Philippines: A CGE top-down bottom-up microsimulation approach," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 43-59.
  9. Esfahani, Hadi Salehi & Ramirez, Maria Teresa, 2003. "Institutions, infrastructure, and economic growth," Journal of Development Economics, Elsevier, vol. 70(2), pages 443-477, April.
  10. Johan Fourie, 2006. "Some policy proposals for future infrastructure investment in South Africa," Working Papers 05/2006, Stellenbosch University, Department of Economics.
  11. Peter S. Heller, 2005. "Pity the Finance Minister," IMF Working Papers 05/180, International Monetary Fund.
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