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Poverty and Inequality Effects of a High Growth Scenario in South Africa: A Dynamic Microsimulation CGE Analysis

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Author Info

  • Ramos Mabugu

    ()
    (Financial and Fiscal Commission)

  • Margaret Chitiga

    ()
    (Department of Economics, University of Pretoria)

Abstract

The debate about the consequences of economic growth on poverty and welfare was recently rekindled in South Africa by announcements that the government would be targeting a sustainable growth rate of 6 percent per annum under the Accelerated and Shared Growth Initiative for South Africa (ASGISA). This paper uses a sequential dynamic computable general equilibrium model linked to a nationally representative household survey to assess the poverty and economic consequences of a higher economic growth scenario. The main findings are that higher economic growth induces reductions in poverty both in the short and long run. It enhances capital accumulation, particularly in the agriculture and textiles sectors. An interesting observation is that the Mining industry benefits the least from a high economic growth scenario. However, this is not related to domestic savings/investment. Mining is strongly dependent on foreign investments and the industry return to capital is less profitable to domestic institutions, particularly households and this is what explains the lower benefits to the sector. African and Coloured households reap most of the benefits, with greater gains among urban unskilled dwellers. These findings suggest that lifting of growth constraints rather than macroeconomic stimulation would induce higher growth with the resulting beneficial effects. Economic growth of the levels simulated does not appear to be inconsistent with macroeconomic balance, as reflected in price stability, balance of payments and sectoral effects.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200716.

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Length: 29 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:pre:wpaper:200716

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Keywords: Sequential dynamic CGE; microsimulation; ASGISA; poverty; welfare; growth; South Africa;

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References

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  1. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 153-167, Summer.
  2. repec:fth:prinin:343 is not listed on IDEAS
  3. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(2), pages 285-299, June.
  4. Thurlow, James & van Seventer, Dirk Ernst, 2002. "A standard computable general equilibrium model for South Africa," TMD discussion papers, International Food Policy Research Institute (IFPRI) 100, International Food Policy Research Institute (IFPRI).
  5. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 761-66, May.
  6. Jean, Sébastien & Guérin, Jean-Louis & Decreux, Yvan & Bchir, Mohamed Hedi, 2002. "MIRAGE, a Computable General Equilibrium Model for Trade Policy Analysis," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6497, Paris Dauphine University.
  7. Margaret Chitiga & John Cockburn & Bernard Decaluwé & Ismaël Fofana & Ramos Mabugu, 2010. "Case Study: A gender-focused macro-micro analysis of the poverty impacts of trade liberalization in South Africa," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 104-108.
  8. Jan van Heerden & Reyer Gerlagh & James Blignaut & Mark Horridge & Sebastiaan Hess & Ramos Mabugu & Margaret Mabugu, 2006. "Searching for Triple Dividends in South Africa: Fighting CO2 Pollution and Poverty while Promoting Growth," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 2), pages 113-142.
  9. François Bourguignon & William H. Branson & Jaime de Melo, 1989. "Macroeconomic Adjustment and Income Distribution: A Macro-Micro Simulation Model," OECD Development Centre Working Papers 1, OECD Publishing.
  10. Frankel, Jeffrey & Smit, Ben & Sturzenegger, Federico, 2007. "South Africa: Macroeconomic Challenges after a Decade of Success," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp07-021, Harvard University, John F. Kennedy School of Government.
  11. Ramos Mabugu & Margaret Chitiga, 2007. "Poverty and Inequality Impacts of Trade Policy Reforms in South Africa," Working Papers MPIA, PEP-MPIA 2007-19, PEP-MPIA.
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Cited by:
  1. Kitwiwattanachai, Anyarath & Nelson, Doug & Reed, Geoffrey, 2010. "Quantitative impacts of alternative East Asia Free Trade Areas: A Computable General Equilibrium (CGE) assessment," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(2), pages 286-301, March.

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