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Effect of Social Infrastructure Investment on Economic Growth and Inequality in South Africa: A SEM Approach

Author

Listed:
  • Itumeleng More
  • Goodness C. Aye

    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the effect of social infrastructure on economic growth and inequality in South Africa using the Simultaneous Equation Modelling (SEM) approach. Education and hospital expenditure are used as indicators for social infrastructure, the Gini-coefficient as an indicator for inequality and lastly the GDP per capita as an indicator for growth. The data is annual data covering from 1994 to 2013 period. We use growth as the mediating variable while controlling for production factors, urbanisation and globalisation. Consistent with theory and expectations, results show a positive and significant relationship between education expenditure and growth. However there is a negative relationship between health expenditure and growth albeit not significant. Furthermore, results indicate a negative but insignificant relationship between education and inequality and a significant negative relationship between health and inequality. In line with the Kuznets theory, we find a positive and significant relationship between growth and inequality in South Africa. We show the policy implications of our findings.

Suggested Citation

  • Itumeleng More & Goodness C. Aye, 2016. "Effect of Social Infrastructure Investment on Economic Growth and Inequality in South Africa: A SEM Approach," Working Papers 201601, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201601
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    More about this item

    Keywords

    Social infrastructure; education; health; economic growth; inequality; SEM;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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