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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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  • Ramos Mabugu

    ()
    (Financial and Fiscal Commission, South Africa)

  • 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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File URL: http://www.ekon.sun.ac.za/wpapers/2007/wp042007/wp-04-2007.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Stellenbosch University, Department of Economics in its series Working Papers with number 04/2007.

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Date of creation: 2007
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Handle: RePEc:sza:wpaper:wpapers35

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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 Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section..
  2. 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.
  3. Ramos Mabugu & Margaret Chitiga, 2007. "Poverty and Inequality Impacts of Trade Policy Reforms in South Africa," Working Papers MPIA 2007-19, PEP-MPIA.
  4. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  5. 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, vol. 0(Number 2), pages 113-142.
  6. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
  7. Jeffrey Frankel & Ben Smit & Federico Sturzenegger, 2008. "South Africa: Macroeconomic challenges after a decade of success," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(4), pages 639-677, October.
  8. 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.
  9. repec:fth:prinin:343 is not listed on IDEAS
  10. 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 123456789/6497, Paris Dauphine University.
  11. Thurlow, James & van Seventer, Dirk Ernst, 2002. "A standard computable general equilibrium model for South Africa," TMD discussion papers 100, International Food Policy Research Institute (IFPRI).
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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, vol. 32(2), pages 286-301, March.

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