Economic Complexity and Unemployment: The Case of South Africa

The product mix of a country has the ability to predict the next pattern of diversification and economic growth. But can the same product mix be used to predict and possibly explain unemployment in South Africa? In the last three decades South Africa has been characterised by high levels of unemployment, poverty, and inequality. When the government of the African National Congress (ANC) came into power in 1994, it embarked on several economic policies to address these issues. These policies were the Reconstruction and Development Programme (RDP), Growth, Employment, and Redistribution (GEAR), Accelerated and Shared Growth Initiative for South Africa (ASGISA), and the New Growth Path (GNP). Unfortunately, the indicators of unemployment, poverty and inequality were not responsive to these policies, particularly unemployment. This study thus examines the association between economic complexity and unemployment in South Africa from 1996 to 2019 using the vector autoregressive (VAR) model. The results from the VAR model reveal that the index of economic complexity has a negative and significant effect on unemployment in South Africa. The analysis of the study also suggests that an increase in economic complexity will lead to a decline in the unemployment rate in South Africa. Thus, policymakers in South Africa should place more emphasis on structural transformations.