A Growth Model For South Africa

We examine the South African growth experience during 1960-2005 using an intertemporal growth model. The model combines old growth theory investment dynamics and new growth theory endogenous productivity growth. The consumption and investment decisions are intertemporal and assume open capital markets. Structural change is captured by separating the traded and nontraded sectors, and sectoral productivity growth is determined in a barriers-to-growth framework. Calibration of the model shows how the growth experience combines neoclassical convergence, technology spillovers with barriers and productivity-investment interaction. Counterfactual analysis shows the growth costs of sanctions and protectionism. The suggested model is an alternative to existing growth modelling in South Africa, in which investments are short-sighted and productivity growth is imposed exogenously. Copyright (c) 2007 The Authors. Journal compilation (c) 2007 Economic Society of South Africa.