Testing Capital Accumulation-Driven Growth Models in a Multiple-Regime Framework: Evidence from South Africa

This paper proposes two types of AK-style endogenous growth models to test the physical capital accumulation hypothesis in a ‘typical’ developing country with multiple regimes: a strong version, in which technological progress is fully endogenous to capital accumulation, and a weaker version, where technological progress and capital accumulation are complementary factors in the growth process. The empirical application supports the relevance of the weaker version across South Africa’s ‘faster-growing’ regime (1952-1976) and ‘slower-growing’ regime (1977-2012). To improve the economy’s post-2012 growth performance on a sustainable basis, the simulation exercise suggests a refined set of policies that simultaneously attracts foreign direct investment and raises the domestic saving/investment rate. Thus, to re-ignite the complementary relationship between technological progress and capital accumulation in the South African economy, both sources of growth should feature prominently in the initial decision-making process of policymakers.