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Poverty and inequality effects of a high growth scenario in South Africa: A dynamic microsimulation CGE analysis

Author

Listed:
  • 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.

Suggested Citation

  • Ramos Mabugu & Margaret Chitiga, 2007. "Poverty and inequality effects of a high growth scenario in South Africa: A dynamic microsimulation CGE analysis," Working Papers 04/2007, Stellenbosch University, Department of Economics.
  • Handle: RePEc:sza:wpaper:wpapers35
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    References listed on IDEAS

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    1. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
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    8. Ramos Mabugu & Margaret Chitiga, 2007. "Poverty and Inequality Impacts of Trade Policy Reforms in South Africa," Working Papers MPIA 2007-19, PEP-MPIA.
    9. 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, International Microsimulation Association, vol. 3(1), pages 104-108.
    10. Jeffrey Frankel & Ben Smit & Federico Sturzenegger, 2008. "South Africa: Macroeconomic challenges after a decade of success1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(4), pages 639-677, October.
    11. 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.
    12. Mohamed Hedi Bchir & Yvan Decreux & Jean-Louis Guérin & Sébastien Jean, 2002. "MIRAGE, a Computable General Equilibrium Model for Trade Policy Analysis," Working Papers 2002-17, CEPII research center.
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    Cited by:

    1. Asiya Maskaeva & Mgeni Msafiri, 2021. "Youth unemployment hysteresis in South Africa: Macro-micro analysis," WIDER Working Paper Series wp-2021-20, World Institute for Development Economic Research (UNU-WIDER).
    2. 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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    More about this item

    Keywords

    Sequential dynamic CGE; microsimulation; ASGISA; poverty; welfare; growth; South Africa;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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