AN ECONOMETRIC ANALYSIS ON THE IMPACT OF BUSINESS CONFIDENCE AND INVESTMENT ON ECONOMIC GROWTH IN POST-APARTHEID SOUTH AFRICA

Year 2018, Volume: 10 Issue: 1, 115 - 133, 01.01.2018

Jacques De Jongh Precious Mncayi

Abstract

Over the last decade, the South African economy has endured lacklustre economic growth. Prevailing economic conditions have been characterised by a weak level of consumer demand, falling business investment and significant policy uncertainty. Although various factors have an underlining effect on this environment, the significance of low business confidence has recently come to the fore. The primary objective of the paper was to analyse the relationships between business confidence, investment and economic growth in the South African economy. A quantitative research approach using quarterly time series data from 1995Q1 to 2017Q4 was used. An autoregressive distributed lag (ARDL) model was employed in order to determine the long- and short-run effects of business confidence and investment on economic growth in the country. The results of the paper reveal a significant long-run relationship between economic growth levels in the South African economy and the independent variables. Results suggest that a one percent increase in confidence levels could lead to a 0.23 percent increase in growth, while a one percent increase in investment could contribute 0.34 percent towards economic expansion. Short-run coefficients indicate that growth levels are significantly positively affected by current business confidence levels as well as lagged investment activity. Results from the Toda-Yamamoto (T-Y) approach of Granger causality further confirmed that the BCI acts as a key leading indicator for investment and growth in the economy. Based on the findings, key strategies directed towards the promotion of growth and investment must revolve around the creation of an enabling environment for both firms and investors alike.

Keywords

Economic growth, business cycles, business confidence, domestic investment, South Africa

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