South Africa - sources and constraints of long-term growth 1970-2000

This paper is a result of a wider policy research and knowledge work on growth and jobs issues in South Africa, which the World Bank promotes in collaboration with leading South African researchers. The objective is to contribute to major economic and policy issues facing South Africa as it embarks on the second decade of its democratic transition. The paper takes stock of South Africa's past growth experience during the period 1970-2000. It discuses major factors of growth, including physical and human capital, and institutions, and draws conclusions about the constraints to long-run growth in the future. Three principal conclusions are as follows. First, empirically, one of the main reasons for South Africa's structurally declining growth rate is its declining investment rate in fixed capital, and a key determinant of investment appears to be uncertainty, especially uncertainty that arises from institutional constraints on economic performance. Second, despite considerable liberalization since 1994, there remain significant market distortions in the South African economy in capital, labor, and output markets, including external trade; therefore, much remains to be done to improve microeconomic policies and the efficiency of resource allocation. And third, the impact of human capital on growth reflects the twin combination of a declining contribution of human capital accumulation to growth and a declining quality of education.