Potential Output and total Factor Productivity Growth in Post-Apartheid South Africa

IMF Working Papers, September 1, 2003

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Potential Output and total Factor Productivity Growth in Post-Apartheid South Africa

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Bibliographic details

• Authors: Vivek Arora, Ashok Bhundia
• Published: September 1, 2003
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451858976.001

Key findings

• The paper provides estimates of potential output growth in post-apartheid South Africa using both time trend techniques and a production function approach.
• The production function approach indicates a potential growth rate of around 3 percent.
• The implied output gap provides statistically significant information for predicting inflation and could thus provide valuable input for formulating macroeconomic policy.
• Growth accounting and regression analysis suggest that an increase in trend GDP growth after the end of apartheid in 1994 is attributable to higher TFP growth driven by trade liberalization and greater private sector participation.

Methodology

• Two complementary approaches are used:
  • Time trend techniques to estimate potential output.
  • A production function approach to derive potential growth rates and the implied output gap.
• Growth accounting and regression analysis are applied to decompose sources of trend GDP growth and to identify drivers of total factor productivity (TFP) changes.

Implications for policy and forecasting

• The statistically significant relationship between the implied output gap and inflation implies the output gap can be a useful indicator for monetary and macroeconomic policy formulation.
• Identification of TFP improvements as a driver of post-1994 trend growth highlights the macroeconomic importance of structural reforms such as trade liberalization and policies facilitating private sector participation.

Drivers of post-apartheid growth acceleration

• Higher TFP growth is identified as the main contributor to the observed increase in trend GDP growth after 1994.
• Policy changes cited as drivers of higher TFP:
  • Trade liberalization.
  • Greater private sector participation.

Content in this bundle

• Potential Output and total Factor Productivity Graowth in Post-Apartheid South Africa - WP/03/178
  • Potential Output and total Factor Productivity Graowth in Post-Apartheid South Africa - WP/03/178 (Markdown version)
  • Potential Output and total Factor Productivity Graowth in Post-Apartheid South Africa - WP/03/178 (PDF)