Analysis of Government Expenditure and Sectoral Employment in the Post-apartheid South Africa: Application of ARDL Model

Paul-Francois Muzindutsi,Thomas Habanabakize

doi:10.22610/jebs.v9i2.1663

Abstract

The current study has been designed to analyse the interactions between real government spending and job creation in South Africa focusing on five major economic sectors, namely construction, financial, manufacturing, mining, and retail sectors. The main objective of the study was to determine how job creation in different economic sectors responds to changes in real government spending. To achieve this objective, the study used five different autoregressive distributed lag (ARDL) models to analyse the long-run and shot-run relationships between government spending and employment rate in each of the aforementioned five economic sectors. The sample period consisted of quarterly observations starting from the first quarter of 1994 to last quarter of 2015. The study found a long-run relationship between government spending and job creation in the mining sector but there was no evidence of long-run relationships between government spending and jobs creation in construction, financial, manufacturing, and retail sectors. The short-run analysis showed that government spending could create jobs in all five sectors. This paper concluded that increasing government spending can only create short-term jobs but does not create lasting jobs in most sectors, except the mining sector. To increase the number of durable jobs, the South African government should therefore increase spending on mining sector.

Highlights

Unemployment remains a persistent serious challenge for many countries and it negatively affects economic growth and social wellbeing
South Africa’s unemployment rate faced a shortfall and employment rate increased by one percent in 2015 (StatsSA, 2015). This decline in the unemployment rate was a result of improved job creation in some South African economic sectors (StatsSA, 2015)
The expectation was that government spending creates, or at least stimulates, employment in different economic sectors as suggested by the literature

Summary

Introduction

Unemployment remains a persistent serious challenge for many countries and it negatively affects economic growth and social wellbeing. South Africa’s unemployment rate faced a shortfall and employment rate increased by one percent in 2015 (StatsSA, 2015) This decline in the unemployment rate was a result of improved job creation in some South African economic sectors (StatsSA, 2015). In trying to resolve the unemployment problem, South African government has introduced and implemented different strategies such as the Employment Tax Incentive (ETI) introduced in January 2014. The main aim of this study is to analyse how government spending can enhance job creation within different economic sectors. The objectives of this study are to compare short-run and long-run links between government expenditure and job creation in different economic sectors in South Africa and to identify the specific sectors that can boost job creation through government spending

Literature Review

Data and Methodology

Empirical Findings

Conclusion and Recommendations