Estimating the Role of Government in Socio-Economic Development in South Africa

Abstract

The paper examines the relationship between government and socio-economic development in South Africa. The analysis focuses on 1996-2020. Various estimations were undertaken, through the Autoregressive Distributed Lag (ARDL) model, to empirically examine the role of government in socio-economic development in South Africa. Because of the unit root that typically characterizes macroeconomic series, the unit root test using the Augmented Dick Fuller (ADF) test with constant, and trend was done. In addition, the ARDL bound tests were undertaken. The results confirm that government has an important role to play in the economy. However, results show that economic growth does not necessarily translate to socio-economic development although government spending does. In addition, results also confirm that institutions and educational spending are important for social and economic development. For instance, improvements in the quality of institutions increases the human development index. In the same vein, there is a strong positive correlation between increased socio-economic development and spending on education. Results show that the quality of institutions is important for both economic growth and socio-economic development. Overall, the findings support the view that governments should be active in facilitating social and economic development. This is more so in instances where economic performance weakens due to exogenous factors such as the coronavirus pandemic. It is worth highlighting that the baseline ARDL results show that the correlation between gross domestic product (GDP) and its prior values is statistically significant, indicating a meaningful relationship between GDP and socio-economic development.