Nature and association of public and private investment: Public policy implications for South Africa

Abstract

South Africa has a low investment-to-GDP ratio compared to other developing countries. The share of government investment in the total investment has also been declining. In this context, the paper uses quarterly data from 1960 to 2005 to analyse the nature and relationship between public and private investment in South Africa. The findings of the study have strong policy implications and indicate that although public investment is not “crowding in/out” private investment, it exerts an indirect impact on private investment through the accelerator effect. Hence an increase in government spending on infrastructure and social sectors is likely to enhance private investment in the country. Therefore a more proactive fiscal policy is suggested to increase the investment-GDP ratio which can stimulate higher growth rates. Key words: Crowding in/out, public investment, infrastructure.