Structural change in the South African agricultural sector: Bai-Perron modelling

Abstract

There is a consensus that the agricultural sector in developing countries has ascendancy in elevating economic growth through structural change; hence continued improvements are imperative, especially in the case of countries such as South Africa with a low agricultural GDP contribution to the economy. Policymakers have to keep a handle on structural change issues. However, the dawdling research on structural change, particularly in the agricultural sector in South Africa, causes a fallback on the sector's development due to the absence of quality evidence-based policy research. This study analysed structural breaks in the agricultural sector using the value of agricultural production as a variable and then evaluated the effects of economic factors such as employment, exports, government expenditure, and inflation on the value of agricultural production output in the presence of each significant structural break between 1983 and 2020. The Bai-Perron test forecasted two structural break dates (1988 and 1994) in South Africa's agricultural sector. The model results reveal that agricultural exports positively influenced the value of agricultural production output in the resulting two structural change regimes, while employment in agriculture, government expenditure in agriculture, and inflation positively influenced the value of agricultural production output only in the regime 1994–2020. The recommendation is that policy reforms aimed at boosting agricultural exports should be pursued.