The impact of public infrastructure investment on South Africa's economy: evidence from social accounting matrix and computable general equilibrium-based approaches

Abstract

This paper assesses the general equilibrium impacts of public infrastructure investment in the South African economy, as a case of an emerging economy, by making use of complementary general equilibrium models, such as the social accounting matrix (SAM) multiplier, the Structural Path Analyses (SPA) and the Computable General Equilibrium (CGE) models. Contrary to studies that use partial equilibrium models, this paper shows the importance of an economy-wide model to analyse the effects of public infrastructure investment in an emerging economy. The results of the analysis, based on the SAM and CGE analyses using a 2015 SAM for South Africa, indicate that increasing public economic infrastructure can be an effective way of stimulating the economy in a way that has a positive impact on labour. SPA shows that the leading and most important path of influence is the direct influence of the public infrastructure investment on each formal labour category. However, because the public infrastructure investment does not employ informal labour, this labour account is only indirectly connected via intermediate consumption of the output of the construction sector. These results suggest that an increase in public economic infrastructure could help address the unemployment problem that exacerbates poverty in South Africa.