Trade and Industry

Wednesday, 01 December 2004

A Gap and Macro Decomposition Analysis for South Africa, 1993-2002

  • Year: 2004
  • Author(s): Rob Davies; Dirk Ernst van Seventer
  • Countries and Regions: South Africa

The South African government is evaluating the economy’s performance over its first decade in power. This period can be characterised by a ‘double’ liberalisation: democratisation of the political process going hand in hand with liberalisation of the economy. This paper provides a broad overview of the macroeconomic aspects of this liberalisation.

Economic liberalisation might be expected to change the working of the macroeconomy: as the economy opens up, the foreign sector should begin to play more of a role in aggregate demand. Also, the lifting of constraints may disturb the established savings-investment process as new economic conditions face savers and investors. From this perspective, one of the questions that comes to mind when examining the macroeconomic policies, trends and events in the last ten years of the South African economy, is whether or not there have been significant changes during the liberalisation period in demand side parameters such as import coefficients and savings rates along with jumps in flows such as annual exports, investment, etc. Following methodologies presented in Berg & Taylor (2001) and Davies & Rattsø (2001), it is perhaps interesting to look at how output has responded to these shifts, using a simple three gap analysis and decomposition of aggregate demand "injections" (investment, government spending, exports) versus "leakages" (saving, taxes, imports). The key point is that in macroeconomic equilibrium, totals of injections must be equal to the total of leakages.