Determinants of private investment and its effects on economic growth in South Africa 1982-2019

Abstract

Private investment stimulates growth in any economy, and increasing it is one of the prerequisites for achieving a sustainable economic growth, hence, private investment is another source of employment, in addition to positively contributing to national economic output. Countries which can accumulate high levels of investment achieve faster rates of economic growth and development. Motivated by concerns on the persistent decline in private investment, the purpose of this study is to investigate effects of private investment on economic growth in South Africa using time series data for the period 1982 - 2019. A total of 37 observation of economic growth, inflation rate, public investment, credit to private sector, real exchange rate, Human capital, Labour force, Private investment and interest rate were be used in this study. Multiple regression and co-integration methods were employed to analyse the data. To avoid spurious regression results on time series data, the first step was to test for the stationarity of the data by using Augmented Dickey- Fuller. The study used Johansen co-integration technique to establish if the nonstationary variables are co-integrated. The study concludes that private and public investment are positively correlated with economic growth in the short and long run in South Africa. The study informs policymakers and stakeholders, including the government, municipal authorities and employers in the private and public sectors in relation to formulation of possible policy intervention to help stimulate and sustain private investment and therefore economic growth.