Working Paper: NBER ID: w12565
Authors: Dani Rodrik
Abstract: South Africa has undergone a remarkable transformation since its democratic transition in 1994, but economic growth and employment generation have been disappointing. Most worryingly, unemployment is currently among the highest in the world. While the proximate cause of high unemployment is that prevailing wages levels are too high, the deeper cause lies elsewhere, and is intimately connected to the inability of the South African to generate much growth momentum in the past decade. High unemployment and low growth are both ultimately the result of the shrinkage of the non-mineral tradable sector since the early 1990s. The weakness in particular of export-oriented manufacturing has deprived South Africa from growth opportunities as well as from job creation at the relatively low end of the skill distribution. Econometric analysis identifies the decline in the relative profitability of manufacturing in the 1990s as the most important contributor to the lack of vitality in that sector.
Keywords: South Africa; Economic Growth; Unemployment; Manufacturing; Structural Change
JEL Codes: O11; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in relative profitability of manufacturing (O14) | Lack of vitality in manufacturing sector (L52) |
| 10% reduction in relative prices (F61) | 10% decline in total and unskilled employment in manufacturing (F66) |
| Skill upgrading (J24) | Negative impact on unskilled employment (F66) |
| Total factor productivity growth (O49) | Increase in output (E23) |
| Total factor productivity growth (O49) | Reduction in employment (J63) |
| Decline in relative prices (E31) | Decline in manufacturing employment (O14) |