THE RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH IN SOUTH AFRICA FROM 1981-2019: AN ARDL AND ECM APPROACH

Abstract

This study examines the relationship between government expenditure and economic growth in South Africa for the period spanning from 1981 to 2019. The study utilises the available annual time series data sourced from the South African Reserve Bank (SARB), the World Bank and Knoema from 1981 to 2019. Statistical results from the ARDL model show that there is a negative and insignificant long run relationship between government expenditure and economic growth in South Africa. Results from the ECM show that there is a short run positive and statistically significant relationship between government expenditure and economic growth. Government expenditure can therefore be used as a short run stabilisation tool since the relationship is positive and statistically significant. In the long run however, the government should promote investment as it boosts economic growth and helps the avoid crowding out effect of investment in South Africa