Public capital investment, economic growth and poverty reduction in South African Municipalities

Abstract

This study examines the relationship between public-sector capital investment, economic growth and poverty reduction at a municipal level in South Africa between 2001 and 2011. While much progress has occurred since 1994, poverty and inequality remain key developmental challenges for the state. Despite tremendous spending in capital investment programmes over the last decade, it is unclear how much this investment has contributed to the improvement in the living conditions and poverty status of households. Panel regression was used to analyse this relationship and the results support the hypothesis that there is a strong and positive relationship between economic growth and poverty reduction. The study's findings indicate that economic growth plays a significant role in reducing poverty; a 1 per cent increase in GVA correlates to between a 1.2 per cent and 1.5 per cent decrease in poverty levels. However, the results indicated relatively large increases in capital investments only result in small poverty reductions. Thus, this study raises doubt about the use of capital investment as a tool towards achieving poverty reduction targets as set by the South African government.JEL classification: I3, O40

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