The geographical economy of South Africa

Abstract

This study examines the determinants of economic growth at sub-national level in South Africa, and investigates cross-locality medium-term (five-year) growth rate differentials between 354 magisterial districts. The period in question is 1998 to 2002. A dynamic panel data regression model is used that includes measures of geography (distance and natural resources) as well as recent estimates of physical and human capital. It is found that the significant determinants of local economic growth are distance from internal markets, human capital, export propensity, and the capital stock of municipalities (reflecting institutional quality and governance on local government level). Distance from international harbours, as a measure of transport costs, and urban agglomeration (or density) affects growth indirectly through its significant effect on the ability of a region to export. Overall, these results indicate that geography is important for economic growth, independent of its effects in institutions. Bearing in mind the medium-term focus of the work, no evidence of absolute convergence could be found over a five-year period, rather the tentative evidence suggests slow beta convergence.