An Examination of Economic Development Causation through Time Series Analysis in South Africa

Recent literature considers gross fixed capital formation (formally referred to as gross domestic fixed investment) to be crucial to accelerate economic growth and increase employment levels. The current body of knowledge presents conflicting empirical evidence regarding the causal pathway among domestic investment, economic growth, and employment. This research provides an empirical contribution to the present discourse by analysing the positive and negative causal linkages in the South African economy among economic growth, domestic investment, and employment, incorporating the novel aspect of the current account over the period from the first quarter of 1999 to the fourth quarter of 2019. The investigation of causal relationships employs autoregressive distributed lag estimation techniques, the bounds cointegration test, and the Toda–Yamamoto causality test. We empirically demonstrate that a significant bidirectional causality relationship exists between real GDP and employment, employment and real GDP, real GDP and total investment, total investment and real GDP, the current account and employment. Furthermore, it demonstrated that a long-run relationship exists between the variables, which is further supported by the short-run dynamic interaction.