The nexus of infrastructure spending, public debt and inflation shaping the South African economy

Daniel F. Meyer

Article ID: 10284
Vol 9, Issue 2, 2025


Abstract


This study investigated the influence of infrastructure spending, government debt, and inflation on GDP in South Africa from 1995 to 2023. Motivated by the need for sustainable growth amid fiscal and inflationary pressures, this research addresses gaps in understanding how these factors shape economic performance. The primary objective was to assess these variables’ individual and combined effects on GDP and offer policy recommendations. Using an ARDL model, the study explored long- and short-term relationships among the variables. Results indicate that infrastructure spending positively impacts GDP, promoting long-term growth, while government debt hinders GDP in both short and long runs. Moderate inflation supports growth, but excessive inflation poses risks. These findings imply the need for targeted infrastructure investments, strict debt management practices, and inflation control measures to sustain economic stability and growth. Policy recommendations include expanding public investment in productive infrastructure, implementing fiscal rules to prevent unsustainable debt levels, and maintaining inflation within a controlled range. Ultimately, these policies could help South Africa build a resilient, balanced economy that addresses both immediate growth needs and long-term stability.


Keywords


economic growth; government debt; inflation; infrastructure spending; South Africa

Full Text:

PDF


References


Abdullahi, M. M. (2016). External debt, debt overhang, crowding out effects and capital formation in Nigeria and South Africa [PhD thesis]. Universiti Utara Malaysia.

Afonso, A., & Jalles, J. T. (2013). Growth and productivity: The role of government debt. International Review of Economics & Finance, 25, 384–407. https://doi.org/10.1016/j.iref.2012.07.004

Agénor, P. R., & da Silva, L. A. P. (2013). Inflation targeting and financial stability: a perspective from the developing world. Washington, DC: Inter-American Development Bank.

Ahmed, R., Aizenman, J., & Jinjarak, Y. (2021). Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance. Journal of Macroeconomics, 67, 103281. https://doi.org/10.1016/j.jmacro.2020.103281

Antwi, S., Zhao, X., & Mills, E. F. E. A. (2013). Impact of Macroeconomic Policies on the Ghana Stock Exchange: A Cointegration Analysis. International Business Research, 6(3). https://doi.org/10.5539/ibr.v6n3p100

Awuni, P. D. (2021). Government Expenditure And Private Investment In Ghana [PhD thesis]. University Of Ghana.

Babatunde, S. A. (2018). Government spending on infrastructure and economic growth in Nigeria. Economic Research-Ekonomska Istraživanja, 31(1), 997–1014. https://doi.org/10.1080/1331677x.2018.1436453

Bassanini, F., & Reviglio, E. (2011). Financial stability, fiscal consolidation and long-term investment after the crisis. OECD Journal: Financial Market Trends, (1), 31–75.

Bruno, M., & Easterly, W. (1998). Inflation crises and long-run growth. Journal of Monetary Economics, 41(1), 3–26.

Coyle, D. (2015). GDP: a brief but affectionate history-revised and expanded edition. Princeton University Press.

Cwik, T., & Wieland, V. (2011). Keynesian government spending multipliers and spillovers in the euro area. Economic Policy, 26(67), 493–549. https://doi.org/10.1111/j.1468-0327.2011.00268.x

Daniel, S. U., Israel, V. C., Chidubem, C. B., et al. (2021). Relationship Between Inflation and Unemployment: Testing Philips Curve Hypotheses and Investigating the Causes of Inflation and Unemployment in Nigeria. Path of Science, 7(9), 1013–1027. https://doi.org/10.22178/pos.74-13

Das, N. (2017). A Time Series Analysis on the Relation between Foreign Direct Investment & Total Factor Productivity Growth of the Indian Organised Manufacturing Sector: 1980-81 to 2010-11. Pacific Business Review International, 9(8), 78–91.

Fedderke, J., & Liu, Y. (2018). Inflation in South Africa: An Assessment of Alternative Inflation Models. South African Journal of Economics, 86(2), 197–230. Portico. https://doi.org/10.1111/saje.12192

Fedderke, J. W., & Bogetić, Ž. (2009). Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures. World Development, 37(9), 1522–1539. https://doi.org/10.1016/j.worlddev.2009.01.008

Fischer, S. (1993). The role of macroeconomic factors in growth. Journal of Monetary Economics, 32(3), 485-512.

Foster, V., Rana, A., & Gorgulu, N. (2022). Understanding Public Spending Trends for Infrastructure in Developing Countries. Policy Research Working Paper. https://doi.org/10.1596/1813-9450-9903

Girdzijauskas, S., Streimikiene, D., Griesiene, I., et al. (2022). New Approach to Inflation Phenomena to Ensure Sustainable Economic Growth. Sustainability, 14(1), 518. https://doi.org/10.3390/su14010518

Hassan, M., & Nassar, R. (2015). Effects of debt and GDP on the unemployment rate: an empirical study. Journal of International Business Disciplines, 10(2).

Herrera, R. F., Sánchez, O., Castañeda, K., et al. (2020). Cost Overrun Causative Factors in Road Infrastructure Projects: A Frequency and Importance Analysis. Applied Sciences, 10(16), 5506. https://doi.org/10.3390/app10165506

Holtfrerich, C. L., Feld, L. P., Heun, W., et al. (2016). Government debt: causes, effects and limits. Berlin-Brandenburg Academy of Sciences and Humanities. Berlin, 76.

Imran, M., & Niazi, J. (2011). Infrastructure and growth. The Pakistan Development Review, 355–364.

Jean-Paul, F., & Martine, D. (2018). Beyond GDP measuring what counts for economic and social performance: measuring what counts for economic and social performance. OECD Publishing.

Judijanto, L., & Kusnadi, I. (2024). The impact of inflation on economic growth: a comprehensive literature study. Journal of Community Dedication, 4(4), 786–796.

Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253–268.

Mandeya, S. M. T., & Ho, S. Y. (2021). Inflation, inflation uncertainty and the economic growth nexus: An impact study of South Africa. MethodsX, 8, 101501. https://doi.org/10.1016/j.mex.2021.101501

National Treasury. (2024). Infrastructure spending data. Available online: https://www.treasury.gov.za/documents/National%20Budget/2024/review/Annexure%20D.pdf#:~:text=Public%E2%80%90sector%20infrastructure%20spending%20over%20the%202024%20medium%E2%80%90term%20expenditure,projected%20R374.7%20billion%20over%20the%20next%20three%20years (accessed on 23 October 2024).

Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: application and interpretation. Journal of Statistical and Econometric Methods, 5(4), 63–91.

Panizza, U., & Presbitero, A. F. (2013). Public debt and economic growth in advanced economies: A survey. Swiss Journal of Economics and Statistics, 149(2), 175–204. https://doi.org/10.1007/bf03399388

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. Portico. https://doi.org/10.1002/jae.616

Quantec. (2024). Regional Economic data. Available online: https://www.quantec.co.za/easydata/ (accessed on 20 September 2024).

Ramey, V. (2020). The Macroeconomic Consequences of Infrastructure Investment. National Bureau of Economic Research, 10, w27625. https://doi.org/10.3386/w27625

Raudino, S., & Raudino, S. (2016). The Theory of Economic Development. Development Aid and Sustainable Economic Growth in Africa: The Limits of Western and Chinese Engagements, 43–77.

Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt. American Economic Review, 100(2), 573–578. https://doi.org/10.1257/aer.100.2.573

Romp, W., & de Haan, J. (2007). Public Capital and Economic Growth: A Critical Survey. Perspektiven Der Wirtschaftspolitik, 8(S1), 6–52. https://doi.org/10.1111/j.1468-2516.2007.00242.x

Seccareccia, M. (1995). Keynesianism And Public Investment: A Left-Keynesian Perspective On The Role Of Government Expenditures And Debt. Studies in Political Economy, 46(1), 43–78. https://doi.org/10.1080/19187033.1995.11675366

Sekwati, D., & Dagume, M. A. (2023). Effect of Unemployment and Inflation on Economic Growth in South Africa. International Journal of Economics and Financial Issues, 13(1), 35–45. https://doi.org/10.32479/ijefi.13447

Semjonova, N. (2017). Government Debt and GDP Growth. In Financial Environment and Business Development: Proceedings of the 16th Eurasia Business and Economics Society Conference (pp. 267-283). Springer International Publishing.

Shaddady, A. (2022). Is Government Spending an Important Factor in Economic Growth? Nonlinear Cubic Quantile Nexus from Eastern Europe and Central Asia (EECA). Economies, 10(11), 286.

Srinivasu, B., & Rao, P. S. (2013). Infrastructure development and economic growth: Prospects and perspective. Journal of Business Management and Social Sciences Research, 2(1), 81–91.

Statistics South Africa (StatsSA). (2024). Consumer Price Index. Available online: https://www.statssa.gov.za/publications/P0141/P0141June2024.pdf (accessed on 18 September 2024).

Stiglitz, J., Ocampo, J. A., Spiegel, S., et al. (2006). Stability with growth: macroeconomics, liberalisation and development. OUP Oxford.

Straub, S. (2008). Infrastructure and growth in developing countries. World Bank Publications.




DOI: https://doi.org/10.24294/jipd10284

Refbacks

  • There are currently no refbacks.


Copyright (c) 2025 Author(s)

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.