Original Research

Micro-simulations of a dynamic supply and use tables economy-wide Leontief-based model for the South African economy

Kambale Kavese, Andrew Phiri
South African Journal of Economic and Management Sciences | Vol 23, No 1 | a3431 | DOI: https://doi.org/10.4102/sajems.v23i1.3431 | © 2020 Kambale Kavese, Andrew Phiri | This work is licensed under CC Attribution 4.0
Submitted: 19 October 2019 | Published: 20 November 2020

About the author(s)

Kambale Kavese, Department of Economics, Faculty of Business and Economic Science, Nelson Mandela University, Port Elizabeth, South Africa
Andrew Phiri, Department of Economics, Faculty of Business and Economic Science, Nelson Mandela University, Port Elizabeth, South Africa


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Abstract

Background: South Africa has not fully recovered from the 2008 global recession. The World Bank has predicted that South Africa will be one of the worst performers in sub-Saharan Africa in 2020 with tepid growth of 1.3% which is far below the National Development Plan targets growth of 5.4% required a year to reduce unemployment, create decent jobs and generate enough revenue for social development.

Aim: We aim to examine whether changes in the components of final demand (changes in government spending, household consumption expenditure, exports, investment spending) have a considerable effect on the sector’s gross value added, job creation and tax revenue generation and whether there were changes in the exogenous final demand in die post-recession period.

Setting: We focus on building supply and use tables based on 62 different sectors of the South African economy.

Methods: An economy-wide Leontief multiplier-based model calibrated on a supply and use framework and a micro-simulation model is used to assess post-recession trends in macroeconomic, labour and fiscal multipliers for South Africa.

Results: The simulations show that during the post-recession era, the effect of exogenous shock in the economy, like an increase in investment spending, although positive, yields a smaller return in terms of tax revenue, job creation and economic growth. At sector level, the results show that the inter-industry links and industry-consumer links have therefore weakened.

Conclusion: Our findings imply that the persisting low growth trajectory associated with weaker inter-industry linkages could be exacerbated, while the fiscal austerity measures associated with weaker forward and backword tax linkages could be prolonged. We recommend government should follow a priorities-based spending policy that yields optimal socioeconomic returns.


Keywords

supply and use tables; fiscal multipliers; employment multipliers; micro-simulations; South Africa.

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