The implication of electricity shocks and selected governance indicators on growth prospects : a comparative analysis between South Africa and China

Abstract

This study investigated comparatively the implications of electricity shocks and governance indicators on economic growth in South Africa and China for 1995 to 2021 period. The two economies have been facing a slow growth rate for over a decade now, and that is a major concern considering the importance of growth in any country. The key variables investigated were electricity supply, corruption, political instability and economic growth. Subsequently, inflation, debt and money supply were added as control variables in the study to strengthen the models. The study used Autoregressive Distributed Lag (ARDL) to test for the relationship among variables, and Granger causality to test for causality. The preceding techniques used were impulse response function and variance of decomposition to forecast economic growth in relation to the shock in electricity supply. The ARDL long-run results revealed a negative relationship between economic growth and all the key macroeconomic variables in South Africa and China. The results further showed that all the key variables have a dire effect on the economic growth of South Africa, whereas they have little impact on the economic growth of China. The short-run results revealed contradictory results across the two countries. The Granger causality test results found evidence of causality only in political instability and economic growth in South Africa and no causality in China. The impulse response function results exhibited that economic growth responds negatively to shocks from electricity supply in South Africa, whereas it responds positively in China. Due to that, the study consequently recommended that South Africa follow some of China’s policies to solve its electricity issues. The study further recommended that the policymakers of both countries focus more on policies that promote accountability and transparency. That will reduce corruption and political instability levels in both economies and ultimately improve economic growth. The study added that the policymakers of South Africa should implement policies to address these challenges urgently as their effects are more pronounced in the country.