Government expenditure, gross fixed capital formation and carbon dioxide emissions within climate change context in South Africa

Abstract

The purpose of this study was to evaluate the effectiveness of government expenditure and investment in attaining low carbon emissions in South Africa. Particular attention is paid to differential effectiveness of government expenditure on research and development (R&D) and gross fixed capital formation (GFCF) on lowering carbon dioxide emissions. By 2030 South Africa is aspiring to be a climate-change resilient economy and low carbon-economy. The National Development Plan identified zero carbon-emission building standards, less carbon-intensive electricity production and economy wide carbon price as critical in efforts to achieve inclusive, low-carbon and resource-efficient economy. This study evaluated the effectiveness of government expenditure on research and development (R&D) and gross fixed capital formation on reducing carbon dioxide emissions. The study applied the autoregressive distributed lag (ARDL) bound test for cointegration, fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares(DOLS). The research used time series data from 1990-2022. The ARDL estimation results showed that gross fixed capital formation increases carbon dioxide emissions in both the short and long run. FMOLS and DOLS models confirm that GFCF promote carbon emissions in the long run though with different magnitudes. This outcome suggested that infrastructure development aimed to build an economy might lead to excessive depletion of natural resources, disruption of eco-systems and threat to climate change. Regarding, outcomes obtained from ARDL, FMOLS and DOLS indicate that government expenditure on research and development emerged as influential in lowering carbon dioxide emissions. South Africa faces challenges to balancing economic growth with carbon dioxide emissions. The findings of this research have implications to government providing insights to spend more on research and development.