To what extent does the Keynesian approach hold in the South African economy?

Abstract

Since macroeconomics examines issues about the entire economy, including the business cycle, GDP, inflation, and unemployment, it is a strongly debated area of economics. However, it has become clear that attempts by the government to solve these issues through economic policies have significant social, political, and economic repercussions, especially post the covid 19 lockdown pressures and the Ukraine-Russia warinduced inflation since 2022, as evidenced by lacklustre economic growth figures and increased unemployment in the same period. The study adopts an augmented Keynesian model of macroeconomics to reflect on these contestations and implications. Furthermore, utilising annual data from 1994 to 2023, the econometric technique ARDL was used to understand better the implications of the Keynesian approach in South Africa and whether a different policy approach should be adopted. The study found that the variables in the model are cointegrated at the 1% level of significance, revealing a positive long-run influence on GDP. Furthermore, the results revealed a positive long-run impact of Gross Capital Formation and Consumption. Additionally, the ARDL error correction model revealed that the model will converge back to equilibrium at a speed of 60.89%. The study recommends that in order to continue influencing investment decisions, the government and the South African Reserve Bank should manage and monitor pectations, interest rates, and government policy.