Implications of electricity supply shocks and technological advancement on total factor productivity : a case of South Africa

Abstract

This study investigated the implications of electricity supply shocks and technological advancement on total factor productivity in South Africa. To represent electricity supply shocks, electricity production and electricity prices were used. Meanwhile, research and development, patents, and investment in information and communication technology were considered for technological advancement. The study employed the Autoregressive Distributed Lag (ARDL) approach to examine the implications of electricity production, electricity prices, R&D, patents, and investment in ICT on TFP in South Africa from 1999 to 2022. Descriptive statistics confirmed the normal distribution of variables, and correlation analysis revealed a positive correlation between electricity production, R&D, patents, and TFP, with a negative correlation between investment in ICT and electricity prices. The ARDL long-run results revealed a positive relationship between electricity production and TFP, whereas electricity prices have a negative relationship with TFP. R&D and investment in ICT have a negative relationship with TFP, whereas patents positively affect TFP. The Granger Causality test revealed a two-way causal relationship between total factor productivity and electricity production. A one-way causal link exists between electricity prices, total factor productivity, and electricity prices and electricity production in South Africa, highlighting their pivotal role in driving productivity. The Impulse Response Function illustrated the short-term positive impact of electricity production on TFP, followed by a long-term negative trend. Conversely, electricity prices consistently negatively influenced TFP throughout the same period. Given these findings, the South African government should prioritise policies supporting low electricity prices, renewable energy development, and transparent pricing mechanisms to enhance TFP and electricity production. Promoting R&D, innovation, and investment in ICT is crucial for sustained economic growth. Aligning policies with these drivers while addressing negative factors is a key for South Africa's productivity and energy transition goals.