2017 OECD Economic Surveys: South Africa 2017

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Over the last two decades, South Africa has accomplished enormous social progress by bringing to millions of citizens access to key public services. Nevertheless, growth has trended down markedly recently due to constraints on the supply side. Low growth has led to the stagnation of GDP per capita, and persistent high unemployment and inequalities.

The economy faces many structural challenges while high inflation limits room for monetary policy support  and high public debt constrains public spending. South Africa needs structural reforms that would boost the potential of the economy, in particular, broadening competition, limiting the size and grip of state-owned enterprises on the economy, and improving the quality of the education system.

Greater regional integration could provide new opportunities for growth by expanding market size. South African firms are well placed to benefit from deeper integration. However, lowering tariffs and non-tariffs barriers on trade, developing regional infrastructure and harmonising regulations are needed to foster regional integration.

More entrepreneurs and thriving small businesses would contribute to inclusive growth and job creation. Barriers to entrepreneurship include bureaucratic procedures and licensing, which are also an ongoing burden on small firms. An education system that better equippes students with basic and entrepreneurial skills would grow the pipeline of entrepreneurs. A better evidence base is crucial for more effective financial and non-financial support programmes to boost start-up rates and small firms’ growth.



Estimates of determinants of trade flows

Bilateral trade patterns are regressed with size and distance between countries in various specifications of the models (see Feenstra 2004, Head and Mayer 2015). In the literature, the best estimation results have been obtained with the Poisson pseudo-maximum likelihood method (Poisson-PML), which is robust to different patterns of heteroskedasticity and measurement errors (Santos Silva and Tenreyro, 2006). Also, introducing exporter and importer fixed effects to capture both market-size effects and multilateral-resistance indexes are now common in the equations (Harrigan 1996, Redding and Venables, 2004). Properly defining the multilateral-resistance variables brings the structural dimension as put forward by Anderson and van Wincoop (2003), Anderson and Yotov (2010), and Balistreri and Hillberry (2007) among others.


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