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An Analysis of Sub-National Economic Databases in South Africa

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An Analysis of Sub-National Economic Databases in South Africa An analysis of sub-national economic databases in South Africa MARILIZE DE KLERK 12992186 Dissertation submitted in partial fulfilment of the requirements for the degree Magister Commercii in Economics at the School of Economics, Potchefstroom Campus of the North-West University Supervisor: Prof. W.F. Krugell April 2012 Acknowledgements This dissertation would not have been possible without the guidance and help of several individuals who, in one way or another, contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, my utmost gratitude to Professor Waldo Krugell for his selfless and unfailing support as my dissertation adviser. I am sure it would have not been possible without his valuable help and guidance. Second, Professor Wilma Viviers and her academic staff at NWU (Potchefstroom campus) Department of Economics - thank you for giving me an opportunity to further my studies. On a more personal note, my parents, Jan and Linda de Klerk, my grandparents, as well as my sisters Renette and Anine for their steadfast support and faith in me. Dennis, for your support and encouragement in difficult times. Last but not least, the Lord Almighty for my abilities and for giving me the strength to complete this dissertation. Marilize de Klerk Johannesburg April 2012 2 Abstract South Africa faces significant challenges such as a low economic growth rate, high unemployment rate, high poverty rate and substantial inequality. These problems and their possible solutions have a spatial dimension that is often neglected. To support local economic development the public and private sectors require access to reliable sub-national data. Statistics South Africa collects and disseminates socio-economic data, but information about local economies is limited to two private sector databases. This dissertation sets out to analyse the validity and reliability of the economic data available at municipal level in South Africa. A comparison of the sub-national data from these two databases reveals differences in the estimates as a result of the different methodologies applied. Each database seems to be internally consistent. Over the period some places grew faster or slower than the national average in terms of population and value added but there is persistence in relative positions and ranking. This is the outcome that one would expect if local economies conform to the theories of geographical economies: growth occurs in agglomerations, but the process is cumulative and path dependent. The analysis found no evidence of “exploding standard errors”. Though the comparison of the two databases shows that they are internally consistent, it also shows that rankings between the two differ substantially. Different variables from the two databases should not be used together in analysis. The key caveat of this study is that the analysis does not extend to the construction of a sub- national database, but it provides the background for such an effort. Key words: Geographic concentration, agglomeration, growth determinants, South Africa, spatial economic development, sub-national data 3 Opsomming Suid-Afrika staar verskeie uitdagings soos lae ekonomiese groeikoers, hoë werkloosheid, hoë vlak van armoede en ongelykheid in die gesig. Hierdie uitdagings, sowel as die oplossings daarvoor, het gewoonlik ‘n ruimtelike aspek wat nie altyd aangespreek word nie. Die publieke- en privaat sektor benodig data op ‘n sub-nasionale vlak om ekonomiese ontwikkeling op ‘n plaaslike vlak te ondersteun. Statistiek Suid Afrika versamel en versprei sosio-ekonomiese data, maar dit is nie altyd beskikbaar op plaaslike vlak nie. Daar is wel twee privaat sektor databasisse wat inligting van plaaslike ekonomieë beskikbaar het. Die verhandeling ontleed die geldigheid en betroubaarheid van die ekonomiese data wat beskikbaar is op munisipale vlak in Suid-Afrika. Die vergelyking van die twee sub-nasionale databasisse van die privaat sektor openbaar verskille in die beramings as gevolg van die verskille in die metodologieë wat toegepas word. Dit wil voorkom of beide die databasisse intern konsekwent is. Sekere plekke het oor tyd vinniger of stadiger gegroei as die nationale gemiddeld, ten opsigte van populasie en waarde toegevoeg, maar die relatiewe posisies van plekke, ten opsigte van hul bydrae tot die nasionale totaal, het dieselfde gebly. Dit is die resultaat wat verwag word as daar aangeneem word dat plaaslike ekonomieë voldoen aan die teorieë van geografiese ekonomie: dat groei voorkom in agglomerasies, maar dat hierdie proses kumulatief is en afhang van besluite wat oor tyd geneem word. Die analise vind geen bewys van standaard afwykings wat “ontplof” nie. Alhoewel die vergelyking van die twee databasisse wys dat die data konsekwent is, wys dit ook dat die posisies van plekke tussen die twee baie verskil. Verskillende veranderlikes van die twee databasisse moet nie saam gebruik word in ‘n ontleding nie. Die tekortkoming van die studie is dat die ontleding nie fokus op die samestelling van ‘n sub- nasional databasis nie. Agtergrond inligting vir so ‘n poging word wel verskaf. Sleutelwoorde: Geografiese konsentrasie, agglomerasie, determinante van groei, Suid-Afrika, ruimtelike ekonomiese ontwikkeling, sub-nasionale data. 4 Table of Contents Chapter 1: Introduction ............................................................................................................ 9 1.1 Background .................................................................................................................... 9 1.2 Problem statement ...................................................................................................... 10 1.3 Motivation ..................................................................................................................... 11 1.4 Objectives .................................................................................................................... 12 1.5 Method .......................................................................................................................... 12 1.6 Delimitation and outline .............................................................................................. 13 Chapter 2: The Literature of the Location of Economic Activity ......................................... 14 2.1 Introduction ................................................................................................................. 14 2.2 Scale economies and agglomeration ......................................................................... 16 2.2.1 First-nature geography............................................................................................ 17 2.2.2 Second-nature geography ...................................................................................... 18 2.3 Factor mobility and migration ..................................................................................... 23 2.4 Transport costs ............................................................................................................ 26 2.5 Summary and Conclusions ......................................................................................... 28 Chapter 3: The South African Spatial Economy ................................................................... 30 3.1 Introduction .................................................................................................................. 30 3.2 History of South Africa’s spatial development .......................................................... 30 3.2.1 History of spatial development pre-democratisation ................................................ 31 3.2.1.1 The Agricultural Period (1652 – 1800) ................................................................. 31 3.2.1.2 The Agricultural – Mineral Period (1800 – 1900) ................................................. 32 3.2.1.3 The Agricultural – Mineral – Industrial Period (1900 – onwards) .......................... 33 3.2.2 Spatial development after democratisation ............................................................. 39 3.2.2.1 The Reconstruction and Development Plan (RDP) .............................................. 41 3.2.2.2 South Africa’s new macroeconomic strategy ....................................................... 42 3.2.2.3 The Manufacturing Development Programme (MDP) .......................................... 44 3.2.2.4 Spatial Development Initiatives (SDIs) and Industrial Development Zones (IDZs) 45 3.2.2.5 Local Economic Development (LED) .................................................................. 49 3.3 New or planned initiatives affecting South Africa’s spatial economy ...................... 52 5 3.3.1 New Growth Path .................................................................................................... 52 3.3.2 National Development Plan .................................................................................... 53 3.3.3 Special Economic Zones ........................................................................................ 54 3.4 Overview of the literature on the South African spatial economy ............................ 56 3.4.1 Other research at sub-national level ....................................................................... 56 3.4.1.1 Studies at sub-national level ................................................................................ 57 3.4.1.2 Studies of demographics ..................................................................................... 59
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