Clement

Clement

@Clement Tsabatho
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Economic growth is a fundamental objective for nations seeking to enhance living standards, reduce poverty, and achieve sustainable development. It is often influenced by various macroeconomic factors, including investment, employment, technological advancements, and institutional frameworks. Among these factors, gross capital formation and employment play a crucial role in shaping economic performance. Gross capital formation, which includes investment in physical assets such as infrastructure, machinery, buildings, is a key driver of productive capacity and economic expansion (Slow, 1956). Similarly, employment contribute to growth by enhancing labour productivity, increasing household incomes, and fostering aggregate demand (Todaro & Smith, 2020) The relationship between capital formation, employment, and economic growth has been extensively studied in economic literature. Classical and neoclassical growth theories emphasize the role of capital accumulation in enhancing production capabilities and driving long-term economic progress (Harrod, 1029: Domar, 1946). Endogenous growth models further highlight the significance of investment in human and physical capital, as well as technological advancements, in sustaining economic expansion (Romer, 1986). Employment, on the other hand, is a crucial determinant of economic stability and social welfare, as higher employment levels reduce dependency ratios, increase disposal income, and stimulate consumer spending, which in turn supports economic growth (Keynes, 1936). In the context of South Africa, economic growth has been inconsistent, with structural challenges such as high unemployment rates, income inequality, and insufficient investment in capital intensive industries limiting the country’s development potential (Statistic South Africa, 2022). Additionally, weak gross capital formation has constrained productive capacity and long-term economic development (World Bank, 2023). Given these challenges, understanding the dynamic relationship between capital formation, employment and economic growth is critical for formulating effective policies aimed at stimulating sustainable economic progress. This study seeks to explore the impact of gross capital formation and employment on economic growth in South Africa using the Autoregressive Distributed Lag (ARDL) approach. By employing this econometric technique, the study will assess both short-run and long-sun relationships among the selected variables. The findings will contribute to the existing body of knowledge on economic growth determinants and provide insights for policymakers on strategies to enhance investment, create employment opportunities, and drive sustainable development in South Africa.

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