Determinants of Eastern Cape Gross Fixed Capital Formation and Its Impact on the South African Economic Performance

Abstract

This study aimed at investigating the factors that determine gross fixed capital formation in the Eastern Cape province of South Africa using time series autoregressive distributive lags (ARDL) on a data covering 1996-2015. We are constraint with the time length of the data because the range of time falls within the period when South Africa got her independence and actually the reliability of most data for most economic activities began after independence. The analyses carried out in this study are basically from two study dimensions. Firstly, we investigated which factors determine the growth of Eastern Cape Gross fixed capital formation and the classification of all economic activity into primary, secondary and tertiary sectors enabled us to identify the significant role of tertiary sector among others in analyzing which factors determine Easter Cape gross fixed capital formation. Again, growth is enhanced through the following determinants: Catering and Accommodation (TF17) and not necessarily when Wholesale and retail trade is inclusive; Again, there is a better performance of the GFCF in the tertiary sector with Communication (TG19) than when Transport and storage are merged together, and finally, Business services (TH21) behaves better with tertiary sector than when it combines with Finance, Insurance and real estate. Hence, for policy implication, the growth of primary and secondary should be considered urgent and should be given ultimate policy consideration as it appears that these sections contribute very negligibly to the growth of Eastern Cape gross fixed capital formation.