Abstract
This study estimates total factor productivity in the manufacturing sector in South Africa across municipalities and empirically examines its main determinants. The study used growth-accounting techniques to determine values of total factor productivity as the residual. Furthermore, the study uses the generated values of total factor productivity to examine its determinants and assess whether heterogeneity exists across South African municipalities. The growth-accounting model shows that the average level of total factor productivity is higher in the metros, followed by that in secondary cities and in local municipalities. Moreover, the results show that growth in total factor productivity is one of the most essential factors of gross value added growth in the manufacturing sector. Overall, the average total factor productivity score for South Africa over the period 1993 to 2016 is 6.52. Fixed-effects techniques are used and the following factors were found to be determinants of higher total factor productivity levels: access to electricity and water, trade openness, secondary education, post-secondary education and population density. On the other hand, human immunodeficiency virus rate and specialisation were found to have a negative impact on total factor productivity. The magnitude of the coefficients of both secondary and post-secondary education shows that all levels of education are the most important determinant of total factor productivity. Based on the fact that total factor productivity differs across municipalities, and that the identified key macroeconomic variables identified in this study affect total factor productivity differently across municipalities, economic policy makers at the municipal level need to take cognisance of the need for policy to vary according to the economic profile and specificities of individual municipalities. Also, from a policy-making perspective, measures targeting the previously mentioned determinants should prioritise both secondary and post-secondary education.
M.Com. (Development Economics)