Abstract
This study identifies and evaluates the sources and determinants of total factor productivity in the South African automotive industry. It uses the data envelopment analysis’ nonparametric Malmquist productivity index and an error correction model to address these objectives. The analysis is confined to the period of 45 years from 1970 to 2014, which is further divided into two sub-periods on the basis of the automotive policy governing the South African motor industry: i) local content programmes (1970 to 1994); ii) the Motor Industry Development Programme and the first two years of its successor, the Automotive Production and Development Programme (1995 to 2014). Results show that total factor productivity growth averaged 0.8 per cent per annum between 1970 and 2014, 0.1 per cent from 1970 to 1994 and 1.2 per cent between 1995 and 2014, largely attributable to technological change. In addition, human capital and trade openness were found to have a positive impact on total factor productivity growth in the long-run, meanwhile, inflation was found to have a detrimental impact on total factor productivity. Results also indicated that a disequilibrium in the system is corrected within a year at the speed of adjustment of 95 per cent.
M.Com. (Development Economics)