Abstract
South Africa is characterised by widespread inequality and divided societies, which impede economic
growth and social development. Basic and social infrastructure investment can assist in addressing
these challenges by promoting economic growth and social development. The aim of this study is to
determine if basic and social infrastructure investment differently effect economic growth and social
development indicators of urban and rural municipalities respectively. We use a balanced panel data
set containing infrastructure, economic, demographic and social indicators for rural and urban
municipalities for the period from 1996 to 2012. To address the research question we construct
synthetic indices of basic and social infrastructure, using principal component analysis, to be used in
panel regression estimations. To estimate our economic growth and social development functions
we make use of restricted within LSDV estimation techniques. We use the results on the respective
elasticities to evaluate whether the differences between urban and rural municipalities are statistically
significant. Our results show that the elasticities of basic and social infrastructure investment
generally are more pronounced for economic growth and social development indicators in rural
municipalities than in urban municipalities. These findings could potentially influence policy
decisions in terms of infrastructure investment in favour of rural municipalities to increase economic
growth and social development in these regions, which could contribute to the reduction of spatial
inequalities in South Africa.