Abstract
This paper hypothesises that the saving rate and technological progress are interdependently
determined by a common exogenous source, so that an exogenous shock to the saving rate determines
long-run growth transitions. In an open-economy setting, the saving rate measures the quality of
investment-led policies. The evidence shows that the down-break across South Africa’s
‘faster-growing’ regime (1952-1976) and ‘slower-growing’ regime (1977-2003) was caused by a
negative shock to the saving rate that simultaneously led to a slowdown in the growth rate of
technology via a structural decrease in the learning-by-doing parameter. The down-break results
suggest that the saving rate is potentially an important policy variable to engineer a sustainable
up-break. To assess this prediction with real data, the analysis looks at what happened in the
post- 2003 period (2004-2012). The results show that the up-break in the fixed investment rate was
not matched by the saving rate, which implies that capital investment did not generate a faster
rate of technological progress. The stylised facts suggest that a sustained increase in the total
investment rate, which not only includes infrastructure investment, but also machinery and
equipment investment and complementary foreign direct investment, may be an effective
investment-led
strategy to raise the economy’s growth rate on a sustainable basis.