Human capital and economic growth in South Africa: A cross-municipality panel data analysis

Abstract

This study focuses on investigating the effect of human capital on economic growth in South Africa, making use of a balanced panel of 269 South African municipalities for the period 1993 to 2016. The approach used in this study differs from previous studies because it examines the skills component of human capital and its impact on economic growth. Economic growth literature highlights three mechanisms that show a causal relationship between the education component of human capital and economic growth. Firstly, education is a key instrument that shapes the human capital fibre, equipping the labour force for higher productivity levels (Mankiw, Romer & Weil 1992). Secondly, education increases the innovative capacity of the economy and brings knowledge of new technologies, products and processes which then promote efficient production activities that boost economic growth. This view is supported by theories of endogenous growth developed by Lucas (1988), Howitt and Aghion (1998) and Romer (1990). Lastly, education facilitates the diffusion and transmission of knowledge needed to understand and process new information, as well as successfully implement new technologies to promote economic growth (Benhabib & Spiegel 1994; Nelson & Phelps 1966). Acemoglu (2009) notes that in the case of farming, educated farmers accept and adapt easily to the utilisation of new technology or seeds in order to increase productivity and income levels.