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Africa Region Working Paper Series No. 94 South Africa Abstract This paper is a result of a wider policy research and knowledge work on growth and jobs issues in South Africa, which the World Bank promotes in collaboration with leading South African researchers. The objective is to contribute to major economic and policy issues facing South Africa as it embarks on the second decade of its democratic transition. The paper takes stock of South Africa’s past growth experience during the period 1970-2000. It discuses major factors of growth, including physical and human capital, and institutions, and draws conclusions about the constraints to long-run growth in the future. Three principal conclusions are as follows. First, empirically, one of the main reasons for South Africa's structurally declining growth rate is its declining investment rate in fixed capital, and a key determinant of investment appears to be uncertainty, especially uncertainty that arises from institutional constraints on economic performance. Second, despite considerable liberalization since 1994, there remain significant market distortions in the South African economy in capital, labor, and output markets, including external trade; therefore, much remains to be done to improve microeconomic policies and the efficiency of resource allocation. And third, the impact of human capital on growth reflects the twin combination of a declining contribution of human capital accumulation to growth and a declining quality of education. The main policy implications are threefold: (1) South Africa needs to further reduce remaining uncertainty and engender credible, overall policy environment and favorable climate for private sector investment and growth; (2) further microeconomic and regulatory reforms are needed to reduce market concentration and remaining distortions, especially in labor markets and international trade; and (3) while continued emphasis on broad-based education is very much needed to help eliminate past inequities, strong reforms to monitor and improve the quality of education must also be put in place.Full
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