Regional applied general equilibrium modelling : the case of South Africa's North West Province
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South Africa's North West Province is dependent on gold and platinum exports for its economic growth and employment. Whether this specialisation is optimal from an economic growth, employment creation and welfare point of view, or whether greater export diversification should be encouraged, can most appropriately be evaluated using a general equilibrium framework. Moreover, the answer of whether such specialisation or rather diversification is appropriate may differ depending on the spatial level of analysis that is taken. For instance, export diversification or specialisation on a national level might differ from export diversification or specialisation on sub-national (e.g. provincial) level. A general equilibrium framework is most appropriate for investigating the potential differences between these levels as it takes into consideration a region's economic structure, and the economy-wide linkages between demand, supply, production structure and income distribution. In this light this thesis proposes a regional applied general equilibrium (RAGE) model for the North West Province to address these issues. The question asked is, how can a RAGE model be formulated and implemented for the North West Province of South Africa in order to study the differential impacts of greater export specialisation versus greater export diversification? In answering this question this thesis provides policy makers at regional/provincial level with access to a potentially useful modelling tool, to analyse regional economic issues; it contributes to better understanding the spatial concentration and spatial dynamics of economic activity in the North West Province; and contributes toward the practical policy debate in South Africa. This thesis reviews the literature on export diversification and specialisation, by investigating the extent of export diversification and specialisation in the North West Province over the period 1995-2006 and its relationship to GDP per capita, and using a RAGE model to investigate the economy-wide impacts of greater export diversification versus greater export speciaRsation. These results are contrasted by investigating the economy-wide impacts of greater export diversification versus greater export specialisation on the national level, using a country-wide applied general equilibrium (AGE) model for South Africa. It is found that greater export diversification results in a more substantial increase in exports (of between 0.95 and 1.73 per cent) than in the case of greater export specialisation. In fact it was found that if the North West Province were to specialise in mining exports, such exports would need to grow or increase from the base year by approximately 78 per cent (with no increase in the export demand for other sectors) to result in the same level of growth of total export volumes as is found under export diversification. Avenues for further research are identified. These are a need for more research on elasticities and parameters at regional level, an expansion of the transport services sector in the model, incorporating Tourism Satellite Accounts, BEE and SMME aspects into the model, etc. In conclusion, the thesis implemented the first provincial regional applied general equilibrium model for South Africa, and illustrated that it can make an important contribution to the policy debate on a provincial level in South Africa. The construction of Social Accounting Matrices (SAMs) for all of South Africa's provinces, and the maintenance of these provincial databases could therefore make further contributions to the quantitative assessment of policy options facing government on both the national and provincial level.