Economic growth, unemployment and poverty: Linear and non-linear evidence from South Africa

Abstract

The majority of South Africa's population lives in the same economy as poverty, even though the country's first democratic elections in 1994 not only lit a candle of hope but also helped to abolish poverty. One of the main hurdles to reducing poverty is economic growth, while unemployment is one of the mutual friends with poverty. Therefore, in this study, unemployment and economic growth were included as explanatory variables, while poverty was used as the dependent variable. To understand how unemployment and economic growth affect poverty, Autoregressive Distributed Lags (ARDL) and non-linear Autoregressive Distributed Lags (NARDL) models were used through the time series data from 2000Q1 to 2021Q4. Based on linear evidence, the findings of the study supported the idea that economic growth reduces poverty in the long-run, while unemployment inflates poverty in the long-run. The asymmetric evidence confirmed that although negative shocks of economic growth reduce the poverty rate, the positive shocks of the former reduce the poverty rate. On the other hand, poverty rates rise concurrently as a result of both positive and negative shocks of unemployment rates. Thus, it is advised that policymakers increase social investment to help urban and rural residents, particularly women and children, escape poverty.