The Economic Influence of Infrastructural Expenditure: A Multiplier Decomposition and Structural Path Analysis

by GARCIA, A., ARNDT, C., and NGANDU, S., 2009
Research Report. Centre for Poverty Employment and Growth, Human Sciences Research Council

Garcia et al. explore the use of structural path analysis in assessing the potential economic impact of the South African government’s planned infrastructural programme of R787 billion. The construction sector is large enough to accommodate a substantial stimulus and has significant linkages with other production activities and households at all income levels. Structural path analysis facilitates a better understanding of the sectoral composition of output, employment and household income. It helps to show which poles (production sectors, factors and households) are important transmitters of economic influence. Within the production sectors, business services, non-metallic metal products, mining and metal products are the most important sectors through which economic influence is transmitted to households via factor payments. Following the economic downturn, most of these sectors have significant excess capacity. A demand injection into construction might be a particularly well-directed stimulus, and its benefits would be distributed relatively evenly across the economy. Structural path analysis provides policymakers with a tool that allows quick analysis of a given intervention, based on the simple structural relationships of the economy built into the social accounting matrix.