The impact of basic and social infrastructure investment on economic growth and social development in South Africa’s urban and rural municipalities

Abstract: South Africa is characterised by widespread inequality and divided societies, which impede economic growth and social development. Basic and social infrastructure investment can assist in addressing these challenges by promoting economic growth and social development. The aim of this study is to determine if basic and social infrastructure investment differently effect economic growth and social development indicators of urban and rural municipalities respectively. We use a balanced panel data set containing infrastructure, economic, demographic and social indicators for rural and urban municipalities for the period from 1996 to 2012. To address the research question we construct synthetic indices of basic and social infrastructure, using principal component analysis, to be used in panel regression estimations. To estimate our economic growth and social development functions we make use of restricted within LSDV estimation techniques. We use the results on the respective elasticities to evaluate whether the differences between urban and rural municipalities are statistically significant. Our results show that the elasticities of basic and social infrastructure investment generally are more pronounced for economic growth and social development indicators in rural municipalities than in urban municipalities. These findings could potentially influence policy decisions in terms of infrastructure investment in favour of rural municipalities to increase economic growth and social development in these regions, which could contribute to the reduction of spatial inequalities in South Africa