Spatial Economic Growth, Sub-national Governance and Institutions in South Africa

Abstract: Although South Africa’s growth has outshone expectations for the four most recent years, spatial growth inequalities are still large at the sub-national level in South Africa. Recent theory suggests that at least part of this variation can be explained by differences in governance and institutions between locales. In this thesis, the linkage between spatial economic growth and sub-national governance for 21 South African urban areas over the period 2002-2006 is investigated. The study follows Hall and Jones’s theory on “social infrastructure” and uses municipal budget data as proxy for good governance in a fixed effects panel data regression model. Based upon the econometric analysis and a research visit to North-West University in South Africa, the main finding is a strong and positive relationship between good local governance and the economic growth of localities. More specifically, municipalities that are well- governed in the sense that they are less dependent on financial aid from other spheres of government and have a competitive advantage in basic service delivery have also achieved higher growth rates over the examined period. The South African national government’s decision to emphasize the building of capacity and capability in local governments as part of its development and growth strategies can therefore be considered well founded.