Monetary Policy, Human Capital and Productivity in South Africa: an Empirical Analysis


  • Mishelle Doorasamy
  • Akinola Gbenga Wilfred


Human Capital; Monetary Policy; Productivity; South Africa; Money supply; VAR Methodology


South African has been striving to apply monetary policy that is conducive to productivity
in the economy, but the latter has remained elusive. Human capital development in the country has also
been a problem with a huge mismatch between the economy’s needs and skills available. Whilst
monetary policy operate through transmissions that affect investments, it is not clear how monetary
policy, investment in human capital, as well as productivity are interdependent in South Africa. In this
paper, we explore this interdependence using the vector autoregressive (VAR) methodology. Data for
South Africa, covering the period 1980–2016 on changes in money supply, productivity and human
capital were used to explore the interdependence. The null hypothesis of this study (H0) is that there are
no linear interdependencies among human capital, monetary policy and productivity in South Africa.
The key questions of focus in this paper that are of interest to policy makers are 1) how fast do
productivity respond to changes in human capital development and monetary policy in South Africa is
considered in the model. 2) A related question concern how does monetary policy respond to
productivity and human capital in the economy 3) finally, is the limited role of monetary policy due to
the interdependence of this policy and human capital development? The evidence in respect to these
questions is that, although productivity responded to both macro-economic variables around the same
period, we noticed that productivity response more to human capital than its response to money supply
in the model. Again, with respect to changes in money supply, it is expected that productivity would
improve quickly in response to a sluggish monetary policy but reverse is the case. Economic
performance in South Africa has not led to the expansion of human capital in the country. From the
variance decomposition result, it was noted in response to question 3 that human capital development
and its interaction with monetary policy are not doing enough to spur expansion in the economic activity
in the country. Policy makers should know that given that human capital growth is crucial in a given
economy, the lack of effect of monetary policy on human capital suggests that limited productivity has
been a result of limited investment in human capital.






Business Administration and Business Economics