Money and capital investment in South Africa: A dynamic specification model

This paper investigates the link between money and physical capital in the finance motive for economic development, as postulated by McKinnon 's [McKinnon, R. I. (1973). Money and capital in economics development. The Brookings Institution, Washington, DC] hypothesis-using South African data. Contrary to the results obtained from some previous studies, the empirical results of this study provide strong support for McKinnon's complementarity hypothesis in South Africa. The empirical results also reveal that (i) foreign savings complement rather than substitute domestic savings in South Africa, (ii) the growth rate of real income has little or no effect on the savings rate in South Africa, and (iii) the existence of a high dependency ratio in the country exerts a negative influence on the savings rate.