Inderscience Publishers

The causal relationship between house prices and growth in the nine provinces of South Africa: evidence from panel – Granger causality tests

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This paper analyses the causal relationship between housing activity and growth in nine provinces of South Africa for the period 1995–2011, using panel causality analysis, which accounts for cross-section dependency and heterogeneity across provinces. Our empirical results support unidirectional causality running from housing activity to economic growth for most of the provinces studied; bi-directional causality between housing activity and economic growth for Gauteng; and no causality in any direction between housing activity to economic growth in Eastern Cape and KwaZulu-Natal. Our findings provide important insights for housing policies and strategies for South Africa. Specifically, housing sector might be an efficient growth-led instrument for all the provinces except Eastern Cape and KwaZulu-Natal.

Keywords: house prices, economic growth, cross-sectional dependence, cross-sectional heterogeneity, panel causality test

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