This document provides an abstract for a research paper that analyzes the relationship between economic growth and economic development in the Vaal Triangle region of South Africa. The research uses an economic development index that includes unemployment, poverty, and the human development index to measure economic development. A Vector Auto Regression model indicates that economic development leads to economic growth in the short run. Therefore, policies aimed at increasing human development and reducing unemployment and poverty can achieve sustainable economic growth in the short run. The full paper will include literature on economic growth and development theories, methodology using data from reliable sources, results, discussion, recommendations, and a conclusion.

1. AN ANALYSIS OF THE RELATIONSHIP BETWEEN ECONOMIC
GROWTHAND ECONOMIC DEVELOPMENT: THE RELATIONSHIP
TESTED IN THE VAAL TRIANGLE REGION, SOUTH AFRIA
Author: TM Masehla 24271616
Supervisor: Dr D.F. Meyer
Co-supervisor: Dr P.F. Muzindutsi
Abstract
It is important for policy formulators and decision makers to understand the relationship
between economic growth and economic development. It is important to formulate strategies
that will yield sustainable inclusive economic growth and economic development in the future.
Research has shown that the two economic concepts influence each other, however there is no
clear indication of the relationship between economic growth and economic development. The
research focused on the relationship between economic growth and economic development in
the Vaal Triangle region. Economic development is a broad concept and various methods can
be used to measure it. For the purpose of this research, it was decided to compile an economic
development index which represents Economic Development. The index includes
unemployment rate, the poverty and the HDI which includes life expectancy, education level
and GNI. This index assists in the measurement of relationship between economic growth and
economic development. The econometrics model used in the research was the Vector Auto
Regression (VAR) in order to measure the effects and causes between economic growth and
economic development. The VAR model indicated that economic development leads to
economic growth in the short run. Therefore it is important to the focus on economic
development, through increasing HDI, and decreasing unemployment and poverty in order to
achieve sustainable economic growth in the short run. More economic and social indicators
can be used to measure economic development against various economic variables such as
foreign direct investment and government expenditure.
Keywords: Economic growth, economic development, poverty, unemployment, human
development, Vaal Triangle region

2. 1. Introduction
In many instances economic growth and economic development are used interchangeable,
however economic development involves economic growth consists of structural
transformation that is accompanied by economic growth. Although economic growth is
essential, it is not a sufficient contributor of economic development (Ezeala-Harrison, 1996).
According to Todaro and Smith (2009), a good representative for characteristics of economic
development is rapid economic growth.
Bucknall (2013) states that economic growth can be measured by the regional income of an
area over time, usually in over one year. Regional income includes production, income and
expenditure, and is used to measure how well a region is doing compared to others. While Khan
and Khan (2012) state economy development occurs when the standard of living of a large
majority of a country’s population increases, this includes both income and other factors such
as health and literacy. According to Todaro and Smith (2015:7), raising the standards of living
include higher income, providing jobs and providing better education for all. It also provides a
wider range of social and economic choices available to individuals allowing them to be
independent and free them from servitude.
The World Bank (1996) states that in order to have sustainable economic growth, fruits of
human development such as improvements in worker’s knowledge and skills must be
continuously promoted. Sustainable development is achieved when the needs of the present
generation are met without compromising the future generation’s ability to meet their own
needs (Drexhage & Murphy, 2010). Dang and Sui Pheng (2015:14) states that the sustainable
development concept is formed by the relationship between development and the environment.
The fundamental notion of sustainable development is that the negligence of the environment
can be a threat to the ecosystem and humanity itself. According to Haller (2012:35), social
progress is determined by economic growth and economic development, this is the progressive
advancements of society. Social progress involves the improvement of the basic human
conditions, and improvements on the scale of the human being’s standard based on economic
progress.
The relationship between economic growth and development is difficult to measure, because
there is no distinct measure for economic development. It is important for policy formulators
and decision makers to understand the relationship between economic growth and economic
development in order to implement strategies that promote economic growth and economic

3. development. The research article focuses on the relationship between economic growth and
economic development with the Vaal Triangle region as the main geographic focus area. The
region consists of two municipalities namely Metsimaholo Municipality and Emfuleni
Municipality. The primary objective of the research paper is to analyse economic growth and
economic development based mainly on human development in the Vaal Triangle region.
Economic growth is measured by GDP, while the indicators of economic development are
debatable. The research paper will measure economic deve lopment using the human
development index and the poverty rate in both areas. This research will focus mainly on human
development and measuring standards of living. The research aims at answering if there is a
significant relationship between economic growth and human development and poverty. This
is an important study as it will guide policy makers in implementing the correct policies in
order to achieve human development through sustainable economic growth.
The article will include a theoretical background which includes the literature review that
shows previous studies and theories that support the research article. Theories include
economic growth theories and economic development theories. Data used in the methodology
is collected from a reliable source, this will therefore help analyse the relationship between
economic growth and economic development. The results will be reported, and a discussion
section will be included to further discuss the findings. The article will provide
recommendations and therefore reach a conclusion.
2. Literature review
The purpose of this section is to provide some insight into economic growth and economic
development and into concepts related to them. It is necessary to conceptualise concepts such
as economic growth, economic development, human development, and poverty. The section
includes analysis of findings by other researchers, definitions, and theories.
2.1 Economic growth and economic development
Literature reveals that there is a seemingly contradiction and confusing conception of the terms
economic growth and economic development. According to Haller (2012) economic growth
can be defined as the process in which an increase in the size of the national economy.
Macroeconomic indicators mainly Gross Domestic Product (GDP) per capita dominates and
has positive effects on the economic-social sector. Economic development shows how growth
impacts society by improving the standard of living. According to Marshall (1999:109), the

4. total amount of goods and services available for use by a country’s population measure whether
there is an improvement in the standard of living. Haller (2012) states that the difference
between economic growth and economic development is that economic growth concerns
quantitative activities in the economy while economic development has a larger scope which
includes qualitative changes in the economy and society, therefore with regards to macro-
economic evolution economic development is a qualitative step higher. According to Ignat et
al. (2002), social progress is determined by economic growth and development, through the
advanced evolution of society and improving human conditions, this can be seen as a step
higher on the scale of human being’s standards.
Tondon and Shome (2010) conducted a study in ASEAN 5 economies. The ASEAN 5 are the
biggest economies in Southeast Asia and include Indonesia, Malaysia, the Philippines,
Singapore and Thailand. The purpose of this study was to investigate the correlation between
economic growth and development. The study revealed that development and growth do not
move in a cycle in the ASEAN 5 economies. The study showed that if the income parameter
for HDI is removed from the HDI the five economies need to put effort directly into growing
towards education.
2.2 Economic growth
Todaro and Smith (2011:15) defined economic growth as expansion of the productivity
potential and ability of the local economy in the long run, improvement of the quality of life,
increased levels of employment thus leading to short term GDP growth as a result of sustainable
economic growth. While Masoud (2014:48) defines economic growth as growth per capita of
gross domestic product, availability of health and access to education are elements that form
part of economic growth.
Economic growth has a strong base with two theories that are interrelated, the neoclassical
growth and the endogenous growth theory (Rivera, 2016). According to Rynn (2001), the
concept of decline in diminishing returns forms the entire structure of the growth theory in
neoclassical economics. The growth theory in neoclassical economics left most specialist
unsatisfied due to its reliance on the diminishing returns concept. Stiroh (2001) state that
alternative explanations for productivity and output growth are offered by neoclassical and the
new growth theory.
According to Solow (1956), the neoclassical growth theory pays attention on capital
accumulation and its association to savings decisions. The neoclassical theory assumes that

5. technological progress does not exist therefore implying that the economy reaches a steady
state equilibrium when the economy achieves a long-run level of output and capital.
Dornbusch, et al. (2014:61) further stated that there are three broad steps in which growth
theory proceeds. Firstly economy’s steady state is determined by various economic variables,
secondly the economy transitions from the current position to a steady state, and lastly
technological progress is added to the model. According to Romer (1994), the neoclassical
growth theory attributes long-run growth to technological progress but leaves unexplained the
economic determinates of technological progress.
According to Dornbusch, et al. (2014:79), the endogenous growth theory puts emphasis on
various growth opportunities in physical and knowledge capital. The theory states that if
investments in knowledge are increased this will lead to an increase in growth, because it is
important in linking higher savings rates to higher equilibrium growth rates. Meier (2000)
stated that the endogenous growth models encourage the role of government and public policies
to complement investment in human capital development and encourage foreign private
investments in knowledge-intensive industries. According to Skott and Auerbach (1995),
although the endogenous growth theory explains the divergence in growth rates through
different economics, it is criticized for not emphasizing the importance of social and
institutional structures.
According to Masoud (2014:48), the aim of economic growth theories is to improve the well-
being of human beings, thus determining the advancements in the standard of living of the
country’s population. Maddison (1997) considers that the long-term economic growth
performance is due to three main unintended influences which lead to an increase in per capita
output: acquiring physical capital, technology progress and integration of global economies
concerning goods and services, additional aspect include structural changes, economic size,
relative scarcity or abundance of natural resources.
2.3 Economic development
Haller (2012) indicates that economic development is a process that leads to economic, social,
quantitative and predominantly qualitative changes, this leads to increases in the national
economy’s real national product.
According to Kane and Sand (1988), economic development increases the ability of the
regional economy to create wealth for local inhabitants. This is determined by the deployment

6. of the region’s key building blocks which include public and private infrastructure, facilities
and equipment, labour, knowledge and financial capital. Khakhonova (2013) state that the
socio-economic process of development includes three components, an improved health care
and education system, increased revenues and creating conditions that promote peoples self-
esteem due to social, political, economic and institutional systems.
Rostow (1960:5) stated that in order for countries to achieve development they need to pass
through sequential stages. The first stage is a traditional society, followed by a pre-take off
stage, this includes self-sustainability. The third stage is take-off stage, then the drive to
maturity and lastly the high levels of mass consumption stage. According to Dang and Sui
Pheng (2015), the take-off stage is influential, developing countries are expected to transition
from underdevelopment to a developed state through this stage. An increase in the rate of
investments is necessary in order to achieve per-capita growth.
According to Todaro and Smith (2011:124), structural-change theory mainly focuses on the
instrument that leads to underdeveloped economies to transform from a heavy emphasis on
traditional reliance on agriculture to a modern, urbanized and more industrially diverse
manufacturing and service economy in terms of their domestic economic structure. The two
sector model was developed by Lewis (1954:22), it focused primarily on being twofold, firstly
transferring labour from subsistence agricultural sector to a modern industrial sector, with
increasing input and employment in the non-agricultural modern sector. The modern sector
includes modern agricultural components such as agricultural-industrial activities or agro-
processing.
According to Hein (1992), the dependence theorists argued that underdevelopment is due to
authority of developed countries and transnational corporations over developing countries.
Dang and Sui Pheng (2015:15) state that poor regions cannot expect sustained growth due to
their dependence on developed countries. Furthermore developing countries should be less
depended on developed countries in order to break their relationship with them.
According to Meier (2000) neoclassical counter-revolution economists made use of three
approaches, namely the new political economy approach, free market approach and the market-
friendly approach.
Akujuobi (2012) state that underdevelopment is a result to poor distribution of resources due
to inappropriate pricing policies and a large influence from the state by excessively active
developing-nation governments. Supply-side macroeconomics, public corporations being

7. privatized and rational expectations theory are highly favoured by developed nations. Skinner
(2011) state that economists who support this theory argued that poor allocation of resources
and a large presence of state intervention and poor allocation of resources prevents functioning
and proper and hampered growth of markets.
2.4 Economic development indicators
2.4.1 Human development and economic development
The United Nations (2015) stated that the Human Development Index (HDI) summarizes the
measure of the typical achievement dimension of human development. Components of HDI
include a long and healthy life, being educated and have a decent standard of living. HDI
captures and simplifies what human development entails, although it does not reflect on the
inequalities of society, poverty, empowerment in a form of employment and poverty. Adewole
(2010:6) states that HDI refers to the empowerment process as enabling control of capacity in
order to build oneself, to encourage a long life, and the ability to read and write and activity
and effectivly participate in society affairs. World Bank (2014:98) further states that higher
levels of human development supports higher economic mobility of populations, wider
capabilities and an improved standard of living.
According to Radovanović (2011), the average years of schooling and expected years captures
the level of education and recent changes, while life expectancy at birth measures health. Gross
National Income (GNI) is used to express the income accumulated by residence of a country.
This includes international inflows such as payment and aid and excludes income generated in
the country but repatriated abroad. The major advantage of HDI is that is shows what a country
can do more than expected at low levels of income and that substaintial income can still achieve
relatively little in human development (Smith & Todaro, 2015:113). There are a number of
shortcomings of HDI identified in the Human Development Report in 1993, it has been
criticized for having arbitray componet weights, this is mainly due to the selection of indicators
and how they are bais towards developing countries.
Islam (2010) conducted a study to examine the relationship between per capita real GDP and
HDI in high, medium and low human development countries. The HDI was senstive to changes
in per capita GDP was found to be high in low human development countries. However there
is an ‘Inverted U’ type relationship between per capita GDP and human development index for
medium human development countries. An investigation conducted by Khodabakhshi (2011)

8. studied the relationship between GDP and HDI in India, the study found that the Indian
economy has good per capita gross domestic production index growth however the impact on
other indicators of human development are low, including indicators such as life expectancy.
2.4.2 Economic development and poverty
The World Bank (2001:1) defines poverty as “a situation where an individual lacks command
over commodities that are deemed essential to realise a reasonable standard of living”. SPII
(2007:10) described poverty as the lack of adequate income, this includes aspects such as
health, housing, education and access to services and resources. According to Davis and
Sanchez-Martines (2015), neoclassical theories states that poverty is due to reasons beyond
individual’s control. While poverty could be due to external issues such as market failures that
exclude the poor from credit markets and causes certain adverse choices to be balanced, lack
of social and private assets, barriers to education, poor health and advanced age, immigration
status, and barriers to employment for lone-parent families.
According to Woolard and Leibbrand (1999), a poverty line categorizes the population into
two groups on the basis of some measure. Poor households/individuals live below the poverty
line, and those above the line are considered non-poor. Poverty lines are extremely useful for
descriptions of poverty, defining a poverty line provides information on the number of people
living in poverty and the minimum living level, it also shows the depth and severity of poverty.
According to Lanjouw (2001), there are two types of poverty lines, absolute poverty and
relative poverty. The absolute poverty line is explicitly linked to a specific welfare level.
Relative poverty is determined from the cut-off point in the welfare distribution, this could be
the consumption or income level of which 30% of the population is located. Anchoring the
poverty allows comparisons over time or cross groups.
According to Steveans and Sessions (2008), there is a strong negative correlation between
economic growth and poverty from a policy perspective. It is essential to understand whether
changes in the relationship between GDP and poverty will endure for the present into the future.
Dollar and Kraay (2001) further stated that economic growth can lead to poverty reduction by
raising the incomes of everyone in society including the poor. Further studies by Dollar et al.
(2013) showed that economic growth is essential for poverty reduction, and identification of
specific macroeconomics that can be significantly linked to the relative growth rates of those
in the poorest countries is difficult.

9. 2.4.3 Economic development and Unemployment
According to Byrne and Strolbl (2004), the well-being of the labour market which is measured
by unemployment rate is an important indicator of the current economic state. Unemployment
is defined by Barker (1992:83) as a situation where participants in the labour force are without
a job, although they are currently unavailable to work, but actively looking for employment.
Loria and Salas (2014), state that Okun’s argued that there is a negative causal relationship
between economic growth and unemployment, there were high social and economic costs as a
result of unemployment. Empirical studies suggest that high unemployment rate today will lead
to lower output growth in the further and vice versa. Yelwa et al. (2015) state that it is difficult
to calculate the argumentative effect of high levels of unemployment on the domestic economy.
The full utilization of the large supply of human resources could serve as a great catalyst to
economic growth, if not it could exert a negative influence on the economy. Walterskirchen
(1999) also states that the negative relationship between unemployment and economic growth
is non-existing, this is due to GDP and unemployment rising simultaneously in the long run. It
is evident that employment will only increase when GDP is increasing at a rate higher than
productivity.
3. Methodology
Data and sample period
The Vaal Triangle area comprises of two municipalities namely, Emfuleni and Metsimaholo
municipal area, with populations of 731 900 and 157 000 respectively. It was reported that 37%
of the Metsimaholo population live in poverty and Emfuleni has a poverty rate of 41%. The
unemployment rate in Metsimaholo and Emfuleni were 31.0% and 36.4% respectively. The
HDI values have increased from 2001 to 2013, increasing by 8.2% in the Emfuleni
Municipality and 8.5% in the Metsimaholo municipal area. Both these areas experienced lower
real growth since the international financial crisis of 2007/2008. This is reflected in the low
growth as indicated in 2006-2011 period relative to the previous period. However the
Metsimaholo municipal area achieved an increase in GDP per capita of 247% between 2000
and 2013. Emfuleni increased 197% in GDP per capita between 2000 and 2013 (NWU, Vaal,
AppLED, 2015).
The research article will be investigating the relationship between economic growth and
various economic development indicators in the case of the Vaal Triangle region. The data

10. used is from 1996 to 2014, a pooled panel data regression analysis was conducted to investigate
this relationship.
The model
The relationship between economic growth and economic development has measured using
GDP (Gross Domestic Product) as a measure of economic growth. Economic development has
measured using a combination of the poverty rate, unemployment rate and the Human
Development Index (HDI) in order to create a single variable. According to Vala and Pincho
(2015:3) the construction of a combination index has proven to be useful, therefore has been
applied to a significant extent in the assessment of regional performance. The development
index will be people below the poverty line plus employment rate and HDI.
Model specification
According to Brooks (2014) the basic equation for panel data can be defined as
yt = α + βxi t + ui t (1)
Where yt is the dependent variable, α is the intercept term, β is a k×1 vector of parameters to
be estimated on the explanatory variables, and xit is a 1 × k vector of observations on the
explanatory variables, t = 1, . . . , T; i = 1, . . .
The VAR model from the function described in equation 1 can be explained as follows
𝑫𝑫𝒆𝒗 𝒕 = ∝ 𝟏+ ∑ 𝜷 𝟏𝒋
𝒌
𝒋=𝟏 𝑫𝑫𝒆𝒗 𝒕−𝒋 + ∑ 𝝀 𝟏𝒋
𝒌
𝒋=𝟏 𝑫𝑮𝑫𝑷 𝒕−𝒋 + 𝒖 𝟏𝒕 (2)
𝑫𝑮𝑫𝑷𝒕 = ∝ 𝟐+ ∑ 𝜷 𝟐𝒋
𝒌
𝒋=𝟏 𝑫𝑮𝑫𝑷 𝒕−𝒋 + ∑ 𝝀 𝟐𝒋
𝒌
𝒋=𝟏 𝑫𝑫𝒆𝒗 𝒕−𝒋 + 𝒖 𝟐𝒕 (3)
Where 𝛼 𝑛 is the constant, 𝛽 𝑛, 𝜆 𝑛 are the coefficients, K is the number of lags and 𝒖 𝟏𝒕 and
𝒖 𝟐𝒕 are the stochastic error term which are also known as shocks in a VAR model. The unit
root test is done to measure whether the variables are stationary or not, this test was conducted
using the Augmented Dickey-Fuller test. If the variables are stationary at I (1), the Johansen
co-integration test will test for long run relationship
Estimation technique
VAR
Brooks (2014:326) state that VAR is a systems regression model where there is more than one
dependent variable that can be considered a type of mixture between the univariate time series
models and the simultaneous equations model. One of the advantages of using a VAR model
is the researcher does not have to identify which variables are exogenous or endogenous. In

11. order for the simultaneous equation structural models to be estimated the requirement is that
all equations in the system should be specified.
Granger causality
According to Granger (1969) method to the question of whether x causes y. It explains how
much of the current y can be described by the past values of y, also to view if adding lagged
values of x can improve the explanation. Y is Granger-caused by X if X leads to the prediction
of Y, or equivalently if the coefficients on the lagged X are statistically significant.
4. Results and discussion
Figure 1 shows the trend of the development index from 1996 to 2014 in both areas. The
development index in Mestimaholo is lower than Emfuleni. The trend for the development
index in Metsimaholo was declining from 1996 to 2000, this shows low economic development
in the area during that period. The development index started increasing in 2010 showing an
upwards movement. The development index in Emfuleni experienced declining rates from
2004 to 2008. An increase in the development index started in 2010 and has moved upwards
ever since.
Figure 1: Trend for Economic Development Index
240
250
260
270
280
290
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Metsimaholo Emfuleni
Figure 2 shows GDP at constant prices in both areas. GDP is seen to have a linear positive
increase in both areas. There was a disturbance in GDP at constant prices between 2009 and
2010, this was due to the global financial crisis, however both areas recovered in 2010 due to

12. South Africa hosting to 2010 soccer world cup. Emfuleni has relatively higher GDP than
Metsimaholo.
Figure 2: Trend for GPD at constant prices
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Metsimaholo Emfuleni
Table 1 shows the correlation between the Development Index growth rate and GDP at constant
prices growth rate. There is a strong positive relationship the development index and GDP at
constant prices, this shows that the variables move in the same direction.
Table 1: Correlation table
GDP_AT_CONSTANT_PRICES__ DEVELOPMENT_INDEX
GDP_AT_CONSTANT_PRICES__ 1 0.727272808
DEVELOPMENT_INDEX 0.727272808 1
Null hypothesis: No Stationarity
Alternative hypothesis: Stationarity
The P-value for LogGDP is 0.0122 at first difference with an individual intercept, therefore
accepting the alternative hypothesis that states that variable is stationary at I(1). The P-value
for the Development Index is 0.0115 at first difference with no intercept and trend, therefore
accepting the alternative hypothesis that states that the Development index is stationary at I(1).
Both variables are stationary at first difference therefore testing for a long-run relationship.

13. Table 2: Panel unit root test: ADF- Fisher Chi-Square
Variable Level Exogenous variable T-statistic P Value
LogGDP I(1) Individual intercept 12.8214 0.0122
Development index I(1) None 12.9491 0.0115
Table 3: Johansen Co-integration test
Unrestricted Cointegration Rank Test (Trace and Maximum Eigenvalue)
Hypothesized Fisher Stat.* Fisher Stat.*
No. of CE(s) (from trace test) Prob. (from max-eigen test) Prob.
None 1.711 0.7887 2.076 0.7219
At most 1 1.357 0.8517 1.357 0.8517
The Johansen Co-integration tests whether there is a long run relationship between the two
variables. The P-value is 0.7887 which are greater than 0.05 therefore accepting the null
hypothesis that states there is no long run relationship between the two variables.
Table 4: Lag Structure
Lag LogL LR FPE AIC SC HQ
0 -31.98789 NA 0.033046 2.265859 2.359272* 2.295743
1 -25.90965 10.94083* 0.028808* 2.127310* 2.407549 2.216961*
2 -23.77224 3.562344 0.032778 2.251483 2.718549 2.400901
3 -18.55639 7.997636 0.030568 2.170426 2.824318 2.379612
The lag structure serves to indicate how many lags should be included in the VAR estimates.
According to table 4, the model should include 1 lag in the analysis.
Table 5: Vector Auto regression Estimates
DDEV DGDP
DDEV(-1) 0.476660 -0.008415
(0.18190) (0.00332)
[ 2.62050] [-2.53220]
DGDP(-1) 16.88906 -0.002836
(9.36928) (0.17118)
[ 1.80260] [-0.01657]
C -0.214551 0.041329
(0.62376) (0.01140)
[-0.34397] [ 3.62659]
The t-statistic for DDeve (1) is 2.62050 which is greater than the critical point, therefore DDeve
(1) is a significant indicator for current DDev. This means that the development index from the
previous can predict the current DDev. The t-statistic for DGDP (1) is 1.80260 which is less

14. than the critical point, therefore DGPD is not a significant indicator for DDevelopment. This
shows the changes in GDP do not lead to changes in DDev. The t-statistic for DDev (1) is
2.53200 for DGPD, which means DDev is a significant indicator for current DGPD, the t-
statistic for GDP (1) is 0.0165 therefore indicating that DGDP is not a significant indicator for
current DGDP.
Table 6 shows the Granger-Causality test, the P-value for DGDP is 0.0987, this is less than
0.10 therefore rejecting the null hypothesis that states that DGDP does not Granger Cause
DDev, therefore DGDP does Granger Cause DDev. The P-value for DDevelopment is 0.0306,
which is less than 0.05 therefore rejecting the null hypothesis that states that DDev does not
Granger Cause DGDP, this indicates that DDev does Granger Cause DGDP.
Table 6: Granger causality test
Pairwise Granger Causality Tests
Date: 10/25/16 Time: 22:36
Sample: 1996 2014
Lags: 2
Null Hypothesis: Obs F-Statistic Prob.
DGDP does not Granger Cause DDEV 32 2.52567 0.0987
DDEV does not Granger Cause DGDP 3.97824 0.0306
The null hypothesis states that there is heteroskedasticity, the P-value is 0.6851 which is greater
than 0.05, therefore rejecting the null hypothesis result is no heteroskedasticity.
Table 7: Heteroskedasticity Test
5. Recommendations and conclusion
The results imply that if employment increases and poverty rate decrease it will impact the
GDP based on their weight on the development index. Since HDI has the highest weight, it
shows that the development index is highly influenced by the HDI. If HDI increases it will
VAR Residual Heteroskedasticity Tests:Includes Cross Terms
Date: 10/25/16 Time: 23:25
Sample: 1996 2014
Included observations: 34
Joint test:
Chi-sq df Prob.
11.91983 15 0.6851

15. have a larger impact on GDP. The development index focuses mainly on the HDI because if
education levels are improved, life expectancy is increased due to investment in health services
and Gross national income it distributed fairly there will be an decrease in unemployment rate
because there will be a larger supply of skilled labour, improved health services will also have
an impact of the productivity thus increasing Gross Domestic product, and high levels of GNI
will result in decline in poverty rates. Decrease in unemployment rate will also lead to a decline
in poverty rate because more people will be earning an income, allowing them to afford basic
needs and live above the poverty line.
Forming a development index allows researchers to measure economic development because
there is no clear economic indicator for economic development, HDI measures human
development, but in order for humans to develop they should be able to earn an income and
afford basic needs. The study shows that the focus should be moved to economic development,
because it leads to economic growth.
It is easier to measure the relationship between economic development and economic growth
if there is a single variable to measure economic development. In order to have a broader
measurement of economic development more economic and social variables can be included.
The development index could be categorized into the following sections, demographic
development, social development, labour and economics. If the development of the economic
development index is a success if could be used to measure the relationship between economic
growth and economic development in different municipal areas, if the index is proved to be
useful it can be used on a national basis. The development index will make is simpler for
researchers to investigate the relationship between economic development and other economic
factors such as foreign direct investment and government spending.
The research paper aimed at analysing the relationship between economic growth and
economic growth. Specific theories are included in the research paper to further explain
economic growth and economic development, including the various economic development
variables that formed part of the development index. The study was based on two municipalities
which is Metsimaholo Municipality and the Emfuleni Municipality from 1996 to 2014. The
combination of the three economic development indicators made it possible to measure the
relationship between economic growth and economic development. The results showed that
there is a positive correlation between the development index and GDP at constant prices, a
long-term relationship does not exist between the two variables. The VAR model showed that

16. economic development leads to economic growth, this implies that increased focus on
economic development indicators such as the unemployment rate, poverty rate and HDI is
important in order to achieve short term economic growth. There are no studies that have
combined HDI, unemployment and poverty in order to measure economic development, this
index can be used and improved in order to have accurate measurement of economic
development. The research question was answered therefore concluding that economic
development leads to economic growth.

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