Proceedings of the 52nd International Academic Conference, Barcelona

AN EMPIRICAL ANALYSIS OF FOREIGN DIRECT INVESTMENT AND DOMESTIC INVESTMENT AS DRIVERS OF ECONOMIC GROWTH IN SOUTH AFRICA

LERATO MOTHIBI, LORAINNE FERREIRA

Abstract:

The South African economy has made great strides since its advent to democracy in 1994. However, South Africa is constrained by its continuous policy uncertainty generated by the South African government. This has resulted in poor sector performance, declining investments and slow economic growth. Investment, nonetheless, plays a crucial role in growing the South African economy. As such, policymakers often debate whether to focus on FDI or domestic investment, especially in developing countries. In order to point out where most government resources should be allocated, this study will investigate which type of investment – FDI or domestic investment – will have the most significant impact on economic growth in South Africa. This study makes use of the autoregressive distributive lag model (ARDL) over the period 1994 to 2018 to determine the impact of both FDI and domestic investment on economic growth in the short- and long-run. The study concludes that when policymakers seek to harness the potential of investment to encourage economic growth, they should not be distinguishing whether domestic or foreign investment should be a priority, but rather, what can be done to make the two forms of investment work together to achieve optimal benefits for the growth of the economy?

Keywords: South Africa, Foreign direct investment, Domestic investment, Economic growth

DOI: 10.20472/IAC.2019.052.047

PDF: Download