Foreign direct investment and economic growth: ADRL and causality analysis for South Africa

Tafirenyika Sunde

MPRA Paper from University Library of Munich, Germany

Abstract: The article empirically investigated economic growth as a function of foreign direct investment and exports in South Africa. The article applied the autoregressive distributed lag model, known as the ARDL bounds testing approach to cointegration for the long run relationship between economic growth, foreign direct investment and exports. The error correction model was used to examine the short run dynamics; and the VECM Granger causality approach was used to investigate the direction of causality. The article confirmed cointegration between economic growth, foreign direct investment and exports. The article indicates that both foreign direct investment and exports spur economic growth. The VECM Granger causality analysis found unidirectional causality between economic growth and foreign direct investment running from foreign direct investment to economic growth, unidirectional causality between foreign direct investment and exports running from foreign direct investment to exports and bidirectional causality between economic growth and exports. The article confirms the FDI-led growth hypothesis for South Africa. On the policy front, the government should stimulate foreign direct investment through incentives to investors, creation of a good macroeconomic environment and a careful utilisation of loose monetary policy to grow the economy.

Keywords: Economic growth; foreign direct investment; ARDL; stationarity; South Africa (search for similar items in EconPapers)
JEL-codes: E2 E22 E6 (search for similar items in EconPapers)
Date: 2016-03, Revised 2016-06
New Economics Papers: this item is included in nep-ger, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72382

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