FOREIGN DIRECT INVESTMENT INFLOW, CAPITAL FORMATION AND EMPLOYMENT IN SOUTH AFRICA: A TIME SERIES ANALYSIS

Year 2016, Volume: 8 Issue: 2, 175 - 189, 01.12.2016

E.T. Megbowon S. Ngarava A Mushunje

Abstract

Foreign Direct Investment inflow has been perceived to promote economic
stability of the host country through various economic benefits accrued from it.
Empirical evidence, however, presents mixed and unclear results. In South Africa,
poverty, unemployment, the urgent need to add to existing infrastructures and
develop new crucial infrastructures to meet the ever-increasing population have
become a challenge. The study attempted a time series analysis to investigate the
effect of foreign direct investment inflow on employment and capital formation in
for a time period of 1980-2014. Consequently, two multivariate models were
estimated and two econometric analyses, co-integration and causality were carried
out. The finding from the study shows that while there is a long-run relationship
among variables in the employment models, it was not so in the gross capital
formation model. The effect of FDI inflow on employment in the employment
model was found to be positive but insignificant. No form of causality was found
between FDI inflow and employment and between FDI inflow and gross capital
formation. This study concludes that strategic policies that would stimulate and
stabilize and FDI inflow into the economy should be formulated.

Keywords

Direct foreign investment, economic stability, investment

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