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

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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