Determinants of FDI in South Africa: Do macroeconomic variables matter?

Dondashe, Nandipha and Phiri, Andrew (2018): Determinants of FDI in South Africa: Do macroeconomic variables matter?

Abstract

In this study we examine the macroeconomic determinants of FDI for the South African economy using data collected between 1994 and 2016 using the ARDL model for cointegration. The specific macroeconomic determinants which are used in the study are per capita GDP, the inflation rate, government size, real interest rate variable, and terms of trade. With the exception of inflation the remaining macroeconomic determinants employed in the study are positively and significantly related with FDI. However, in the short-run all variables are positively and significantly correlated with FDI. Collectively, these results have important implications for policymakers.

• Item Type: MPRA Paper
• Language: English
• Keywords: FDI; ARDL cointegration; Financial crisis; South Africa.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements

References

Agarwal J. (1980), “Determinants of foreign direct investment: A survey”, Weitwirtschaftliches Archiv, 116(3), 739-773.

Ahmed F., Arezki R. and Funke N. (2005), “The composition of capital flows: Is South Africa different?”, IMF Working Paper No. 05-40, March.

Ang J. (2008), “Determinants of foreign direct investment in Malaysia”, Journal of Policy Modeling, 30, 287-292.

Anyunwa J. (2011) , “Determinants of foreign direct investment inflows to Africa, 1980-2007”, African Development Bank Group Working Paper No. 136, September.

Asiedu E. (2002), “On the determinants of foreign direct investment to developing countries: Is Africa different?”, World Development, 30(1), 107-119.

Assuncao S., Forte R. and Teixeira A. (2011), “Location determinants of FDI: A literature review”, FEP Working Papers No. 433, October.

Bende-Nabende A. (2002), “Foreign direct investment in Sub-Sahara Africa: A co-integration analysis”, Economics Bulletin, 6(4), 1-19.

Blonigen B. (2005), “A review of the empirical literature on FDI determinants”, Atlantic Economic Journal”, 33(4), 383-403.

Buckley P. and Casson M. (1976), “The Future of the Multinational Enterprise”, London, MacMillan.

Coase R. (1937), “The nature of the firm”, Economica, 4, 386-405.

Denissa V. (2010), “Foreign direct investment theories: An overview of main FDI theories”, European Journal of Interdisciplinary Studies, 2(2), 104-110.

Dunning J. (1980), “Towards an eclectic theory of international production: Some empirical tests”, Journal of International Business Studies, 11(1), 9-31.

Fedderke J. and Romm A. (2006), “Growth impact of foreign direct investment into South Africa”, Economic Modelling, 23(5), 738-760.

Hymer S. (1960), “The international operations of nation firms: A study of foreign direct investment”, Cambridge, MLT Press.

Hymer S. (1970), “The efficiency (contraditions) of Multinational Corporations”, American Economic Reviews Papers and Proceeding, 60, 441-448.

Jadhav P. (2012), “Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factor”, International Conference on Emerging Economies – Prospects and Challenges, 37, 5-14.

Kariuki C. (2015), “The determinants of foreign direct investment in the African Union”, Journal of Economics, Business and Management, 3(3), 346-351.

Kindelberger C. (1969), “American Business Abroad: Six lectures on direct investment”, New Haven: Yale University Press.

Knickerbockers F. (1973), “Oligopolistic reaction and multinational enterprise”, Thunderbird International Business Review, 15(2), 7-9.

Kolstad I. and Villanger E. (2008), “Determinants of foreign direct investment in services”, European Journal of Political Economy, 24(2), 518-533.

Makoni P. (2015), “Foreign direct investment - The case of Botswana”, Acta Universitatis Danubius OEconomica, 11(4), 160-173.

Metaxas T. and Kechagia P. (2016), “Literature review of 100 empirical studies of foreign direct investment”, MPRA Working Paper No. 71414, May.

Mijiyawa A. (2015), “What drives foreign direct investment in Africa? An empirical investigation with panel data”, African Development Review, 27(4), 392-402.

Morisset J. (2000), “Foreign direct investment in Africa: Policies also matter”, Transnational Corporations, 9(2), 107-125.

Moosa I. and Cardak B. (2006), “The determinants of foreign direct investment: An extreme bounds analysis”, Journal of Multinational Financial Management, 16(2), 199-211.

Nayak D. and Choudury R. (2014), “A selective review of foreign direct investment”, ARTNET Working Paper No. 143, March.

Onyeiwu S. and Shrestha H. (2004), “Determinants of foreign direct investment in Africa”, Journal of Developing Societies, 20(1-2), 89-106.

Pesaran P., Shin Y. and Smith R. (2001), “Bounds testing approaches to the analysis of level relationships”, Journal of Applied Econometrics, 16(3), 1924-1996.

Rodriguez-Pose A. and Cols G. (2017), “The determinants of foreign direct investment in sub-Saharan Africa: What role for governance?”, Regional Science Policy and Practice, 9(2), 63-81.

Savoiu G. and Taicu M. (2014), “Foreign direct investment models, based on country risk for some Post-socialist Central and Eastern European economies”, Procedia Economics and Finance, 10, 249-260.

Sichei M. and Kinyondo G. (2012), “Determinants of foreign direct investment in Africa: A panel data analysis”, Global Journal of Management and Business Research, 12(18), 1-14.

Suliman A. and Mollick A. (2009), “Human capital development, war and foreign direct investment in Sub-Saharan Africa”, Oxford Development Studies, 37(1), 47-61.

Tintin C. (2013), “The determinants of foreign direct investment inflows in the Central and Eastern European countries”, Communist and Post-Communist Studies, 46(2), 287-298

Vernon R. (1966), “International investment and international trade in the product life cycle”, Quarterly Journal of Economics, 80, 190-207.

Vijayakumar N., Sridharan P. and Rao K. (2010), “Determinants of FDI in BRICS countries: A panel analysis”, International Journal of Business Science and Applied Management, 5(3), 1-13.

Wilhelms S., Stanley M. and Witter D. (1998), “Foreign direct investment and its determinants in emerging economies”, African Economic Policy Discussion Paper No. 9, July.