The IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH

EVIDENCE FOR SOUTH AFRICA

Abstract

Foreign direct investment (FDI) is a crucial tool for attracting external flows and building capital in developing countries, sustaining, and accelerating economic growth. International institutes, scholars, policymakers, and researchers emphasize the importance of foreign direct investment (FDI) in the economies of developing nations like South Africa. This study  investigated the impact of foreign direct investment (FDI)  on economic growth in South Africa using annual time series data from 1985 to 2019. The study utilized the ARDL (Autoregressive Lag Distribution) method to examine the short-run and long-run relationship between foreign direct investment and economic growth. The model uses GDP as a dependent variable, while FDI, inflation (CPI), real interest rate, and saving rate are measured as independent variables The results of ARDL bounds test  showed a negative long-run relationship between FDI and economic growth, while saving rate positively correlated with growth. Inflation and real interest rate also had negative long-run relationships. The study recommends the government implement strategies to attract foreign investment, maintain order, combat corruption, ensure political stability, and effectively manage state-owned enterprises for sustained economic growth.