Internal determinants of foreign direct investment in South Africa.
Gray, Jeremy Michael Hugh.
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Foreign Direct Investment (FDI) is a powerful driver of economic growth and development, particularly in the developing world. FDI can lead to greater efficiencies in the local economy through a number of different channels such as the transfer of technology, increase in competition, and job creation. This dissertation discusses the costs and benefits derived from FDI as well as examining various complementary issues to FDI, such as the relevance of fiscal incentives and the varying effects of different modes of entry. This study further analyses the determinants of FDI into South Africa for the period 1961-2009, through the use of two different econometric techniques – time series and panel data analysis. The results from the time series analysis concur largely with previous studies, finding market size, exchange rate, macroeconomic (in)stability and infrastructure to all be statistically significant determinants of FDI inflows into South Africa. South Africa underwent a major political and economic change in 1994 with the end of Apartheid. This fundamental shift in the economy has also affected the determinants of FDI into the country. To this end a panel data analysis was conducted between 1994 and 2009, the results of which are more suitable for forecasting. This analysis found similar results to the time series analysis, although the relative importance of the determinants varies somewhat, and two additional variables – education and labour productivity – were also found to be statistically significant determinants in the panel data analysis. The dissertation concludes by discussing the policy implications that derive from the findings of the econometric analysis and offers some policy advice in terms of attracting greater FDI into South Africa, based on the findings of this analysis.