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Development Finance pp 199–223Cite as

Palgrave Macmillan

Foreign Direct Investment and Economic Growth: The Structural Vector Autoregressive Approach for South Africa

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Abstract

This paper examines the dynamic relationship of Foreign Direct Investment shocks (FDI), economic growth (GDP) and other macroeconomic variables in South Africa. Using a structural vector autoregressive (SVAR) model like Sims (1980), results show that on the one hand the impact of FDI on GDP is positive, yet minimal and insignificant, while on the other hand, the impact of GDP on FDI is positive and significant. As such, national efforts to encourage more FDI should be continued, but be augmented by policies accelerating economic growth and domestic capital formation as well as creating synergy between activities of local and FDI firms.

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Notes

  1. 1.

    http://data.worldbank.org/indicator/NY.GDS.TOTL.ZS

  2. 2.

    resbank.co.za/Publications/QuarterlyBulletins/Pages/QBOnlinestatsquery.aspx

  3. 3.

    resbank.co.za/Publications/QuarterlyBulletins/Pages/QBOnlinestatsquery.aspx

  4. 4.

    resbank.co.za/Publications/QuarterlyBulletins/Pages/QBOnlinestatsquery.aspx

  5. 5.

    In the literature, the non-recursive method, which is based on prior theories and empirical evidence, is an alternative (Sims 1986; Bernanke 1986; Blanchard and Watson 1986). However, restrictions based on theories and empirical facts are complex and not straightforward.

  6. 6.

    For simplicity, variables with and without ‘LN’ are the same and used interchangeably

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Author information

Authors and Affiliations

  1. Department of Managerial Accounting and Finance, Tshwane University of Technology, Pretoria, South Africa

    Josué Mabulango Diwambuena & Heinz Eckart Klingelhöfer

  2. Department of Economics, University of the Free State, Phutaditjaba, South Africa

    Amon Magwiro

  3. Sam Tambani Research Institute, Braamfontein, South Africa

    Martin Kaggwa

Authors
  1. Josué Mabulango Diwambuena
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  2. Amon Magwiro
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  3. Heinz Eckart Klingelhöfer
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  4. Martin Kaggwa
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Corresponding author

Correspondence to Heinz Eckart Klingelhöfer .

Editor information

Editors and Affiliations

  1. Development Finance Centre, UCT Graduate School of Business, Cape Town, Western Cape, South Africa

    Nicholas Biekpe

  2. Institute of Development Policy and Management, Universiteit Antwerpen, Antwerp, Belgium

    Danny Cassimon

  3. Department of Finance Birmingham Business School, University of Birmingham, Birmingham, United Kingdom

    Andrew William Mullineux

Appendices

Appendices

Appendix 7.1 Unit root test
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Appendix 7.2 Johansen cointegration test
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Appendix 7.3 Optimal lag length criteria
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Appendix 7.4 Matrix A and B under Cholesky’s structural factorisation
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Diwambuena, J.M., Magwiro, A., Klingelhöfer, H.E., Kaggwa, M. (2017). Foreign Direct Investment and Economic Growth: The Structural Vector Autoregressive Approach for South Africa. In: Biekpe, N., Cassimon, D., Mullineux, A. (eds) Development Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-54166-2_7

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  • DOI: https://doi.org/10.1007/978-3-319-54166-2_7

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