An analysis of the relationship between foreign direct investment (FDI), political risk and economic growth in South Africa

Abstract

A country's political stability and trends in economic growth are important factors to attract foreign investment. Most developing countries struggle to achieve political stability and high levels of growth. Due to these issues, developing countries attract limited foreign investment. Applying the Bounds test for cointegration, an ARDL model was utilized using time series data from 1995 to 2016, this study examined the potential impact of political risk and gross domestic product (GDP) on foreign direct investment (FDI) flows to the South Africa. Findings of the study revealed that in both short and long run, political risk and economic growth affect the level of foreign direct investment. The political risk rating was found to have a higher impact on FDI flow if compared to GDP. The lower the political risk level (resulting in a highly rated index), the higher the level of FDI inflows. Using the Granger causality approach, empirical results indicated a bi-directional causal relationship between FDI and economic growth, while it was found that political risk causes changes in FDI. In other words, individually, political risk and gross domestic product cause changes in FDI. Based on the study findings, it is imperative for the South African government to reduce the level of political risk in order to increase foreign investment into the country which, in return, could assist in economic growth and welfare. JEL Classifications: F43, O50

Pre-COVID-19 evaluation of external debt, corruption and economic growth in South Africa

“…It is a method that autoregressively lagged the value of the dependent variable and distributed it in lagged form as part of the regressors. One observation in the literature is that the use of ARDL is increasingly becoming popular because of its overriding advantages which include: (1) that the ARDL is a small sample size friendly in testing the long run relationship between variables as in this present study (Pegkas, 2018); (2) unlike the usual bivariate and multivariate cointegration methods, the Debt, corruption and growth pre-COVID-19 ARDL places no restriction on the order of integration of each variable in levels whether they are I(1) or I(0) or both (Habanabakize and Meyer, 2018). This does not apply where the order of integration is two or more (Akram, 2017); (3) it gives room for different optimum lags to be used for different variables as against the standard cointegration ( Kharusi and Ada, 2018).…”

Economic Development and South Africa: 25 Years Analysis (1994 to 2019)

“…(Gcabo and Robinson, 2007; Garzarelli and Fontanella, 2011; Meyer et al ., 2017a, 2017b; Meyer and McCamel, 2017; Meyer and Neethling, 2017; Meyer and De Jongh, 2018; Meyer and Habanabakize, 2018; Meyer et al ., 2018; Iwegbunam and Robinson, 2019)…”

“…The exploration of economics has always been a choice for industrial and academic research, and has undoubtedly gathered a lot of attention (Barro, 2012; Acemoglu et al ., 2019). There exists a broad range of factors (factors of production, income, trade and political influences) that determine the parameters for nations’ economic development (Beaudry and Portier, 2006; Baker et al ., 2016; Stahel, 2016; Meyer and De Jongh, 2018; Meyer and Habanabakize, 2018; Meyer et al ., 2018). Sustainable economic growth and development in every nation is the mirror image of its existence amongst various other nations globally (Adeyeye et al ., 2017; Ho, 2020).…”

The Effect of Political, Economic and Financial Risks on Foreign Direct Investments: The Case of Turkey

“…Buna göre finansal istikrar bir gecikmeli kısa dönemde DYY'yi Bu çalışmanın analiz sonuçları büyük oranda literatürde yaygın çalışmaların sonuçlarıyla benzerlik göstermektedir. Örneğin,Lim (2017),Topal ve Gül (2016), Rafah ve Farahani (2017),Meyer ve Habanabakize (2018),Artan ve Hayaloğlu (2015),Busse ve Hefeker (2007), Del bo (2009),Baltacı vd. (2017),King (2021) veOsabutey ve Okoro (2015) çalışmalarında çeşitli ülke risk endeksleri ile DYY arasında bu çalışmanın sonuçlarına benzer sonuçlar bulmuşlardır.…”