Abstract
This paper examines the effect of South Africa’s economic fundamentals on net direct investment and net portfolio investment. The results suggest that the main determinants of investment in South Africa are resource prices, input productivity and the economic performance of the domestic economy. The results illustrate that net direct investment and net portfolio investment are close but not perfect substitutes. In addition, we find that an increase in labour input costs reduces both net direct investment and net portfolio investment. Further, an increase in fixed capital productivity increases net direct investment. Further, also the results illustrate that subsidies increase both net direct investment and net portfolio investment. Moreover, an increase in exports increases both net direct investment and net portfolio investment. Policy recommendations are thus proposed that may increase foreign direct investment in South Africa.
Highlights
Foreign direct investment (FDI) makes an enormous economic contribution to the economic growth of an economy
We examined the effect of input costs and productivity, taxes and economic fundamentals on net direct investment and net portfolio investment
The results obtained in this paper illustrate that an increase in labour input cost decreases both net direct investment and net portfolio investment
Summary
Foreign direct investment (FDI) makes an enormous economic contribution to the economic growth of an economy It is a key condition for certain development objectives job creation and poverty alleviation.[1] Governments focus on establishing policy and institutional frame-works that encourage private sector investment, focusing on FDI. It illustrates that the four sectors with the highest GFDI per centage share are general government services, business services, transport and storage services and finance and insurance services. Average percentage share of total FDI in per cent (1970 2001)
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