Foreign Direct Investment and Economic Growth in South Africa: Is there a Mutually Beneficial Relationship?

Abstract

This paper interrogated the impact of foreign direct investment (FDI) on economic growth in the South African economy. The study employed annual time series data covering 1960 to 2019 extracted from the South African Reserve Bank. This study applied impulse response functions within a VAR methodology to analyse the dynamic interrelationships between FDI and economic growth in South Africa. The study discovered that there exists a mutually beneficial relationship between foreign investors and expansion of economic activities consistent with economic growth. A positive shock in FDI leads to a significant growth in South Africa’s economy. Likewise, a positive shock in GDP promotes FDI inflows in South Africa. The study suggested that policymakers ought to consider promulgating prudent macroeconomic policies that can attract FDI consistent with economic prosperity.