Abstract
This study examines the role of industrialization in the energy-growth-FDI nexus for the case of South Africa using data over the period 1970 to 2018. The empirical exercise was conducted using Pesaran Autoregressive Distributed Lag (ARDL) bounds testing approach. To accomplish our study objective, we analyze stationarity properties of the series using the unit root test after which we applied Bayer-Hanck (B-H) combined technique to cointegration to assess whether a long-run relationship exists among the series. Empirical results show that a 1% change in FDI account for 0.002% and 0.013% increase in economic expansion in the short- and long- run respectively. Also, a 1% increase in coal consumption influence GDP negatively by 0.083% and 0.207% in the short and long run respectively. Furthermore, a 1% increase in total natural resource rent positively affects GDP by 0.02% and 0.05% respectively in the short and long run. Industrialization, on the other hand, demonstrates a positive and significant impact on the economic growth process both in the short and long run. Industrialization contributes 0.506% and 1.274% to economic expansion both in the short and long run respectively. The causality tests suggest that a one-way causal link running from FDI to industrialization and from industrialization to coal consumption exists. Finally, FDI inflow drives total natural resource rents in South Africa. This study also gives reliable growth and energy policy proposals to policymakers applicable to countries around the globe.
Highlights
The linkage between foreign direct investment (FDI hereafter) inflow and economic prosperity whether positive or otherwiseResponsible editor: Muhammad Shahbaz has been an issue of increasing concern
Despite the existing volume of research on FDI-growth nexus, it is imperative to point out clearly that FDI that flow into the South Africa economy has increased drastically over the last three decades which demand the need for further empirical investigation on the nexus
The variables of incorporated in the model include real GDP which stands for economic prosperity, net inward FDI, industrialization (IND) measured by the total number of industries, coal consumption measured in metric tons, and total natural sources rent (TNR)
Summary
The linkage between foreign direct investment (FDI hereafter) inflow and economic prosperity whether positive or otherwise. This study stands out among other studies in term of scope as industrialization is incorporated in the functional model as a control variable for the first time in the case of South Africa. This became necessary because of two reasons: firstly, a report that South Africa is the largest industrialized economy in the Southern African region as well as the second largest in the continent after Egypt World Bank economic indicator (WDI 2017). In addition to the above, the study set out to investigate the growth hypothesis which claims that coal consumption is a driver of economic prosperity.
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