Revisiting Macroeconomic Impacts of FDI Inflows: An Empirical Analysis from South Africa

Abstract

This study revisiting macroeconomic impact of FDI inflows on South Africa (SA) economy. The study employed Johansen cointegration test, block exogeneity test and Vector Error Correction Model (VECM) to evaluate the variables spanning over 1986-2021. It has been shown that exports and economic growth have a unidirectional causal relationship; that is, when exports (EXP) increase, SA's economic growth increases. Economic growth and REXR were found to be causally related, meaning that higher REXR values translate into higher economic growth. Furthermore, there is no connection between economic growth and FDI inflows. However, the non-significant levels of external debt (EXTD) compared to CGDP show that SA's growth is not influenced by the amount of foreign debt. The study suggests that in order to monitor the exportable units, their quality, and the standardization of goods and services, a standardized export agency should be set up. This calls for the development of an effective export strategy.