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

Journal Title: Business and Economic Horizons - Year 2018, Vol 14, Issue 4

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.

Authors and Affiliations

Daniel Francois Meyer, Thomas Habanabakize

Keywords

Related Articles

Is the price-cost margin affected by the market concentration? Evidence from the Czech food and beverages industry

The paper investigates the relationship between the market concentration and the price-cost margin in the Czech food processing industry during 2003-2014. Estimated econometric models with Fixed Effects supported hypothe...

Efficiency and client satisfaction of Islamic and conventional banks: A bilateral effect

In this paper, we investigate the possible bidirectional causal relationship between bank efficiency and client satisfaction in the banking sector of Kuwait. For this purpose, we applied structural equation model (SEM) m...

Outsider vs insider: Does firm governance matter?

As CEO turnover occurs, the company may select an insider or outsider as a successor. This study attempts to ascertain whether firm performance, female directors, board religiosity and blockholder ownership influence the...

Public and private investment and economic growth in Zimbabwe: An empirical test

This study performs an examination on the impact of public and private investment on economic growth and the crowding effect of public investment on private investment in Zimbabwe from 1970 to 2014. The study utilised th...

Antecedents of burnout and its relationship to internal audit quality

This paper presents an assessment on the effect and consequences of burnout as a factor impacting premature sign-offs (PMSO) among internal auditors. Hence, questionnaires were sent to 187 internal auditors from Jordan t...

Download PDF file
  • EP ID EP439278
  • DOI 10.15208/beh.2018.54
  • Views 81
  • Downloads 0

How To Cite

Daniel Francois Meyer, Thomas Habanabakize (2018). An analysis of the relationship between foreign direct investment (FDI), political risk and economic growth in South Africa. Business and Economic Horizons, 14(4), -. https://europub.co.uk/articles/-A-439278