Determinants Of Foreign Direct Investment Inflows In Swaziland’s Agricultural Sector

Abstract

Foreign direct investment plays a significant role in the development and growth of developing countries. The main objective of the study was to analyse the determinants of foreign direct investment inflows in Swaziland’s agricultural sector from 1990 to 2014. The study examined the long-run and short-run effects by using the cointegration th

eory and the error correction model. The dependent variable was agriculture foreign direct investment inflows stock, while the explanatory variables were; government foreign debt, nominal GDP, trade openness, exchange rate, inflation and investment promotion. The study used the Breusch-Pagan-Godfrey test for heteroscedasticity. The Engle-Granger cointegration test was conducted to test the hypothesis that there was no cointegration between the dependent variable and the independent variables. The long-run regression results revealed that nominal GDP and investment promotion were positive and significant determinants of agriculture FDI (p<0.01). Their coefficients were 1.393 and 0.983 respectively. In the short-run, trade openness and investment promotion were significant and positive (p<0.01) with coefficients of 1.483 and 1.05 respectively. The error correction model was within the acceptable range and it had the expected negative sign. Its coefficient was -0.431 suggesting that about 43% of the short-run shocks were adjusted back to the long-run path within a year. The study recommends that the Swaziland Government must focus on increasing the rate of GDP growth mainly through the encouragement of processing of raw materials to finished goods and also improve on openness to trade.

Keywords: Agricultural foreign direct investment, cointegration model, trade openness, nominal GDP.