Factors Affect Flow of Foreign Direct Investment (A Case Study of South Africa:1970-2014)

Abstract

Foreign Direct Investment serves as an essential catalyst for development and economic growth of a nation and its inflow has increased massively in the last few decades. Africa receives a minute amount of the global value of FDI with South Africa, the Rainbow Nation receiving a lion’s share of the value to Sub-Saharan Africa. However, the trickle- down effect of the spill-over of FDI inflow is arguably not widely benefiting the masses as unemployment and poverty rates remains very high; poor service delivery and affordable public health services still a major problem. As a result, there is a need for more FDI to mitigate the problems. Consequently, the researchers aim to identify factors affecting FDI flow to South Africa by using annual data from 1970 to 2014. The researchers used Multiple Linear Regression model to establish a relationship between Foreign Direct Investment and Gross Domestic Product, Real Interest Rates, Gross National Income, Gross National Expenditure, Official Exchange Rate and Gross Fixed Capital Formation. The empirical results indicate that Gross Domestic Product, Gross National Income, and Gross Fixed Capital Formation are highly significant and positively affect FDI flow to the Rainbow Nation. Furthermore, the results indicate that Gross National Expenditure is highly significant but negatively affect FDI flow. Notwithstanding, Official Exchange Rate and Real Interest Rates have no statistically significant relationship with the FDI inflow to South Africa.

Keywords: Foreign Direct Investment, Gross Domestic Product, Gross National Income, Gross National Expenditure, Gross Fixed Capital Formation, Real Interest Rates, Official Exchange Rate