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FDI Inflows and Economic Growth in South Africa from 1994 to 2013

Strauss, Lea LU (2015) EKHM52 20151
Department of Economic History
Abstract
Since the beginning of democracy the South African government has been increasingly trying to attract FDI into the country. South Africa is an interesting case, since despite being a middle income country and highly developed compared to other African countries, FDI does not seem to offer positive spill-over effects. This paper critically assesses existing theory on the nexus between FDI, absorptive capacity and economic growth. A time series analysis from 1994 to 2013 is conducted, applying data from the World Bank and Penn World Table databases. The empirical findings show significant ambiguity, as no long-term effects between the variables are found, while economic growth is only affected by FDI in the short-term. In contrast to theory,... (More)
Since the beginning of democracy the South African government has been increasingly trying to attract FDI into the country. South Africa is an interesting case, since despite being a middle income country and highly developed compared to other African countries, FDI does not seem to offer positive spill-over effects. This paper critically assesses existing theory on the nexus between FDI, absorptive capacity and economic growth. A time series analysis from 1994 to 2013 is conducted, applying data from the World Bank and Penn World Table databases. The empirical findings show significant ambiguity, as no long-term effects between the variables are found, while economic growth is only affected by FDI in the short-term. In contrast to theory, according to the findings a relatively high level of individual factors´ absorptive capacity does not seem to be sufficient to generate overall economic gains and development. This, first of all is due to high populations group inequality through past-depending institutions and labor markets, still inheriting apartheid´s dynamics. Secondly, the capital intensive mining sector receives the main share of FDI in the economy. This promotes rather extractive exports than an inclusive economic development. Weak linkages between other, more labor intensive, sectors discourage employment creation and investments in human capital. (Less)
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author
Strauss, Lea LU
supervisor
organization
course
EKHM52 20151
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Foreign Direct Investment, Economic Growth, Absorptive Capacity, South Africa, Extractive Resources
language
English
id
5470141
date added to LUP
2015-06-25 12:40:52
date last changed
2015-06-25 12:40:52
@misc{5470141,
  abstract     = {Since the beginning of democracy the South African government has been increasingly trying to attract FDI into the country. South Africa is an interesting case, since despite being a middle income country and highly developed compared to other African countries, FDI does not seem to offer positive spill-over effects. This paper critically assesses existing theory on the nexus between FDI, absorptive capacity and economic growth. A time series analysis from 1994 to 2013 is conducted, applying data from the World Bank and Penn World Table databases. The empirical findings show significant ambiguity, as no long-term effects between the variables are found, while economic growth is only affected by FDI in the short-term. In contrast to theory, according to the findings a relatively high level of individual factors´ absorptive capacity does not seem to be sufficient to generate overall economic gains and development. This, first of all is due to high populations group inequality through past-depending institutions and labor markets, still inheriting apartheid´s dynamics. Secondly, the capital intensive mining sector receives the main share of FDI in the economy. This promotes rather extractive exports than an inclusive economic development. Weak linkages between other, more labor intensive, sectors discourage employment creation and investments in human capital.},
  author       = {Strauss, Lea},
  keyword      = {Foreign Direct Investment,Economic Growth,Absorptive Capacity,South Africa,Extractive Resources},
  language     = {eng},
  note         = {Student Paper},
  title        = {FDI Inflows and Economic Growth in South Africa from 1994 to 2013},
  year         = {2015},
}