Foreign direct investment, trade and economic growth: a case study of South Africa

Abstract

Global trade has significantly expanded over the past thirty years in both developed and emerging economies, a phenomenon assisted by advancements in transportation, telecommunications, and industry. Extensive trading fosters financial links between national economies, hence promoting economic progress. This article aims to investigate the interrelationship among foreign direct investment, trade, and South Africa's economic growth. Econometric techniques, including the autoregressive distributed lag bound test, were used to annual data from 1988 to 2022. The findings indicated that economic growth is positively affected by foreign direct investment and exports in both the short and long term. This indicated that foreign direct investment and exports are substantial contributions to economic growth.This analysis indicates that both foreign direct investment (FDI) and trade significantly impact the macroeconomic environment and influence economic growth. Developing countries such as South Africa must use diverse strategies to guarantee elevated rates and quality of economic growth. Improvements in the investment climate and the establishment of incentives are necessary to enable the equitable allocation of resources across various sectors to address employment challenges, poverty rates, and the maintenance of growth. Export-oriented strategies should be adopted. Therefore, it is essential to analyse the determinants of economic growth by examining foreign direct investment and trade in the context of South Africa, particularly in relation to the country's performance as measured against the National Development Plan targets since the post-1994 period.