The paper is concerned with the growth impact and the determinants of foreign direct investment in South Africa. Estimation is in terms of a standard spill-over model of investment, and in terms of a new model of locational choice in FDI between domestic and foreign alternatives. We find complementarity of foreign and domestic capital in the long run, implying a positive technological spill-over from foreign to domestic capital. While there is a crowd-out of domestic investment from foreign direct investment, this impact is restricted to the short run. Further we find that foreign direct investment in South Africa has tended to be capital intensive, suggesting that foreign direct investment has been horizontal rather than vertical. Determinants of foreign direct investment in South Africa lie in the net rate of return, as well as the risk profile of the foreign direct investment liabilities. Policy handles are both direct and powerful. Reducing political risk, ensuring property rights, most importantly bolstering growth in the market size, as well as wage moderation, lowering corporate tax rates, and ensuring full integration of the South African economy into the world economy all follow as policy prescriptions from our empirical findings.

Growth Impact and Determinants of Foreign Direct Investment into South Africa, 1956-2003

Infrastructural investment in long-run economic growth: South Africa 1875–2001

https://www.econrsa.org/system/files/publications/working_papers/wp12.pdf

Growth impact and determinants of foreign direct investment into South Africa, 1956–2003

Empirical explorations of the growth and aggregate productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. This paper, utilizing panel data for South African manufacturing over the 1970–2000 period, and a range of 19 infrastructure measures, explores the question of infrastructure endogeneity in output equations. The paper develops an instrumentation strategy generalizable to other contexts. Controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of economically meaningful magnitudes.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1805838_code58432.pdf?abstractid=1805838&mirid=1

Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures

Modelling the determinants of capital flows and capital flight: with an application to South African data from 1960 to 1995

https://www.econrsa.org/system/files/publications/working_papers/wp04_interest.pdf

Indicators of political liberty, property rights and political instability in South Africa: 1935-97

Recent cross country growth studies have found that ethnolinguistic fractionalization is an important explanatory variable of long-run growth performance. This paper highlights some limitations of cross country studies by focusing on the time series evidence for South Africa. In presenting variation over time in a number of social, political and economic dimensions, this paper adds longitudinal evidence on a range of dimensions that have been linked to long run economic development. Given South Africaâ€™s history of ethnic and racial politics, it constitutes a useful case study to explore the dynamics of the possible effects of ethnolinguistic fractionalization on growth. We introduce three new sets of fractionalization indicators for South Africa and one set of political indicators. The results of this study provide important nuance to the existing body of evidence, for the use of fractionalization indices in growth studies.

R.H. J. de Kadt

Papers

Indicators of political liberty, property rights and political instability in South Africa: 1935-97

Using Fractionalization Indexes: deriving methodological principles for growth studies from time series evidence