The contribution of Foreign Direct Investment (FDI) to domestic employment levels in South Africa: a Vector Autoregressive Approach
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Date
2018
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University of Zululand
Abstract
South Africa is a free market economy that promotes Foreign Direct Investment (FDI) in all of its economic sectors, with the aim of accelerating economic growth and increasing job opportunities. Several empirical works have yielded mixed and controversial results with regard to the effects of FDI on employment and economic growth in both developed and developing countries. The primary focus of this study is to investigate the effect of FDI on domestic employment levels in the context of the South African economy. The analyses of the study were carried out using the annual time series data, covering the period of 1980 to 2015. The macroeconomic variables used in the estimation process of the study include employment, FDI, GDP, inflation, trade openness and unit labour costs. The study employed secondary data from the South African Reserve Bank (SARB) and Statistics South Africa (StatsSA) database. The study mainly used the Vector Autoregressive/ Vector Error Correction Mechanism (VAR/VECM) approach to conduct empirical analysis. However, the study also employed single equation estimation techniques, including the Ordinary Least Squares (OLS), Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS) and Canonical Co-integrating Regression (CCR) models as supporting and confirmatory tools to verify the results produced by the VAR/VECM model. This study provides strong evidence of a significant negative relationship between FDI and employment levels in the South African economy. The results also indicate that employment levels are highly influenced by an increase in economic growth (GDP). Empirical analysis of the study suggests that the effect of economic growth on employment is highly positive and significant in South Africa’s economy. Policy recommendations on this effect are given on the basis of empirical findings obtained from this particular research.
Description
A dissertation submitted to the Faculty of Commerce, Administration and Law in fulfillment of the requirements of the Degree of Master Of Commerce (Economics) in the Department of Economics at the University of Zululand, 2018
Keywords
foreign direct investment (FDI) --economic growth --employment --South Africa