Manufacturing sector foreign direct investment and economic growth in South Africa

Foreign direct investment is recognized as a significant driver of economic development and growth in many economies. It can have a positive effect on a host country’s development and growth efforts. This study seeks to determine the long-run relationship between manufacturing sector foreign direct investment and economic growth in South Africa in the period 2006–18. The study incorporates trade openness, domestic investment, inflation, and exchange rate as additional variables. To test for stationarity of the data, the Augmented Dickey–Fuller and Phillips–Perron tests are used. The empirical analysis is conducted using the autoregressive distributed lag model to examine the long-run relationship between the variables. The results suggest that manufacturing sector foreign direct investment has a negative impact on economic growth in the long run. The findings of this study imply that policy measures should be put in place to ensure adequate quality of labour and infrastructure development, in order that higher growth rates can be achieved in South Africa.