n AfricaGrowth Agenda - Does Foreign Direct Investment (FDI) crowd-in Domestic Investment (DI) in South Africa?

Volume 2014, Issue 7
  • ISSN : 1811-5187


South Africa is keen to attract more Foreign Direct Investment (FDI) to offset the deficit in Domestic Investment (DI) to create more jobs. However, higher FDI inflows may have negative effects to the local economy through the crowding out of DI. To the extent that the success of local firms is an important national development objective, this paper examines the effects of FDI inflows on DI in South Africa for the period 1980-2010, using an Error Correction Model (ECM). Results show that the effects of FDI on DI are positive but insignificant. As such, national efforts to encourage more FDI should be continued, but focused and be augmented by policies encouraging DI and creating synergy between activities of local and FDI firms.

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