Foreign Direct Investment, Institutions and Economic Growth: Evidence from South Africa

The association between Foreign Direct Investment (FDI), institutions, and economic growth in South Africa is examined in this study from 1996Q1 through 2019Q4 using Autoregressive Distributed Lag (ARDL). FDI was found to have a negative effect on economic growth in the long run. Institutions and economic growth, on the other hand, have no long-term relationship. However, an interaction between FDI and political stability is discovered to have a direct effect on economic growth in both long and short run. As a result, there is no reliable proof that an interaction between FDI and institutions may induce economic growth. However, there is a short-run link between FDI and economic growth. In the short run, regulatory quality and political stability have a positive effect on economic growth. The study recommends that to invite more FDI inflows into South Africa, the government must prioritize on protecting foreign businesses in the country through minimizing xenophobic attacks in order to boost their confidence hence leading to economic growth. In addition, to achieve economic growth, favorable tax policies that are fair to protect foreign and local investors must be implemented.