Economic growth in South Africa: weaving together industrialization and foreign direct investment

Purpose The purpose of this study is to investigate the interplay between industrialization and foreign direct investment (FDI) as key drivers of economic growth in South Africa from 1994 to 2024. Design/methodology/approach This study employs an empirical research design using secondary data from the World Bank Development Indicators (1994–2024) to analyse South Africa's economic dynamics. The autoregressive distributed lag bounds-testing approach is applied to assess both short- and long-run relationships among foreign direct investment (FDI), industrialization, and economic growth. Stationarity is confirmed through unit root tests. An interaction term between FDI and industrialization captures their joint impact on growth. Diagnostic tests affirm model validity, while stability analyses ensure robustness. The methodological approach employed provides a systematic analysis of the dynamic drivers underpinning South Africa's economic development pathway. Findings This study finds that both foreign direct investment (FDI) and industrialization significantly drive economic growth. Long-term analysis shows that increases in FDI inflows and stock, especially when aligned with industrial activity, substantially boost growth. Industrialization also has positive effects, amplified by FDI interactions. Short-term effects similarly highlight FDI and industrial output as key growth catalysts. Overall, the findings underscore the importance of integrated policies promoting both FDI attraction and industrial development to achieve sustainable economic progress in South Africa. Originality/value This study makes a significant contribution by empirically quantifying the synergistic effects of industrialization and foreign direct investment (FDI) on South Africa's long-term economic growth, addressing a notable gap in the existing literature. Its innovative approach models the interdependent relationship between these variables within South Africa's unique socio-economic context, highlighting their combined potential to accelerate growth and development. The findings provide detailed insights for policymakers, highlighting the importance of integrated strategies to leverage both industrial and FDI-driven growth. This research advances theoretical understanding and offers practical guidance for fostering sustainable and inclusive economic progress in emerging economies.