The Role of Foreign Direct Investment and Unemployment in South Africa’s Economic Growth

This study examines the interplay between foreign direct investment (FDI) and unemployment on economic growth in South Africa from 1998 to 2024. Since South Africa is one of the major recipients of FDI on the continent, it has faced chronic unemployment and uneven economic growth, raising uncertainty about whether FDI will be beneficial for inclusive and sustainable economic development in the country. Economic growth is measured by gross domestic product (GDP), with FDI and unemployment serving as the principal explanatory variables. The Autoregressive Distributed Lag (ARDL) modeling technique is employed to evaluate both short-run and long-run relationships among the variables through annual time series data from the World Bank. The results indicate that FDI is positive, with a 10% statistically significant effect on economic growth. Unemployment exhibits an inverse relationship with economic growth, highlighting the negative effects of persistent labor market challenges, such as high joblessness and skills mismatches, that constrain productivity and economic expansion. The study concludes that FDI alone is insufficient to promote sustained economic growth in South Africa and emphasizes the importance of policies aimed at improving labor market conditions, strengthening absorptive capacity, and promoting productive and employment-intensive investment to achieve inclusive and sustainable economic growth.