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Evaluating the impact of foreign direct investment on economic growth in developing economies: Evidence from South Africa (2000–2023)

Author

Listed:
  • Elvis Madondo

    (Durban University of Technology)

  • Hummerly Dhobha

    (Durban University of Technology)

  • Primrose Mutema

    (Universitas Islam International Indonesia)

  • Eunice Akindeji

    (Durban University of Technology)

Abstract

This study examines the impact of Foreign Direct Investment (FDI) on economic growth in South Africa over the period 2000 to 2023. An Ordinary Least Squares (OLS) regression model was employed to assess the relationship between FDI inflows and Gross Domestic Product (GDP), while controlling for key macroeconomic variables. The findings reveal that FDI exerts a significant positive influence on economic performance, with a 1% increase in FDI inflows associated with a 1.93% rise in GDP. However, high inflation exerts a detrimental effect, with a coefficient of -1.99, highlighting the importance of macroeconomic stability. The analysis also indicates that trade openness contributes positively to economic growth, while political risk remains a substantial deterrent to investment, as shown by a coefficient of -3.11. These findings underline the importance of maintaining a stable political environment, managing inflation effectively, and enhancing trade liberalisation to maximise the benefits of FDI. Policy recommendations include strengthening regulatory frameworks and fostering trade openness. Key Words: Foreign Direct Investment; economic growth; South Africa; Gross Domestic Product; inflation; trade openness; political risk; sustainable development

Suggested Citation

  • Elvis Madondo & Hummerly Dhobha & Primrose Mutema & Eunice Akindeji, 2025. "Evaluating the impact of foreign direct investment on economic growth in developing economies: Evidence from South Africa (2000–2023)," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(7), pages 324-331, November.
    • Handle: RePEc:rbs:ijbrss:v:14:y:2025:i:7:p:324-331
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    References listed on IDEAS

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