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Assessment of Foreign Direct Investment-Led Growth Argument in South Africa Amidst Urbanization and Industrialization: Evidence from Innovation Accounting Tests

Author

Listed:
  • Udi Joshua

    (Federal University Lokoja)

  • Hasan Güngör

    (Eastern Mediterranean University)

  • Festus Victor Bekun

    (Istanbul Gelisim University
    South Ural State University
    Istanbul Gelisim University
    South Ural State University)

Abstract

The objective of this study is to investigate the FDI-led growth hypothesis for the case of South Africa for the period between 1970 and 2017. The preliminary analysis of unit root test using traditional methods shows a different order of integration, which necessitates the use of autoregressive distributive lag (ARDL) methodology. Additionally, the current study also leverages on the innovative accounting techniques which comprised of impulse response function and forecast error variance decomposition (FEVD), which are employed to explore the responsiveness of the variables on each other. Our study results show that FDI inflow exerts a very strong positive impact on economic growth, thus validating the FDI-induced growth nexus in the South African economy. Furthermore, causality results show a one-way link running only from FDI inflow to economic growth and a unidirectional connection from urbanization to FDI inflow. The implication is that only urbanization matters in attracting FDI inflow to South Africa. These outcomes suggest that there is a need for the government administrators to develop urban centers through improving infrastructure facilities and the provision of industrial zones as a way of expanding both the ready market and the absorptive capacity of the country.

Suggested Citation

  • Udi Joshua & Hasan Güngör & Festus Victor Bekun, 2023. "Assessment of Foreign Direct Investment-Led Growth Argument in South Africa Amidst Urbanization and Industrialization: Evidence from Innovation Accounting Tests," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(3), pages 3374-3394, September.
    • Handle: RePEc:spr:jknowl:v:14:y:2023:i:3:d:10.1007_s13132-022-01015-9
    DOI: 10.1007/s13132-022-01015-9
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    More about this item

    Keywords

    Foreign direct investment; Economic growth; Industrialization; Urbanization; Trade openness; Innovative accounting; South Africa;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F3 - International Economics - - International Finance
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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