- Title
- Foreign direct investment, trade openness and economic growth linkages: the role of exchange rate regime choice in South Africa
- Creator
- Amoah, Edmund Vincent Nyarko
- Subject
- Investment -- South Africa
- Subject
- Foreign Exchange rates
- Date Issued
- 2020-04
- Date
- 2020-04
- Type
- Master's theses
- Type
- text
- Identifier
- http://hdl.handle.net/10948/57523
- Identifier
- vital:58058
- Description
- For a country to ensure economic stability, growth, development, and technological advancement, FDI and trade openness play a vital role in achieving such development. Economic growth leads to employment creation and poverty reduction. FDI inflows are important to countries, especially in developing countries, as they enhance domestic savings and capital inflows from abroad. It further accumulates the transfer of technology, speeds up competition and pushes for a more positive development of firms. On the other hand, trade openness involves the removal or relaxation of trade barriers that hinder the free flow of trade between countries. FDI and trade openness is viewed as a catalyst to economic growth. However, FDI, trade openness, and economic growth are largely influenced by the exchange rate regime choice of a country. South Africa’s economy is founded on the principles of trade openness and strives to attract FDI and ensure economic growth. The country has also transitioned from different exchange rate regime choices, and currently adopts the free-floating exchange rate regime choice. These policies are aimed to enhance growth and better the lives of the people. However, this is not the case as unemployment continues to rise. Economic growth has not appreciated to the level the country aims to reach. Economic growth has shown a downward trend over the past years. These indicators raise the question about the impact of FDI, trade openness, and economic growth, and the role of exchange rate regime policies implemented in the country for many decades. Therefore, the objective of this study is to determine the linkages between FDI, trade openness, economic growth, and the role of the exchange rate regime choice. Specific objectives of the study include: first, to establish whether there is a direct relationship between FDI, trade openness, and economic growth, or not and, second, to investigate the effect of exchange rate regime choice on foreign direct investment, trade openness and economic growth. To achieve these objectives, the study made use of secondary data and quantitative research design. Data was collected from different sources namely, the statistics South Africa data base, world development indicators, the international monetary fund, and the Reserve Bank of South Africa. Data was collected from 1995 to 2018. In the aspect of vi data analysis, Stata, a statistical computer software and time series was used to analyse the data for the current study. The study employed an estimation technique such as the ARDL. This was to ensure that variables are I (0) or I (1). The Zivot-Andrews test was employed to investigate all possible structural breaks. Due to its inability to deal with more than one structural break, CLEMAO, or IO routine, was introduced to close the gap and to allow for a possible two event of structural break in time series. The study performed a granger causality test to determine the causalities that arose among the variables under study. The results showed no granger causality between GDP and FDI. A uni-directional granger causality was found to flow from GDP to trade openness, FDI to trade openness and FDI to exchange rate. A bi-directional causality was established between GDP and exchange rate, and between trade openness and exchange rate. The study employed critical values because the sample size appeared to be small in nature. The F statistics from the ARDL appeared to be greater than the critical value, which symbolizes a long-run relationship of the variables currently under study. A Gregory-Hansen cointegration test was introduced to handle the concept of regime changes in the current study. Findings from the ARDL with known structural break for exchange rate regime choice revealed that, exchange rate had a positive significant impact on economic growth in the short-run, whereas it had a significant negative impact on economic growth in the long-run. This implies that, during the initial stages of an exchange rate policy, the South African rand appreciated, leading to a boost in economic growth. A change from managed float exchange rate regime to a free float exchange rate regime caused a 1.49 percent increase in economic growth. This was an indication that the free float exchange rate is a better choice compared to a managed float exchange rate. Based on these findings, the study recommended that South Africa should continue with free float exchange rate policy as it is found to promote economic growth. To attract FDI, the study recommended that economic restrictions on foreign investors should be minimised. However, the South African government should encourage foreign investors to provide training and skills to South Africans who are employed in their establishments. This will in the long-run contribute to technology and human capital transfer needed by vii the country to stimulate economic growth. Finally, the study recommended that South African government should curb the importation of certain goods and services which are locally produced. This will improve economic growth and enhance employment.
- Description
- Thesis (MA) -- Faculty of Business and Economic Science, 2020
- Format
- computer
- Format
- online resource
- Format
- application/pdf
- Format
- 1 online resource (xiv, 135 pages)
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic science
- Language
- English
- Rights
- Nelson Mandela University
- Rights
- All Rights Reserved
- Rights
- Open Access
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
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