Regional economic integration, natural resources and foreign direct investment in SADC

Abstract

Purpose: This paper aims to examine the role of economic integration and natural resources and foreign direct investment (FDI) complementarity in explaining economic growth in the Southern African Development Community (SADC). Design/methodology/approach: The study employed the ordinary least square-random effects and the generalized two-stage least square instrumental variables (IV) regression to examine the relationship between the variables. Findings: The authors find that regional economic integration and natural resource abundance are essential for promoting economic growth. The results further show a potential resource curse phenomenon, offset by the complementary effect of FDI in resource-rich countries. The findings are robust after conditioning for different measures of institutional quality. Practical implications: The findings suggest the need for deeper regional trade integration and international cooperation, prudent natural resource management and concerted effort toward economic diversification. Originality/value: Many studies have examined the determinants of economic growth in the Southern African Development Community (SADC). However, these studies did not incorporate or assess the potential of economic integration in the region. Moreover, studies that examined the growth effects of FDI did not assess the complementary role of the region's natural resource endowment which potentially drives FDI inflows. This study fills these gaps and provides a robust analysis of economic growth drivers in the region.