Impact of capital account liberalization on economic growth in Africa: A case study of South Africa

Abstract

The increased interest in capital flows has made it imperative to understand how it impacts on economic growth. The Global drive for an interlinked world economy has increased the need for monetary authorities and Governments to able to effectively deal with any negative spins off from capital flows and also be able to take advantage of positive effects capital flows may have on an economy. The study explores the impact of the easing of restrictions on capital flows within the South African economy on Economic growth. The study analysed the relationship that exist between capital flows, measured with foreign direct investment (FDI) and portfolio investment (P_I) and economic growth. Empirical results revealed that there is a long-run relationship between the variables of interest. Therefore the results implies that to maximise capital account liberalization, the economy should maintain sound macroeconomic policies. This will help shield the economy from the external shocks and this maintain economic growth.