Intra-SADC Foreign Direct Investment: A Gravity Approach to South Africa Outward Investment

Abstract

This paper looks at intra-SADC FDI, focusing at South Africa outward FDI into SADC countries. LSDV and GMM estimation techniques are applied in a gravity model for the period 1999 to 2010. The study finds strong evidence that intra-trade and intra-FDI are negatively related, suggestive of a substitutive relationship between intra-SADC trade and intra-SADC FDI. The study also reveals that capital account openness, bilateral investment treaties, and labour availability are key in promoting intra-SADC FDI flows. Further, the study finds evidence that agglomeration effects are important for South African investors into SADC despite the fact that they are operating in a common region. The study also finds that FDI from developed countries complement with FDI from South Africa. lts indicate that there is long-run level equilibrium relationship between the stock price of Taiwan and the NTD/USD exchange rates at lower distribution of stock prices, and at higher and lower distribution of exchange rates. The causality results show that there is unidirectional causality running from Taiwan stock price to the NTD/USD exchange rate at higher distribution of exchange rates. The result shows that there is evidence in favor of the portfolio hypothesis.