Ecological Footprint, Economic Uncertainty and Foreign Direct Investment in South Africa: Evidence From Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Approach

Abstract

This study was carried out to analyze the impact of ecological footprint (EFP), exchange rate (EXC) and bio-capacity (BC) on foreign direct investment (FDI) in South Africa. The study was based on monthly time series data from 1996 to 2017. Asymmetric dynamic multiplier, Linear and Nonlinear Autoregressive distributed lag models were used to establish the relationship between the selected variables. Linear ARDL reveal significant symmetric relationship between FDI, ecological footprint, biocapacity and exchange rate in the short run. Nonlinear Autoregressive distributed lag (NARDL) bounds test confirmed the existence of cointegration between the variables. The non-linear short-run results reveal that positive shock of EXC affect FDI negatively. While positive shock from EFP has a significant and positive effect on FDI. Interestingly, in the long run the negative shock of EXC on FDI is negative while the positive shock of EXC affects FDI positively. Furthermore, the long-run asymmetric dynamic multiplier showed that the cumulative positive and negative effect of EFP and BC on FDI is positive. Hence, it is important that policies be put in place to ensure environmental sustainability and stable exchange rate while growing the South African economy. Policy regulations on production procedures in South Africa should be established to encourage advanced clean technologies in FDI production sectors.