On the Nature of the Causal Relationships Between Foreign Direct Investment, GDP and Exports in South Africa

Abstract

What started as a financial crisis in 2008-2009 quickly became a crisis of trade for many emerging economies. Using South Africa as a case study, this paper examines the Granger causal relationships between foreign direct investment (FDI), exports and GDP as well as the responsiveness of exports to FDI shocks. The findings indicate that in the long run, FDI has a significant impact on boosting exports. In the short run, there is bi-directional Granger causality between GDP and exports, with uni-directional causality from FDI to exports and FDI to GDP. However, variance decomposition analyses shows that exports are not very responsive to changes in FDI inflow.