Fiscal Policy and Economic Development

**Chapter 5**

**Abstract**

An Analysis of Drivers of

International Investment

Decisions in South Africa

prolonged strike actions must be minimised.

labour unrest, cointegration

**1. Introduction**

**87**

*Itumeleng Pleasure Mongale and Livhuwani Baloyi*

The study investigated the drivers of international investment decisions in South Africa. As part of its investment drive, the government has embarked on a series of activities to lure investors. That been the case it appears that most of the empirical studies focused mainly on the relationship between investment and economic growth, hence very little seems to be known about the empirical evidence of other drivers of international investment decisions and their impact on the South African economy. The findings are envisaged to provide information and to add policy formulation to attract the much needed foreign investment. The autoregressive distribution lag approach was chosen to analyse the long and the short run relationships amongst the variables of interest and Granger Causality analysis was also employed to determine causal relationships between dependent variable and its regressors. The results indicated that a stronger statistical and economic basis for empirical error correction model was established by the presence of cointegration amongst the variables and all the regressors were found to have a positive effect in the stock of foreign direct investment. Empirical findings suggest that government should ensure stable macroeconomic policies and labour disputes that result into

**Keywords:** foreign direct investment, productivity, infrastructure investment,

Most of the developing countries seek to maximise the benefits of foreign direct investments (FDI) to improve economy growth and to encourage foreign investment in both the public and private sectors. As a result, policymakers' direct resources at incentives aimed at attracting FDI flows because according to [1], FDI quality is also associated with positive and economically significant growth effects. The other perception is that FDI inflows will significantly improve technology and management practices as well as increase capital formation in a host country. As part of its investment drive, the South African government has embarked on a series of activities which include trips to Europe, Asia and across Africa to build an "investment book" to help plug a substantial shortfall of foreign and local direct investment. The purpose was to unlock a \$100-billion investment plan to stimulate
