**4.1 Unit root test results**

The ADF and DG-GLS unit root tests were carried out at level and at first differences using intercept and intercept and trend. The results are presented in **Tables 1** and **2** as follows:

The unit root results in **Tables 1** and **2** indicate a mixture of I(0) and I(1) variables because FDI and income levels were found to be stationary at level, whilst all others became stationary at first difference.


**4.2 Cointegration analysis results**

*DG-GLS unit root tests results [38, 43].*

international investment decisions in South Africa.

bound are shown as follows:

**Table 2.**

**95**

**Variables at level**

*InFDI* Intercept 6.999

*InIL* Intercept 2.786

Trend & Intercept

*DOI: http://dx.doi.org/10.5772/intechopen.88592*

Trend & Intercept

*InPL* Intercept 0.859

*InfInv* Intercept 0.061

*Intr* Intercept 1.965

Trend & Intercept

*LU* Intercept 0.661

Trend & Intercept

*I(1) Indicates unit root at first difference being stationary. I(0) Indicates unit root in level being stationary.* Δ *Indicates changes at first difference.*

Trend & Intercept

Trend & Intercept

**Model level Lag**

*An Analysis of Drivers of International Investment Decisions in South Africa*

(1.949)

7.175 (3.190)

(1.950)

7.576 (3.190)

(1.949)

2.166 (3.190)

(1.95)

2.597 (3.190)

(1.951)

2.178 (3.190)

(1.949)

1.965 (3.190)

*Notes: The values in brackets are the t-statistics of corresponding estimated coefficients.*

**length**

**Variables at 1st difference**

(1.949)

(3.190)

(1.950)

(3.190)

(1.950)

(3.190)

(1.950)

(3.190)

(1.951)

(3.190)

(1.950)

(3.190)

0 *ΔInFDI* 10.790

0 6.587

3 *ΔInIL* 9.199

0 9.287

0 *ΔInPL* 4.704

0 4.820

1 *ΔInInfInv* 3.288

1 3.339

5 *ΔIntr* 2.272

5 3.319

0 *ΔLU* 6.294

0 6.321

**Lag length**

3

0

0

0

2

0

0 I(0)

0 I(0)

0 I(1)

0 I(1)

5 I(1)

0 I(1)

**Order of integration**

Since the order of integration was found to be mixed and the fact that there was no I [2] variable, the bound test to cointegration was performed, and the results are presented in **Table 3**. Based on [28] significant levels for lower bound and upper

Our results indicated that the calculated F-statistic of 9.10 is higher than the upper bound critical value 3.38 at the 5% level of significance. Thus, the null hypothesis of no cointegration is rejected, implying the presence of a long-run cointegration relationship amongst the variables. The next step was to examine the expected marginal impacts of the drivers of international investment decisions on

Our empirical evidence in **Table 4** reveals that the relationship between all the regressors and FDI is positive but not statistically significant with the exception of the dummy with the p-value of 0.0020 which means it is statistically significant.

*\* 0.10 significance level.*

*\*\*0.05 significance level, Indicates critical value at 5% significance level.*

*\*\*\*0.01 significance level.*

*Notes: I(1) Indicates unit root at first difference being stationary.*

*I(0) Indicates unit root in level being stationary.*

Δ*Indicates changes in first difference.*

#### **Table 1.**

*ADF Unit root test results.*


*An Analysis of Drivers of International Investment Decisions in South Africa DOI: http://dx.doi.org/10.5772/intechopen.88592*

*Notes: The values in brackets are the t-statistics of corresponding estimated coefficients.*

*I(1) Indicates unit root at first difference being stationary.*

*I(0) Indicates unit root in level being stationary.*

Δ *Indicates changes at first difference.*

#### **Table 2.**

**4. Empirical results and discussions**

all others became stationary at first difference.

LFDI Intercept 6.909

Trend & Intercept

LiL Intercept 1.120

Trend & Intercept

LPL Intercept 1.082

Trend & Intercept

LInfInv Intercept 1.560

Trend & Intercept

Intr Intercept 1.371

Trend & Intercept

LD Intercept 1.000

Trend & Intercept

*I(0) Indicates unit root in level being stationary.* Δ*Indicates changes in first difference.*

*\**

**Table 1.**

**94**

*0.10 significance level.*

*\*\*\*0.01 significance level.*

*ADF Unit root test results.*

**Model level Lag**

(2.937)\*\*

7.044 (3.527)\*\*

(2.943)\*\*

8.035 (3.527)\*\*

(2.937)\*\*

2.231 (3.527)\*\*

(2.937)\*\*

2.9379 (3.527)\*\*

(2.960)\*\*

2.731 (3.563)\*\*

(2.937)\*\*

1.973 (3.527)\*\*

*\*\*0.05 significance level, Indicates critical value at 5% significance level.*

*Notes: I(1) Indicates unit root at first difference being stationary.*

**4.1 Unit root test results**

**Tables 1** and **2** as follows:

**Variables at level**

This section presents the results of all the empirical tests performed towards the

investigation of drivers of international investment decisions in South Africa.

*Perspectives on Economic Development - Public Policy, Culture, and Economic Development*

The ADF and DG-GLS unit root tests were carried out at level and at first differences using intercept and intercept and trend. The results are presented in

The unit root results in **Tables 1** and **2** indicate a mixture of I(0) and I(1) variables because FDI and income levels were found to be stationary at level, whilst

**length**

**Variables at 1st difference**

(2.946)\*\*

(3.540)\*\*

(2.943)\*\*

(3.529 \*\*

(2.939)\*\*

(3.540)\*\*

(2.939)\*\*

(3.530)\*\*

(2.964)\*\*

(3.553)\*\*

(2.939)\*\*

(3.530)\*\*

0 *ΔInFDI* 7.057

0 7.002

3 *ΔInIL* 30.037

0 10.155

0 *ΔInPL* 4.786

0 4.024

1 *ΔInInfInv* 4.655

1 4.680

9 *ΔIntr* 2.974

9 5.798

0 *ΔLU* 6.245

0 6.161

**Lag length**

**Order of integration**

3 I(0)

3 I(0)

2 I(1)

0 I(0)

0 I(1)

3 I(1)

1 I(1)

1 I(1)

9 I(1)

6 I(1)

0 I(1)

0 I(1)

*DG-GLS unit root tests results [38, 43].*

#### **4.2 Cointegration analysis results**

Since the order of integration was found to be mixed and the fact that there was no I [2] variable, the bound test to cointegration was performed, and the results are presented in **Table 3**. Based on [28] significant levels for lower bound and upper bound are shown as follows:

Our results indicated that the calculated F-statistic of 9.10 is higher than the upper bound critical value 3.38 at the 5% level of significance. Thus, the null hypothesis of no cointegration is rejected, implying the presence of a long-run cointegration relationship amongst the variables. The next step was to examine the expected marginal impacts of the drivers of international investment decisions on international investment decisions in South Africa.

Our empirical evidence in **Table 4** reveals that the relationship between all the regressors and FDI is positive but not statistically significant with the exception of the dummy with the p-value of 0.0020 which means it is statistically significant.

### *Perspectives on Economic Development - Public Policy, Culture, and Economic Development*


**4.4 Diagnostic and stability test results**

*DOI: http://dx.doi.org/10.5772/intechopen.88592*

and the alternative is accepted.

throughout the period of study.

**Test Null hypothesis Test**

*Estimated short run analysis results.*

Residuals are normally distributed

No serial correlation

heteroscedasticity

Jarque-Bera

**Table 5.**

Breusch Pargan-Godfrey

**Table 6.**

**Table 7.**

**97**

Arch No

*Diagnostic tests results.*

*Ramsey RESET test results.*

**statistic**

**P-Value Conclusion**

98.724 0.000 We do not reject the H0 because the P-value is

1.522 0.467 We do not reject the reject H0 because the

0.031 0.859 We do not reject H0 as P- value is greater than

**Value DF Probability**

t-statistic 3.994 24 0.001 F-statistic 15.948 (1, 24) 0.001

greater than the LOS at 5%, hence the residuals are normally distributed.

P-value is greater than LOS at 5%, hence there is no serial correlation.

LOS at 5%, hence there is no heteroscedasticity

are presented in **Tables 6** and **7** and **Figure 1**, respectively.

*An Analysis of Drivers of International Investment Decisions in South Africa*

The results of both diagnostic and stability tests based on statistical estimations

The residuals are normally distributed, and there is no serial correlation. In the presence of heteroskedasticity, the null hypothesis is rejected (homoscedasticity),

The results of stability test are presented in **Table 7** and **Figure 1**, respectively. Based on the summary of results presented in **Table 7**, the null hypothesis of Ramsey RESET test shows that the model is correctly specified. In tandem with the Ramsey RESET test, the stability test results reveal that after incorporating the CUSUM and CUSUM of squares tests, ARDL model was found to be stable

**Variable Coefficient Std. Error t-Statistic Prob.** D(IL) 0.343 10.739 0.032 0.974 D(PL) 0.121 32.574 0.004 0.997 D(LGFCF) 0.066 17.348 0.004 0.997 D(INTR) 0.035 0.509 0.069 0.945 D(DUMMY) 0.009 4.048 0.002 0.998 D(DUMMY(-1)) 0.313 4.864 0.064 0.949 D(DUMMY(-2)) 0.342 4.923 0.069 0.945 D(DUMMY(-3)) 13.909 4.181 3.327 0.002 CointEq(-1) 1.351 0.168 8.049 0.000 *Cointeq = FDI(0.254 IL + 0.086 PL + 0.049 LGFCF + 0.026 INTR + 11.921 DUMMY + 161.555).*

#### **Table 3.**

*Bound test results.*


### **Table 4.**

*Estimated Long run results.*

Additionally, in **Table 4** the coefficient of determination (R2 ) is 0.732920. The implication is that about 73% of variation in international investment decisions in South Africa is caused by variations in the explanatory variables. The Durbin-Watson statistics of 2.19 shows the absence of serial correlation.

The short-run relationship analysis results in **Table 5** show that cointegration is strongly confirmed given that the coefficient of the error correction term (1.351344) has a negative sign. In line with [38], it shows that any deviation from the long-run equilibrium is corrected at the rate 135% for each period to return to the long-run equilibrium after a shock.

## **4.3 Causality test results**

Since cointegration has been established, the study proceeded with Granger causality test, and the pairwise Granger causality test results are presented at the Appendix section. It was established that there was no causality between income level and FDI and between interest rate and FDI. Similarly, productivity of labour does not Granger-cause FDI; however, the null hypothesis of granger causality could not be rejected between FDI and labour unrests. A bidirectional causality between them was found. Likewise, Granger causality was established between productivity of labour and the labour unrest.
