Volume 2, Number 1


The great trade collapse: how South African exports react to FDI shocks
Akoto, W.

This study contributes to the debate on the effect of Foreign Direct Investment (FDI) on exports in developing countries by investigating the nature of the causal relationships between FDI, exports and Gross Domestic Product (GDP) in South Africa and examining how South African exports have historically responded to FDI shocks. The results indicate that there is short-run bi-directional granger causality between South African GDP and exports as well as unidirectional causality from FDI to exports and from FDI to GDP. The longrun FDI has a significant impact on boosting South African exports – a 10% increase in FDI inflow results in a potential 1.87% increase in export volumes. However, variance decomposition analyses show that historically, South African exports have not been markedly responsive to changes in FDI inflow. 

Keywords: FDI; exports; Granger causality; error correction; structural breaks; economic growth; variance decomposition; impulse response.