THE IMPACT OF DOMESTIC INVESTMENT ON ECONOMIC GROWTH IN SOUTH AFRICA: A SECTORAL APPROACH

Abstract

Examining the impact of domestic investment (DI) in South Africa (SA) over the past decade is crucial because DI is risk-free and less volatile than foreign direct investment (FDI). Despite numerous efforts to attract FDI, the South African economy has experienced economic growth (EG) constraints due to government policy uncertainty. The article investigated the influence of DI on EG in South Africa: a sectoral approach from 1993 to 2020. Overall, panel data autoregressive distributed lag (ARDL) results revealed that DI long-term impacts at least one sectoral output growth in South Africa. This indicates that a rise in sectoral DI substantially affects the expansion of economic output. In at least one of the sectors, we also find that employment, imports, and exports significantly correlate with EG in the long term. A pairwise Dumitrescu Hurlin panel causality test reveals that DI does not uniformly cause EG. This is because sectoral development heavily relies on FDI rather than DI in South Africa, resulting in negative homogeneous outcomes. Following the Keynesian theory, where investment is expected to promote economic growth, we must entice DI, which indicates a positive relationship between DI and EC. The new endogenous growth theory of investment can be used to determine the impact of aggregate and disaggregate FDI on sectoral output growth and economic output growth as a whole. The results will enable policymakers and state cooperation to develop progressive economic policies and achieve the Sustainable Development Goals (SDG) and National Development Plan (NDP) objectives. To stimulate sectoral domestic investment and sectoral productive output growth, which can encourage modernized industries, reduce entry barriers, create a labor-intensive environment within sectors, and concentrate on industrial and trade policy to promote export competitiveness.