The effect of foreign direct investment on economic growth in South Africa

The effect of FDI on economic growth is not a straight jacket. Literature has shown that the effect of FDI on economic growth can be either positive or negative. The positive effects of FDI can be caused by increase in output stimulated by new technological innovations and increase in capital flows. The negative effects could result in a ‘crowding out’ effect on domestic investments, external vulnerability and dependence, destructive competition of foreign affiliates with domestic firms, and market stealing effect due to poor absorptive capacity.This treatise will attempt to shed light on the effect foreign direct investment has on economic growth in South Africa in order to ascertain whether a positive or negative relationship exists between these two variables. This study thus aims to investigate, analyse and estimate the extent to which FDI impacts economic growth in South Africa. The findings of this research will provide policymakers, commercial businesses and scholars with relevant updated theoretical and empirical results that will assist relevant government policy makers in generating effective measures of attracting FDI if it proves to be beneficial for the host country. If the results of the study prove that FDIs do not generate positive spill over effects then the policymakers are thus obliged to formulate policies that will discourage FDIs from penetrating the host country’s economy