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How Oil Price Changes Affect Foreign Direct Investment Inflows in South Africa? An ARDL Approach

Author

Listed:
  • Lavisa Tala

    (School of Economics and Management, University of Limpopo, Sovenga, 0727, South Africa.)

  • Tshembhani M. Hlongwane

    (School of Economics and Management, University of Limpopo, Sovenga, 0727, South Africa.)

Abstract

The study examined how oil price changes affect Foreign Direct Investment (FDI) inflow in South Africa. The study used annual quantitative data, obtained from the South African Reserve Bank (SARB) and World Bank development indicators. With the exception of real exchange rate, Augmented Dicky Fuller (ADF) and Phillips-Peron (PP) tests for stationarity indicated variables become stationary after first differencing. Stationarity test results suggested application of ARDL bounds test for cointegration. ARDL bounds test for co-integration confirms that variables of the study have long-run relationship with F-statistic of 6.59, which is higher than the lower (2.98) and upper (3.78) boundaries at least 5% level of significance. In the long - run oil prices coefficient found to have negative and significant influence in foreign direct investment inflows during 1980-2020 period. Empirical results provide practical implications for South Africa, as oil importing country can hedge crude oil price changes to maintain future quantity of crude oil to be imported. The study recommends expansion of renewable energy sources to reduce South Africa s vulnerability to oil price fluctuations. Moreover, since oil prices are exogenously determined, setting up forward looking institutions such as sovereign wealth funds and short- term stabilization funds will be better.

Suggested Citation

  • Lavisa Tala & Tshembhani M. Hlongwane, 2023. "How Oil Price Changes Affect Foreign Direct Investment Inflows in South Africa? An ARDL Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 13(2), pages 115-123, March.
    • Handle: RePEc:eco:journ1:2023-02-14
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    References listed on IDEAS

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    1. Kafayat Amusa, 2013. "Savings and Economic Growth in Botswana: An Analysis Using Bounds Testing Approach to Cointegration," Journal of Economics and Behavioral Studies, AMH International, vol. 5(4), pages 200-209.
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    Cited by:

    1. Marwa Elsherif, 2024. "Modelling Inflation Dynamics and Global Oil Price Shocks in OAPEC Countries: TVP-VAR," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 51-69, May.
    2. Tolkyn Kakizhanova & Zhanar Askarova & Ainur Amirova & Bakhyt Baitanayeva & Gulmira Andabayeva, 2024. "Impact of Oil Price, CO2 Emissons, Inflation and Economic Growth on FDI Inflow: Case of Kazakhstan," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 484-491, November.
    3. Salah A. Alawadhi & Adedayo E. Longe, 2024. "Oil Price Fluctuation and their Impact on the Macroeconomic Variables: The Case of Kuwait," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 375-386, May.
    4. Baghish Ahmadov, 2024. "The Impact of Oil Prices on the Import of Capital Goods in Azerbaijan," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 512-517, May.

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    More about this item

    Keywords

    Oil Price; Consumer Price Index; Oil Reserves; Capital Productivity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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