The impact of foreign direct investment on labour productivity of the automotive sector in South Africa

Abstract

The determinants of Foreign Direct Investment (FDI) and its effects on macroeconomic growth in developing countries have been investigated exhaustively by numerous researchers. The dominant message that has emerged from these studies is that FDI promotes growth. However, few studies have dealt with the influence of FDI on labour productivity in the automotive industry. The aim of this study was to examine the impact of FDI on labour productivity in this industry in South Africa, covering the period 1995 to 2013. The Johansen cointegration test was utilised to analysis the long-term relationship between FCI and labour productivity. The empirical results revealed that there is a long-term relationship between the two variables. The Vector Error Correction Model was also estimated to examine the short-term relationship between the variables. The empirical results revealed that FDI has a positive statistical significant impact on labour productivity in South Africa. The results suggest that policies aimed at enhancing FDI should be pursued as this enhances productivity in the automotive sector which will spill over to other sectors of the economy.