Author

  • Temitope L. A. Leshoro

    • University of South Africa (UNISA), South Africa
    • South Africa

Abstract

This study adopts both the Vector Autoregressive (VAR) analysis and the Impulse-Response Function (IRF) to examine the importance and the effects of domestic savings and foreign direct investment (FDI) on South African economy, using data spanning over the period 1975 to 2011. While the level of domestic savings is quite low, compared to other emerging economies, South Africa has also been struggling to attract inflow of foreign resources. The form of savings in South Africa is different from the western way of savings; hence the low levels of domestic savings. The variables considered were tested for stationarity and they were all stationary before proceeding to test for cointegration and then estimate and VAR. The cointegration test revealed that there was at least one cointegrating equation; which signifies that there exists a long-run relationship among the variables. The results from the VAR Granger test of causality depicted that domestic savings lead economic growth, while economic growth leads investment. This result of the IRF also showed that while increased domestic savings is important to improve the level of economic growth in South Africa, it also leads FDI. This means that the economic environment needs to be suitable in order to attract foreign investments. The results obtained are reliable and stable as the model passes a battery of diagnostic tests. The study proposes some recommendations for policy.

Keywords

References

  • Abu, N. (2010). Saving-economic growth nexus in Nigeria, 1970-2007: Granger causality and co-integration analyses. Review of Economic and Business Studies , 3(1), 93-104.
  • Adebiyi, M. A. (2005). Saving-Growth Relationship in Nigeria: An Empirical Evidence. African Review of Money, Finance and Banking , 2, 159-178.
  • Agrawal, P. (2001). The relationship between savings and growth: Cointegration and causality evidence from Asia. Applied Economics , 33(4), 499–513.
  • Agrawal, P. (2000). Savings, investment and growth in South Asia. India: India Gandhi Institute of Development Research.
  • Anoruo, E. & Ahmad, Y. (2001). Causal Relationship between Domestic Savings and Economic Growth: Evidence from Seven African Countries. African Development Bank, Blackwell publisher, Oxford.
  • Arvanitis, A. (2006), Foreign Direct Investment in South Africa: Why Has It Been So Low? http://www.imf.org/external/pubs/nft/2006/soafrica/eng/pasoafr/sach5.pdf Accessed 15 August 2013.
  • Cronjé, M. & Roux, A. (2010). Savings culture for the black middle class in South Africa. USB LEADERS’ LAB , 4(2), 22 – 27.
  • Govender, P. (2013). South African Savings Institute. http://www.savingsinstitute.co.za/ Accessed 20 September 2013.
  • Holburn, P. (2011). South Africa’s savings rate lags other emerging markets. Money Marketing. http://www.moneymarketing.co.za/south-africas-savings-rate-lags-other-emerging-markets/ Accessed 15 August 2013.
  • Irandoust, M. & Ericsson, J. (2005). Foreign aid, domestic savings, and growth in LDCs: An application of likelihood- based panel cointegration. Economic Modelling , 22(4), 616–627.
  • Ismail, A. (2013). SA is saving – but not the Western way. The Savings Issue http://www.fin24.com/Savings/News/SA-is-saving-but-not-the-Western-way-20130715 Accessed 15 September 2013.
  • Konya, L. (2004). Saving and growth: Granger causality analysis with bootstrapping on panels of countries. Department of Economics and Finance, School of Business, La Trobe University.
  • Kransdorff, M. (2010). Tax Incentives and Foreign Direct Investment in South Africa. Consilience: The Journal of Sustainable Development , 3(1), 68 – 84.
  • Leshoro, T. L. A. (2012). Estimating the Inflation Threshold for South Africa. Studies in Economics and Econometrics (SEE) , 36(2), 53 – 65.
  • Lucas, R. (1988). On the mechanics of development. Journal of Monetary Economics , 22(1), 3–42.
  • Mavrotas, G. & Kelly, R. (2001). Old wine in new bottles: Testing causality between savings and growth. The Manchester School, 69 (Suppl. 1).
  • McKinnon, R. I. (1973). Money and capital in economic development. Washington, DC: The Brookings Institution.
  • Mohan, R. (2006). Causal relationship between savings and economic growth in countries with different income levels. Economics Bulletin , 5(3), 1–12.
  • Odhiambo, N. M. (2009). Savings and economic growth in South Africa: A multivariate causality test. Journal of Policy Modelling , 31(5), 708 – 718.
  • Olajide S. O. (2009). Does Saving Really Matter for Growth in Developing Countries? The Case of a Small Open Economy, http://economics.ca/2009/papers/0619.pdf Accessed 20 September 2013.
  • Payi, X. (2012). Attracting Foreign Direct Investment key to SA and Africa growth and development agenda. Stanlib Insights.
  • Sahoo, P., Nataraj, G. & Kamaiah, B. (2001). Savings and economic growth in India: The long run nexus. Savings and Development , 25(1), 67–80.
  • Saltz, I. S. (1999). An Examination of the Causal Relationship between Savings and Growth in the Third World. Journal of Economics and Finance , 23(1), 90-98.
  • Shaw, E. S. (1973). Financial deepening in economic development. New York: Oxford University Press.
  • Solow, R. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics , 70(2).
  • Sinha, D. & Sinha, T. (2008). Relationships among household saving, public saving, corporate saving and economic growth in India. Journal of International Development , 20, 181–186.
  • Sinha, D. & Sinha, T. (1998). Cart before the horse? The saving-growth nexus in Mexico. Economics Letters , 61, 43–47.
  • The Savings Issue. (2013). http://www.fin24.com/Savings Accessed 15 August 2013.
  • United Nations Conference on Trade and Development. (UNCTAD). 2013. Definitions of FDI. http://unctad.org/en/Pages/DIAE/Definitions-of-FDI.aspx Accessed 8 December 2013.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Leshoro, T. L. A. (2014). The Effects of Foreign Resource Inflow and Savings on the Economic Growth of South Africa: A VAR Analysis. Journal of Economics and Behavioral Studies, 6(3), 232-241. https://doi.org/10.22610/jebs.v6i3.486

Share this article

License

Copyright (c) 2014 Temitope L. A. Leshoro (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 6 No. 3 (2014) Performance, Public Policy & Global Growth View issue contents

Published

2014-03-30

Submissions

Have research to publish? Journal of Economics and Behavioral Studies welcomes submissions.

Make a Submission