Causal linkages between FDI, financial sector development, remittances, domestic savings and economic growth in South Africa

Mbu, John

Causal linkages between FDI, financial sector development, remittances, domestic savings and economic growth in South Africa

Master Thesis

2014

Publisher

University of Cape Town

Department

Research of GSB

Faculty

Faculty of Commerce

Abstract

This report examines the causal linkages between FDI, financial sector development, savings, remittances and economic growth in South Africa using annual time series data from 1970 to 2010. The results show that none of the financial sector variables directly lead to economic growth. However, economic growth is found to stimulate FDI and financial sector development. With regards to the causal linkages between the different financial factors, the results show that savings have highly significant causal linkages with FDI and financial sector development. In addition, the results suggest that savings have a moderately significant causal relationship with remittances. Furthermore, the results indicate that FDI has a weakly unidirectional causal relationship with financial sector development, and the direction of causality runs from FDI. The findings also suggest that remittances have a weakly significant relationship with FDI. Thus, these findings suggest that policy-makers in South Africa should aim principally at increasing domestic savings and economic growth rates since increasing domestic savings will significantly increase FDI, financial sector development and remittances, and increases in the economic growth rates will significantly increase financial sector development and FDI.

Keywords

Development Finance

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