Value-adding effect of foreign direct investment inflow on manufacturing: evidence from South Africa
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Date
2025
Journal Title
Journal ISSN
Volume Title
Publisher
Taylor & Francis Group
Abstract
The manufacturing sector drives economic growth and structural transformation by fostering job creation, innovation and exports. Achieving and sustaining high-income status is challenging without manufacturing development, except for oil-rich nations and small financial hubs. Existing studies have overlooked the relationship between foreign direct investment and manufacturing value-added in emerging markets such as South Africa. This investigation examines the influence of foreign direct investment on manufacturing value added in South Africa. We utilised annual data from 1970 to 2020 and analysed them using linear and nonlinear autoregressive distributed lag (ARDL and NARDL) models to account for possible asymmetric effects. The ARDL analysis reveals that both foreign direct investment inflow and domestic investment negatively impact manufacturing value added in the short and long runs. Under asymmetry analysis, adverse shocks to foreign direct investment negatively affect manufacturing value added more than positive shocks. Positive and negative shocks in trade openness significantly boost MVA, highlighting globalisation’s role in economic growth. These findings underscore the nuanced dynamics between investment flows, trade openness and manufacturing performance. By incorporating asymmetric effects, our study provides new insights for policymakers. The results suggest that strengthening domestic resources mobilisation can support manufacturing growth, reduce reliance on external capital inflows and mitigate vulnerabilities linked to geopolitical risks.
Description
Keywords
Asymmetric autoregressivedistributed lag model, foreign direct investment, manufacturing value-added, South Afric, Foreign direct investment
Citation
Mano, M.M., Tita, A.F. and A. Obalade, A., 2025. Value-adding effect of foreign direct investment inflow on manufacturing: evidence from South Africa. Cogent Economics & Finance, 13(1), p.2468888.