Abstract
This study examines the impact of Foreign Direct Investment (FDI) inflows and outflows on sectoral growth in South Africa, with specific emphasis on the agriculture, mining, and manufacturing sectors over the period 1994Q1–2024Q4. The analysis focuses on how FDI influences sectoral growth across different phases of economic activity—low, moderate, and high growth regimes. To achieve this objective, the study employs the Quantile Autoregressive Distributed Lag (QARDL) approach, which captures both short-run and long-run dynamics while allowing the effects of FDI to vary across the conditional distribution of sectoral growth.
The findings reveal pronounced heterogeneity, asymmetry and nonlinearity in the FDI–growth relationship across sectors and quantiles. In the agricultural sector, FDI inflows exert a negative effect at lower and median quantiles, while FDI outflows constrain growth during downturns but support expansion at higher quantiles through potential knowledge and technology spillovers. In the mining sector, both inward and outward FDI stimulate growth at lower and upper quantiles, highlighting the sector’s responsiveness to foreign investment under weak and strong economic conditions. In contrast, manufacturing results indicate that FDI inflows enhance growth at lower and median quantiles but crowd out domestic firms at higher quantiles, whereas FDI outflows generally contribute to long-term competitiveness through technology acquisition and integration into global value chains.
Overall, the findings confirm that the relationship between FDI and sectoral growth in South Africa is nonlinear and context-dependent, showing the need for differentiated investment policies. Accordingly, policymakers should adopt targeted, sector-specific FDI strategies to promote sustainable growth. Strengthening domestic absorptive capacity is crucial to maximise the benefits of foreign technology and knowledge transfer, while outward investment should be encouraged in ways that foster domestic innovation and competitiveness. Collectively, these measures can support inclusive and sustainable development across South Africa’s agriculture, mining, and manufacturing sectors.