Abstract
M.Com. (Development Economics)
Foreign Direct Investment (FDI) is associated with numerous benefits for host economies. These range from short term benefits, such as job creation and higher exports, to long term benefits, like skills upgrading and technology transfer. The purpose of this study was to analyse how a developing country like South Africa could use FDI inflows, in conjunction with Special Economic Zones (SEZs), to facilitate industrialisation.
Using East Asian economies as a benchmark, the impact of FDI on the labour productivity and development of East Asian and selected African countries over a twenty year period is studied. The choice of the East Asian countries is made on the basis that they are widely thought to have benefited from the use of inward FDI to structurally transform their economies from producers of low value-added primary goods to those of high value-added, knowledge-intensive goods.
Even though this study found FDI inflows to have a positive impact on the economic development of both the East Asian and selected African economies, Research and Development (R&D) was viewed as a having a greater positive impact for both regions. Instead of ignoring FDI as a tool for industrial policy in favour of R&D, it is suggested that these tools be used together to facilitate collaborative research between advanced foreign-owned firms (FDI) and local academic institutions. The long term goal is to incentivise the creation of South African University Spin-Offs (USOs), firms whose purpose would be to make use of university-industry collaborative research for commercial gain. It is hoped that USOs would produce knowledge-intensive, high value-added goods that would move South Africa up the value chain of manufacturing and lead to long term economic development.