Foreign divestment, economic growth and development in South Africa: an empirical analysis

Abstract

Purpose The purpose of this study is to investigate the effect of foreign direct divestments (FDD) on economic growth and development in South Africa for the period 1991–2019. Design/methodology/approach The non-linear autoregressive distributed lag technique is used for the empirical analysis. Two regression models are specified, one for economic growth and the other for development which is proxied by poverty. Findings The empirical results suggest that foreign divestments are detrimental to both economic growth and development. Furthermore, the results suggest that the negative effects of foreign divestments outweigh the positive effects of FDI inflows. Practical implications South African policymakers should thus use policies that promote the retention of FDI inflows together with those that attract inflows. Furthermore, policies that promote economic freedom such as transparency and reduction in the time frame for granting government permits for business operations are also of paramount importance. Originality/value Most of the available literature on FDD focuses on the firm perspective. Available studies on the effect of FDD on economic growth do not investigate the effect of divestment on economic development. Economic growth is a necessary but not a sufficient condition for the achievement of socioeconomic development.