The effect of investment and economic growth on unemployment in South Africa

Abstract

Unemployment is one of the triple challenges that South African economy is currently facing. The combination of foreign investment and domestic investment can be utilised to decrease the level of unemployment in a country. Therefore, this study examines the effect of investments (Foreign Investment and Domestic Investment) and economic growth on unemployment in South Africa. The autoregressive distribution lag model (ARDL), which can accommodate a variety of stationarity levels and distinct time series data variables, has been utilised in the study to investigate this effect. The model used annual data gathered from 1998 to 2020. The unit root tests of have showed that variables are stationary at level and 1st difference. The empirical findings indicated that the economic growth and unemployment are positively related in both short, and long run. This is because the economy is facing a jobless growth, where enough jobs are not created and the relationship between foreign direct investment and unemployment is insignificant in both short run and long run. The findings have also indicated that domestic investment affect unemployment negatively in both short and long run, while inflation affect unemployment positively. VAR Granger causality results indicated that there is no directional causality between foreign direct investment and unemployment, there is a bi-directional causality between domestic investment and unemployment, and unidirectional causality between economic growth and unemployment. The research opens to new policy perception that government policy should be directed to Agricultural sector and infrastructure because they are more labour intensive.