The impact of capital flight and investment on economic growth in South Africa

Abstract

This study investigates the impact of capital flight and investment on economic growth in South Africa using time series data from 1986 to 2016. It employs the Auto Regressive Distributed Lag (ARDL) bounds testing procedure and the Granger causality test as a method of analysis. The empirical findings reveal that the variables are cointegrated which is an indication of the existence of a long run relationship among them. It was further discovered that capital flight had a negative long run relationship with economic growth while investment showed a positive long run relationship with economic growth. The terms of trade and inflation which were added to the model as control variable were also found to have a significantly positive influence on economic growth. The Granger causality indicated a bidirectional relationship between inflation and economic growth, while the terms of trade is found to have a unidirectional relationship with economic growth and capital investment respectively. The results are in line with the neo-classical growth model and the accelerator theory of investment.