Annual Forum Papers

Bilateral foreign direct investment from South Africa and income convergence in the Southern African Development Community

  • Year: 2015
  • Organisation: Paul J Dunn (SALDRU, University of Cape Town); Nicholas Masiyandima (University of Cape Town)
  • Publication Author(s): Paul J Dunn; Nicholas Masiyandima
  • Countries and Regions: South Africa, Southern African Development Community (SADC)
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Session 2: Regional integration and SADC

The study investigates the productivity and income convergence implications of bilateral FDI between South Africa as the leading source country of FDI and technology in SADC and the rest of countries in the region. Using country per capita income data over the period from 1980 to 2011, we find evidence suggesting that countries with high levels of bilateral FDI between themselves and South Africa converge faster both on the region average income and on South Africa's per capita income than those with low bilateral FDI stocks. The finding is robust in estimating countries' income gaps to South Africa conditioned on alternative potential sources of technology and productivity growth, including trade, FDI from the rest of the world and domestic capital formation. This implies that there are prospects of technology and income convergence in the SADC region driven by South Africa as the regional economic leader.