Original Research

Foreign direct investment flows and fiscal discipline in South Africa

N. J. Schoeman, Z. Clausen Robinson, T. J. de Wet
South African Journal of Economic and Management Sciences | Vol 3, No 2 | a2609 | DOI: https://doi.org/10.4102/sajems.v3i2.2609 | © 2018 N. J. Schoeman, Z. C. Robinson, T. J. de Wet | This work is licensed under CC Attribution 4.0
Submitted: 05 July 2018 | Published: 30 June 2000

About the author(s)

N. J. Schoeman, Department of Economies. University of Pretoria, South Africa
Z. Clausen Robinson, Department of Economics, University of Pretoria, South Africa
T. J. de Wet, Department of Economics, University of Pretoria, South Africa

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Abstract

This paper investigates the impact of fiscal policy on foreign direct investment (PDI) in South Africa during the past 30 years. Casual empirical analysis reveals a definite linkage between FDI flows and variables such as the deficit/GDP ratio, representing fiscal discipline, and the tax burden on foreign investors. This relationship is substantiated by econometric analysis. Given the economy's large degree of dependence on foreign capital, the government may contribute to an investor-friendly environment by adjusting fiscal policy. Some inroads have been made in this regard with the government's Medium-term Expenditure Framework (MTEF), which projects a policy of strict fiscal discipline in years to come. However, the tax burden is still relatively high and, due to its impact on foreign direct capital flows, requires urgent attention.

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