Modeling The Nexus Between Coal Consumption, Fdi Inflow And Economic Expansion

Assignment Task

This study examines the role of industrialization in the energy-growth-FDI nexus for the case of South Africa using data over the period 1970 to 2018. The empirical exercise was conducted using Pesaran Autoregressive Distributed Lag (ARDL) bounds testing approach. To accomplish our study objective, we analyze stationarity properties of the series using the unit root test after which we applied Bayer-Hanck (B-H) combined technique to cointegration to assess whether a long-run relationship exists among the series. Empirical results show that a 1% change in FDI account for 0.002% and 0.013% increase in economic expansion in the short- and long- run respectively. Also, a 1% increase in coal consumption influence GDP negatively by 0.083% and 0.207% in the short and long run respectively. Furthermore, a 1% increase in total natural resource rent positively affects GDP by 0.02% and 0.05% respectively in the short and long run. Industrialization, on the other hand, demonstrates a positive and significant impact on the economic growth process both in the short and long run. Industrialization contributes 0.506% and 1.274% to economic expansion both in the short and long run respectively. The causality tests suggest that a one-way causal link running from FDI to industrialization and from industrialization to coal consumption exists. Finally, FDI inflow drives total natural resource rents in South Africa. This study also gives reliable growth and energy policy proposals to policymakers applicable to countries around the globe.

Question

1. “The linkage between foreign direct investment (FDI hereafter) inflow and economic prosperity whether positive or otherwise has been an issue of increasing concern. While some studies support the nexus, others disagree. Others prove neutrality between the series in question.” Critique the latest literature on the relationship between FDI and export growth for African countries for the period 2019 to 2023.

2. Analyse the variables depicted in Figure 1 and comment on the movement of the variables over the period, using literature or other valid sources to support your answer. Question 3 (20 Marks) Interpret the results from Tables 5 and 6 (short and long run coefficients, t-statistic and p-values), to show what they mean for the model.

4. Assess South Africa’s FDI performance between 2010 and 2018 and comment on the effectiveness of measures that were taken by their government to boost FDI.

5. South Africa’s economy is affected by high FDI fluctuations. Propose measures to stabilise and increase the country’s FDI inflows in the post COVID era and comment on their suitability (advantages and disadvantages).

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