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African Review of Economics and Finance Conference
(AREF Consult and Wits Business School, 2018) Professor Alagidede, Paul; Associate Professor Obeng-Odoom, Franklin; Dr Mensah, Odei Jones
This paper endeavours to examine the impact of FDI on income distribution in South Africa. The study utilized annual time series data covering the period 1970–2016, and employed an Auto-Regressive Distributed Lag Model (ARDL) and the error correction method (ECM) to investigate the long –run and the short-run parameters between the observed variables. The regression results suggest a long-run cointegration relationship among the variables. While FDI, education, domestic investment and trade openness have negative and statistically significant coefficients which suggests that these variables reduce income inequality in South Africa in the long run; financial development has a positive and a statistically significant coefficient and this implies that there is still a gap between the rich and the poor as far as access to credit markets is concerned, and this aggravates income inequality. This study recommends that more investment-inducing activities for both domestic and foreign investments be encouraged in parallel with increased investments in human capital development, as well improved access to capital markets through allowing the poor to invest in high return investments in order to achieve inclusive economic growth.