IMPORTANCIA DE LAS RELACIONES PÚBLICAS

The impact that FDI has on economic growth and development is quite a controversial topic in various disciplinary fields including Development Studies, International Business and Economics. Section 2.2.1 discuses two hypotheses on development and FDI.

15 2.2.1 Modernisation and Dependecy Theories

Two differing hypotheses to explain FDI‘s impact on development exist, namely Modernisation hypothesis and Dependency hypothesis. Tsai (1994: 137-163) notes the following about the two hypotheses:

Modernisation: FDI influences economic growth through supplying external capital, and through this growth, the benefits spread across the host country‘s economy. In this case, the presence, instead of the origin of the investment is seen to be important. In addition, FDI, on the most part, brings with it advances technology and better management and organisation to the host nation.

Dependency: This theory supports that there exists a possible short term positive impact of the flow of FDI on economic growth. However, there also exists a possibly adverse long term impact of FDI on economic growth as influenced by a negative

relationship between the stock of FDI and growth rate. In the short run, any increase in

FDI slows as a result of higher investment and consumption. This results in economic growth being directly and almost immediately created. However, as FDI increases and foreign ventures take hold, there are most likely to be unfavourable effects on the rest of the economy that negatively impact on economic growth. This is as a result of various intervening means of dependency and the lack of linkages.

On one hand, some academics have suggested that political, social and cultural factors are important role players in establishing the growth performance of any country. On the other hand, other academics have argued that the role that FDI plays on economic growth might differ across countries as a result of the different stages of development that the countries will be in. (Tsai 1994:137-163).

The following section discusses various research papers on FDI and socio-economic development.

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2.2.2 Review of Past Research on FDI and Economic growth and Economic Development

Adewale (2008) explores the policy determinants of FDI in South Africa. The particular

focus of this paper is on the role of the South African government‘s policy framework in

attracting FDI, and the resulting impact on the implementation of programmes such as Reconstruction Development Programme (RDP); the Growth, Employment and Redistribution policy (GEAR); and Accelerated and Shared Growth Initiative for South Africa (ASGISA), to name a few. The reason for conducting that research was because the effectiveness of South Africa‘s policy framework with regard to attracting FDI was somewhat doubtful. Through the use of a Likert-type questionnaire directed at a randomly selected sample of investors from a chosen population, Adewale (2008) concludes that the policy determinants for FDI inflow were not in the best interests of FDI. In addition, the research found that reforms would need to be implemented in order to counter some of the macro-economic flaws. In this way, the government of South Africa would be creating an environment favourable for attracting FDI into the country.

Luiz (2002) reviews the promises made by the South African government elected in 1994 and provided an analysis of various programmes implemented in the effort to stimulate growth and development. The methodology used by Luiz (2002) was based on an analysis of historical data. The results of the study showed that programmes such as RDP and GEAR did not fully achieve the intended goals. He argues that there was a great need for government to establish a selective, clear, concise strategy that is based on dynamic comparative advantages. This will in turn, according to Luiz (2002), allow for programmes that fuel the socio-economic development of South Africa.

Ukpere and Slabbert (2009) explore the relationship between globalisation, unemployment, inequality and poverty. The study, which is meta-analytical and qualitative in nature, relies on secondary data and is based on conceptual analysis and theory building. The paper reveals that unemployment increased levels of inequality and poverty in society. Globalisation, according to the results, seemed to have exacerbated the problem of global unemployment. The practical implications of these findings are

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that problems of global competition, job termination, wage reductions, labour immobility and technological displacement of workers have increased the rate of global unemployment, and reinforced widespread inequality and poverty.

As mentioned above, not much research has been conducted in terms of finding a link between FDI and socio-economic development in South Africa, and from a

Development Studies perspective. However, to the author‘s knowledge, the majority of

research on FDI has been conducted in the field of Economics, mainly focusing on the impact of FDI on developing countries‘ economic development - particularly selected sub-Saharan African countries as revealed by the literature review.

The process of linking FDI and development for developing countries has been a significant challenge for a number of countries. (Robbins, Lebani and Rogan 2009: 6). The Development Studies- focused research conducted by Robbins, Lebani and Rogan (2009: 6) explores some of the ways and means that FDI can contribute to lasting structural change in developing country production and productivity dynamics by focusing on South Africa, Mozambique and Lesotho. The article conducted surveys in selected sectors in the chosen countries‘ economies, and results were analysed.

Results of the case studies reveal that, ―whether it be at a national policy level or

through a combination of sensitive national policy frameworks and robust local inter-firm networking possibilities do exist to carve out opportunities for linkages that have the potential to deepen gains from FDI.‖ (Robbins, Lebani and Rogan 2009: 6).

Seetanah and Khadaroo (2007) investigate the impact that FDI had on economic growth for a group of 39 sub-Saharan African countries for the period 1980 to 2000.Seetanah and Khadaroo (2007) used an extended Cobb Douglas production function, whereby investment was disaggregated into its different types, namely, domestic private, foreign direct and public investment, for more insights and comparative analysis. Taking into account the possible existence of endogeneity in FDI modelling, the study employed both static and dynamic panel data estimates. Results from the analysis suggest that FDI is a vital component in explaining economic performance of sub-Saharan African countries, though to a lesser degree in comparison to the other types of capital.

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Furthermore, the study confirms the incidence of important endogeneity in the FDI - growth relationship as FDI is not only seen as a driver of growth, but it follows growth as well.

Adams (2009) investigates FDI and economic growth literature in the context of developing countries, with sub-Saharan Africa as the main area of focus. The two main findings of the paper are as follows: Firstly, FDI contributes to economic development of a host country in two main ways, namely, the expansion of domestic capital and the improvement of efficiency through the transfer of new technology, innovation, marketing, managerial skills and best practices. Secondly, FDI has both benefits and costs, and its impact is determined by conditions unique to a country in general; and the policy environment, particularly in terms of the ability to diversify, the level of absorption capacity, targeting of FDI, and opportunities for linkages between FDI and domestic investment. The findings of the review suggest that FDI is needed, but it is not a sufficient condition for economic growth.

Thomo (2010) examines the impact that inward FDI has on the skills development and job creation in South Africa. The research highlights the two main challenges that South Africa faces: unemployment and the availability of skills for its population. Thomo (2010) conducted telephonic interviews with the relevant companies. Results from the survey were analysed qualitatively. The results of his study concluded that FDI had a positive impact on the skills development and job creation in South Africa, therefore positively impacting on the economy.

With the introduction of the Human Development Index (HDI) by the UNDP, some scholars have viewed it as the more suitable indicator of economic and societal progress of countries (Streeten: 1999; Ranis, 2000). Given this shift in the conceptualization and measure of development, one important question that Sharma and Gani (2004) explored was whether some of the causes of economic growth, such as foreign direct investment (FDI) by Transnational Corporations (TNCs), also considerably influence human development. Sharma and Gani‘s paper examined the above question by means of investigating the effects of FDI on HDI. The findings of

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Sharma and Gani show that FDI somewhat has a positive effect on economic growth and building of infrastructure in host countries, which in turn contribute to the uplift of the population. This infers that open economic policies with increasing efforts towards integration of national economies into the global marketplace could be a necessary condition for human development (Sharma and Gani 2004: 4). Several other studies have previously examined this issue, mainly focusing on growth, and the majority of them have found that FDI has a positive effect on the economic growth of developed as well as developing countries. The findings further suggested that economic growth has not necessarily led to improvements in human conditions everywhere, although its ultimate objective is to improve human conditions.

The literature review above suggests that a gap exists in terms of research regarding the impact of FDI on socio-economic development of South Africa from a Development Studies perspective. As it has been seen, the majority of the research has been on FDI‘s impact on economic growth in mainly Economics and International Business fields of study. This study will focus on the role that FDI plays on the socio-economic development in South Africa, thereby adding to work in the field of Development Studies field. Areas looked at will be specifically economic growth, unemployment, inequality, health, service delivery as well as HDI trends, all of which will be analysed in the chapters that follow.

Discussing the concept of development will be vital in answering the research questions in chapter one. The following section discusses the concept of development, showing various definitions that exist.