Una legalidad "removible" frente al monopolio

Our research work showed that FDI was not a significant driver of domestic investment in the pooled sample but real GDP, trade, exchange rate, inflation, and credit were strong predictors of investment in SSA. As to recommendations, policymakers in this region should really put measures in place to foster the growth of the economy. Economic growth entails a host of factors including improvement in human capital, infrastructural development among others. A growing economy suggests well-established infrastructures like roads, electricity, telephone, internet access, airports, vibrant and working public institutions among others which goes a long way to significantly reduce the cost of doing business. Thus, decision makers for this region should earmark a

significant portion of their GDP towards investment in the home country. Some countries like China, Japan, and South Korea just to name a few have adopted similar policies of boosting their domestic investments and are now enjoying the gains from such policy. These indicators in place will definitely boost the investment climate in the region.

In South Africa to be particular, we suggest the government introduce a selective treatment policy regarding the enticement of foreign investors into the country especially with the sectors already flooded by local investors. If not, this will definitely worsen the plight of the country by shooting unemployment rate via the displacement of local businesses. In the effort to attract these foreign investors, there should be strong policies to safeguard and protect small and growing domestic investments from the market

stealing mechanism and open up for more inward foreign investment in sectors where

FDI is having a spillover on domestic investment.

Furthermore, volatility of the exchange rate should be contained. A stable

exchange rate and inflation rate will definitely be a good indicator of a stable economy

and a congenial one for business.

In

addition, increasing openness to international trade is

associated with significant growth rates. The research is to inform policymakers in Kenya

and South Africa that trade policies have played a huge role in domestic investment. As

such, trade policies that encourage specializations in areas of comparative advantage,

import substitution strategies should be enacted fortified by the stability in the exchange

rate and inflationary rate. Both governments rather should be redirecting it spending

towards economic and social infrastructure

that

promotes both traditional and

nontraditional exports. The region should also fight corruption and bottlenecks in the

system to give a leeway for credit to positively impact local investment.

CHAPTER SIX CONCLUSION

This theses investigated the impact ofFDI on domestic investment in Kenya and South Africa during the period of

1972 -201 1 .

Using SSA for our preliminary

discussions, the study employed pooled OLS to examine the relationship between FDI and domestic investment in both Kenya and South Africa. After applying this

econometric technique, the study found that there is no relationship between the inflows ofFDI and domestic investment during the study period. In other words, the study did not have enough statistical evidence to prove that FD! has any crowing -out or crowding -in effect on domestic investment in the SSA region in all four models.

Controlling for other independent variables that strongly predicts domestic investment in SSA, real GDP and trade openness came out strongly significant and positive in explaining domestic investment in all the four models. Additionally, nominal exchange rate and inflation were consistently having a negative impact on domestic investments in all models. This is to suggest that, high inflationary rate and constant depreciation of the local currency over the study period showed disinvestment on the part of local investors. Surprisingly, domestic credit to investors showed a consistently

negative effect on domestic investment in Model II, ill and IV. This relationship could emanate from the fact that, more credit is made available to these domestic investors, they tend to invest in unproductive ventures. Civil liberty which was used as a proxy for

social stability was negatively correlated with domestic investment but was insignificant.

Conducting an individual investigation through time series for each country, we found out that FDI in both the short -run and the long -run had no impact on domestic

investment in Kenya. But FDI displayed a crowding -out effect in our baseline model

(Model I) in the short

-run

period. This is to suggest that South Africa in the attempt of

attracting more FDI to counterbalance the fall in domestic investment was rather hurting

domestic enterprises in the short

-run.

Real GDP and trade openness were positively related to domestic investment in

both the short and long

-run

periods in Kenya. In South Africa, real GDP was an

insignificant determinant of domestic investment in both the short

-run

and long

-run

period whiles trade in the long

-run

was a positive determinant of domestic investment in

South Africa. Additionally, trade was positive but significant in only Model II and III.

Nominal exchange rate had a negative relationship with domestic investment in

the short

-run

period in Kenya but this was not significant. However, it was a

determining variable to Kenyan investors in the long

-run.

A persistent decline in the

value of the Kenyan shillings against the US dollar in the long

-run

negatively affected

domestic investment. Comparatively, the depreciation of the South African Rand against

the US dollar was negatively related to domestic investment in the short

-run. In

opposition to local investors in Kenya, local investors in South Africa do consider the

prevailing exchange rate to

be

really critical in their decision to invest in the short

-run.

But this negative relationship was not significant in the last short

-run

model.

In

the long

-run,

South Africa shared the same story of Kenya where the persistent decline in the

South African Rand against the US dollar negatively affected domestic investment and

was significant.

Domestic credit accessibility in Kenya was significant and positively related to

domestic investment in the short

-run

period for Model II. However, the opposite was

observed in South Africa where domestic credit was having a negative relationship with

domestic investment albeit insignificant in all the short

-run

models. In the long

-run,

domestic credit was not a significant determinant of domestic investment in Kenya. This

was in consonance to the work of Oshikoya (1994) who found no empirical relationship

between bank credit and private investment for Morocco, Tanzania, and Zimbabwe. On

the other hand, domestic credit evinced a significant and negative relationship with

domestic investment in the long

-run

period for Model II.

Controlling for macroeconomic stability, high inflation rate was negatively

correlated with domestic investment in Kenya in both the short

-run

and the long -run.

On a general note, inflation increases the cost of capital and thus negatively affecting the

profit of domestic firms and subsequently discouraging both old and potential investors.

Conversely, this was not a determining factor in South Africa. In addendum, civil liberty

which was used as a proxy for social stability was not a significant determinant of

domestic investment in both countries.

In a nutshell, this theses established that in the pooled sample, FDI was not a

consequential driver for domestic investment.

In

the time series analyses, FDI had no

impact on domestic investment in Kenya in both the short and long

-run

period but

exhibited a crowding -out effect on domestic investment in South Africa in the short -

run.

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Appendix

Appendix 1 : Summary statistics for Kenya

Variable

Obs

Mean

Std. Dev.

Min

Max

DI

40

4.13E+09

l .66E+09

2.04E+09

8.65E+09

FDI

40

l .56E+08

2.58E+08

941961.7

l .47E+09

RGDP

40

2.22E+10

8.72E+09

9.67E+09

4.24E+l 0

Trade

40

l .28E+l0

4.87E+09

5.35E+09

2.57E+1 0

NER

40

40.3957

29.83951

7.00 1 1 92

88.81077

Credit

40

5.1 2E+09

2.73E+09

l .60E+09

l .30E+IO

Inflation

40

10.87959

7.634658

0.933206

41 .98877

Civil Liberty

40

4.675

1.095152

3

6

Appendix 2: Pairwise correlation for Kenya

InFDI

InRGDP

In Trade

NER

In Credit

Inflation

Civil

Liberty

InFDI

1

InRGDP

0.2378

In Trade

0.3001

0.96

1

NER

0.2655

0.9083

0.9009

1

In Credit

0.2469

0.9862

0.9531

0.9255

1

Inflation

0.2054

-0.018

0.0725

-0.0302

-0.083

1

Civil

0.2567

0.297

0.3 1 74

0.3819

0.36

-0.2704

1

Liberty

Appendix

3 :

Pair wise correlation for Kenya (with dependent variable)

InDI

InFDI

InRGDP

In Trade

NER

In Credit

Inflation

Civil

Liberty

lnDI

1

InFDI

0.2448 1

InRGDP

0.9658 0.2378 1

In Trade

0.9446 0.3001 0.96 1

NER

0.8445 0.2655 0.9083 0.9009 1

In Credit

0.9475 0.2469 0.9862 0.9531 0.9255 1

Inflation

-0.0707 0.2054 -0.018 0.0725 -0.0302 -0.083 1

Civil

0.3396 0.2567 0.297 0.3 1 74 0.3819 0.36 -0.2704 1

Liberty

Appendix 4: Summary statistics for South Africa

Variable

Obs

Mean

Std. Dev.

Min

Max

DI

40

5.07E+l0

l .22E+l0

3.45E+10

8.70E+l0

FDI

40

2.1 9E+09

3.84E+o9

-l.5 1 E+09

l .64E+l 0

RGDP

40

2.41E+l 1

6.70E+l0

l .46E+l l

3.88E+l 1

Trade

40

1 .26E+ l l

4.90E+10

6.83E+l 0

2.70E+l l

NER

40

3.847723

2.892791

0.679477

1 0.54075

Credit

39

2.56E+l 1

l .57E+ l l

9.59E+IO

5.74E+l l

Inflation

40

1 1 .55458

4.368716

5.449048

24.87883

Civil Liberty

40

3.875

1 .771389

2

6

Appendix 5: Pairwise correlation for South Africa

InFDI

InRGD

P

In Trade

NER

In Credit

Inflation

Civil

Liberty

InFDI

1

InRGDP

0.5681

1

In Trade

0.667

0.9169

1

NER

0.624

0.8995

0.83 1 1

1

In Credit

0.5578

0.9656

0.8445

0.9278

1

Inflation

-0.5648

-0.6328

-0.5776

-0.6608

-0.714

I

Civil

-0.7292

-0.7264

-0.7732

-0.778

-0.75 19

0.6822

1

Liberty

Appendix

6:

Pair wise correlation for South Africa (with dependent variable)

InDI

InFDI

InRGDP

In Trade

NER

In Credit

Inflation

Civil

Liberty

InDI

1

InFDI

0.43 1 8 1

InRGDP

0.5473 0.5681 1

In Trade

0.7295 0.667 0.9169 1

NER

0.3132 0.624 0.8995 0.83 1 1 1

In Credit

0.382 0.5578 0.9656 0.8445 0.9278 1

Inflation

-0.2736 -0.5648 -0.6328 -0.5776 -0.6608 -0.714 1

Civil

-0.4039 -0.7292 -0.7264 -0.7732 -0.778 -0.75 1 9 0.6822 1

Liberty

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