Henri Bezuidenhout, Ph.D., School of Economics, North-West University (Potchefstroom Campus), Private Bag X6001, Potchefstroom Campus, Potchefstroom, 2520, South Africa
During the last decade international aid flows diminished and Africa’s relative share of global foreign direct investment (FDI) declined. This went together with lacklustre growth and low human development levels. In 2005 the G8 announced that it will increase aid to Africa with nearly 25 billion US dollar per year. Substantial increases in aid have triggered a fierce debate as to the role of aid and other international fund flows in the development of poorer countries. This study is a contribution towards the discussion regarding the role of FDI and aid in growth and human development, especially in one of the world’s poorest and underdeveloped regions. We apply panel estimations to determine the relationships between aid, FDI and growth in the Southern Africa region from 1990 to 2005. A positive relation is found between aid and growth while FDI and growth has a negative relationship. This could be interpreted as a validation of the call for aid and confirmation of the perception that FDI into the region is not efficiency seeking FDI. Evidence is found for “catch-up” while language groupings and sub-regional blocks play a significant role.
Key words: Foreign Direct Investment (FDI), Aid, SADC, South Africa, Growth, Human Capital Development, Regional Integration