Increased globalization has captured the attention of not only entrepreneurs and business people but also government officials who are searching for international business advantages in an ever-changing world. The active pursuit of FDI for the first time in Nigeria’s history is a signal that the rules of the game have changed under globalization. The message is clear: Markets are moving toward international competition, and to prosper, nations need to tap into the resources and opportunities available beyond their borders. To this end, they need not only to attract FDI to their shores but also to engage in outward investment in foreign markets.
Foreign Direct Investment (FDI) acquired an important role in the international economy after the SecondWorld War. Theoretical studies on FDI have led to a better understanding of the economic mechanism andthe behavior of economic agents, both at micro and macro level allowing the opening of new areas of studyin economic theory. To understand foreign direct investment we must first understand the basic motivations that cause a firm to invest abroad rather than export or outsource production to national firms.
Gross fixed capital formation According to Wikipedia, the free Encyclopedia is a macroeconomic concept used in official national accounts. Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and “pure” households (excluding their unincorporated enterprises) less disposals of fixed assets. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed. The relationship of foreign direct investment to gross fixed capital formation cannot be overemphasized since they both involved capital accumulation for investment purpose. Their impact on economic development is overwhelming and shows a positive relationship.
According to Official statistics from UNCTAD there has been an increase in FDI inflows globally. Between the years 1980 and 2014, FDI inflows were recorded to be about US$ 52 million, US$ 243 million, US$ 1.2 million, US$ 1.3 million and US$ 1.35 in years 1980, 1990, 2000, 2010 and 2014, respectively. Freckleton et al. (2012) noted that due to the increase in FDI flows, scholars over the years have been motivated to investigate its determinants and impact on the economy. In South Africa, where poverty, unemployment and the urgent need to add to existing infrastructure and develop new crucial infrastructures to meet the ever increasing population and economic growth remain a challenge, the role of FDI seems to be imperative. However, the question remains whether FDI inflow can play such a role in South Africa or how relevant FDI inflow is in South Africa economic stability. In line with the above, the aim of the study is first to examine if a long-run relationship exists between FDI inflow and employment and between FDI inflow and capital formation. Secondly, it aims to explore causality relationship between employment and capital formation in relation to FDI inflow.
Nowadays the issue of foreign direct investments is being paid more attention, both at national and international level. There are many theoretical papers that examine foreign direct investments (FDI)’s issues, and main research on the motivations underlying FDI were developed by J. Dunning, S. Hymer or R.Vernon. Economists believe that FDI is an important element of economic development in all countries, especially in the developing ones.