Determinants of private fixed investment in South Africa

Abstract

This study investigates determinants of private fixed investment in South Africa using macroeconomic time series quarterly data from 1994 – 2015. The determinants of private fixed investment on this study include gross domestic product (GDP), real interest rate, real exchange rate and general tax rate. The aim of this study was to investigate the determinants of private fixed investment in South Africa by employing the Johansen cointegration technique and the VECM analysis. Based on the literature survey it appears that the previous studies mainly focused on private investment in manufacturing and infrastructure sectors therefore this is envisaged to add knowledge to a body of economics literature in this area by focusing more on private fixed investment and its determinants in South Africa. The study concludes that for the period under investigation GDP has the positive sign as expected. This suggests that as it has a positive impact on private fixed investment in the long run. The findings of the study also confirmed that tax rate is a complementary to private fixed investment. Similarly, the real exchange rate coefficient was negative as expected which suggests that the depreciation of the currency stimulates the growth of private fixed investment in South Africa. It is apparent that even the best economic model cannot achieve the expected outcomes immediately but these results encourage the study to believe that the South African monetary policy on exchange rate complements private fixed investment. Therefore, the study proposes that both even though both growth and general tax rate are difficult to accomplish simultaneously, they should be used to promote the flow of private fixed investment in South Africa.