The Determinants and Impacts of South Africa’s Outward Foreign Direct Investment

This study investigates the determinants and impacts of outward foreign direct investment (FDI) from South Africa, a leading source of investments on the African continent. Despite South Africa’s important role in FDI, research on the drivers and consequences of its investments remains limited in comparison to Asian emerging markets. More broadly, studies on outward FDI from Africa are underrepresented in international business scholarship. To address these gaps, the study adopts a positivist research philosophy and a quantitative design, using secondary panel data spanning 2002 to 2020. Three interrelated empirical chapters employ panel regression, logit models and two stage least squares(2SLS) to test the causal economic relationships across macro and micro variables. The study makes three key empirical findings. First, at the country level, macroeconomic conditions such as market size, exchange rate stability, institutional quality, and human capital drive South Africa’s outward FDI, reflecting market and efficiency seeking motives. Strategic asset-seeking is more common in developed countries, while institutional quality plays a more pronounced role in Sub-Saharan Africa. Second, at the firm level, characteristics such as firm size, age, and intangible assets are positively associated with outward FDI. This suggests that firms rely on internal capabilities to compensate for external constraints. Third, in terms of impact, South Africa’s outward FDI positively affects host country economic growth in Sub-Saharan Africa primarily through capital accumulation and export channels. The main theoretical contribution of this study is the refinement of the OLI paradigm by introducing a compensatory mechanism between country and firm level determinants, showing how firm capabilities can offset weaker location advantages. It also advances the concept of financial ownership advantages as critical assets for emerging market firms to undertake outward FDI. Additionally, it refines FDI spillover theory by emphasizing institutional fitness as key for positive economic impacts in South-South FDI. The study also provides practical insights for managers and policymakers seeking to enhance FDI outcomes in both the host and home countries.