Determinants of private fixed investment in emerging country

Abstract

The neoclassical and Keynesian theories regard private investment not only as a source of economic growth but also as a determinant of the potential extent of the national income. The aim of this research was to examine the determinants of private fixed investment in South Africa by employing the Johansen cointegration technique and the vector error correction model (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 in the long run it impact positively on private fixed investment. 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 South Africa private fixed investment. It is obvious 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.