The Role of the Investment Climate and Tax Incentives in the Foreign Direct Investment Decision: Evidence from South Africa

Abstract

In this article, the author uses microdata and firm interviews to explore the role of foreign direct investment drivers in South Africa. Reinforcing the majority of the foreign direct investment literature, she finds that pecuniary incentives play a negligible role in the investment decision for the majority of firms. The micro level of analysis enables specification of the investment climate constraints that are decisive—notably political and regulatory uncertainty, skills, labor regulation, and exchange volatility. This area-specific analysis contains potential lessons for other sub-Saharan countries.

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