The impact of Gross Domestic Product, Consumer Price Index, and Foreign Direct Investment on unemployment: A case of  South Africa

Abstract

South Africa has faced consistently elevated unemployment levels despite numerous macroeconomic reforms, prompting worries regarding the effectiveness of key economic indicators in promoting labour absorption. This study analyses the influence of economic growth (GDP), inflation (CPI), and foreign direct investment (FDI) on unemployment in South Africa, employing quarterly data from the first quarter of 2010 to the fourth quarter of 2023. The analysis utilises a quantitative design, implementing the Augmented Dickey-Fuller unit root test, the Johansen cointegration method, and a Vector Error Correction Model to evaluate the long- and short-term dynamics among the variables. The findings indicate that all variables are integrated of order one and possess a long-term equilibrium connection. Long-term estimates demonstrate substantial negative correlations, suggesting that increased GDP, CPI, and FDI are associated with a decrease in unemployment over time. In the near term, GDP elevates unemployment, indicating the prevalence of capital-intensive growth, whereas FDI persistently reduces unemployment and CPI remains negligible. These findings underscore the structural characteristics of unemployment in South Africa and the constraints of macroeconomic factors in facilitating short-term labour absorption. The report emphasises the significance of policies that promote labour-absorbing growth, improve the investment environment, and prioritise skills development to tackle ongoing unemployment.The report advocates for prioritising labour-intensive growth methods, enhancing the investment environment, and fortifying skills development systems to improve employment outcomes. These initiatives are essential for tackling persistent unemployment and fostering inclusive and sustainable economic growth.

Keywords: {'name': 'Gross domestic product, inflation, foreign direct investment, unemployment, South Africa'}

Authors & affiliations

Ronewa Mudzanani
University of Venda

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