Bilateral FDI from South Africa and Income Convergence in SADC

This study investigates whether bilateral foreign direct investment (FDI) between a technology leader country and follower countries has technology and productivity externalities that speed up income convergence among the countries. The study is based the Southern African Development Community (SADC) region, in which South Africa is identified as both the technology leader and a major source of FDI for the other 14 developing countries in the region. Using countries’ per capita incomes time series over a period spanning from 1980 to 2011, the results of the study show that bilateral FDI between South Africa and countries in the region fosters income convergence in the region. Countries that have higher FDI stocks from South Africa exhibit higher rates of convergence towards both the regional average per capita income and South Africa's per capita income, than those that host less FDI stocks.