Youth unemployment crisis and foreign direct investment flows in south africa
Résumé
South Africa faces an acute youth unemployment crisis, with nearly 3.8 million young people aged 15 to 24 neither employed nor in education or training.Despite some government interventions such as the Economic Reconstruction and Recovery Plan, the Presidential Youth Employment Initiative, and the National Youth Policy (2020-2030), the youth unemployment crisis persists and deepens.Thus, this study investigates the dynamic relationship between foreign direct investment (FDI) and youth unemployment in South Africa using annual time-series data spanning 1991 to 2024.Applying both the linear Autoregressive Distributed Lag (ARDL) bounds testing approach and the Nonlinear ARDL (NARDL) model, the study tests for symmetric and asymmetric effects of foreign direct investment flows on youth unemployment.Having confirmed the existence of long-run cointegration, the study estimates an ARDL model and finds that youth unemployment increases alongside increasing FDI in the long run in South Africa.This result suggests that capitalintensive FDI inflows do not generate sufficient youth employment opportunities.This study also finds that NARDL asymmetric analysis reveals that positive and negative FDI shocks have divergent effects.In the short run, FDI inflows are more closely associated with youth unemployment than FDI outflows, while dynamic multiplier analysis confirms that FDI withdrawals inflict greater long-run harm.Interestingly, GDP growth rate and inflation rate are robust factors that reduce youth unemployment in both models.These findings call for targeted, labour-intensive, investment-attracting strategies, economic growth-enhancing strategies, and stronger domestic capital formation policies to address structural youth unemployment in South Africa.
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