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The Composition Of Foreign Capital Stocks In South Africa: The Role Of Institutions, Domestic Risk And Neighbourhood Effects

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Executive Summary

This paper investigates the determinants of the absolute volumes and composition of foreign capital stocks in South Africa, focusing on the role played by institutional quality (property rights), domestic risk and neighborhood effects as potential determinants. The empirical findings show that secure property rights and low risk in the host country positively affect the absolute volumes of both long-term and short-term foreign capital, but tilt the composition of foreign capital in favor of long-term foreign capital. The empirical results also demonstrate the existence of neighborhood effects where the institutional environment in Zimbabwe has a significant impact on South Africa's foreign capital inflows.

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