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ABSTRACT
Investment activities can promote technical progress through the introduction of new technology and can reduce poverty by creating increased rates of employment. In the long run, through the production process, investment activities can create new capital goods. Investment ensures growing capital stock in the country because investing in fixed capital stock can accelerate the economic growth. Gross Fixed Capital Formation (GFCF) is commonly known as the net investment, refers to the total fixed amount of capital accumulated. This paper seeks to examine the determinants of investment activity in South Africa. It uses the Johansen Cointegration and Vector Error Correction model; and, it finds the long- and short-run relationship on the time series data. It establishes that there is positive relationship between economic growth, interest rate, inflation and investment. However, taxation and investment are negatively related. This indicates that investment activity can be explained by tax, economic growth, interest rates and inflation. The paper recommends low taxation, growing economy, increasing availability of credit to boost investment activity in South Africa.
Keywords: Gross fixed capital formation, economic growth, taxation, interest rates, inflation
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INTRODUCTION
As one of the important macroeconomic variables, investment can ensure infrastructure development and growth in the economy by raising the productive capacity (Fedderke, Perkins & Luis, 2001; Cheteni, 2011; Ugwuegbe & Uruakpa, 2013). Investment activities can promote technical progress through the introduction of new technology and can reduce poverty through an increase in the level of employment. In the long run, through the production process, investment activities can create new capital goods. Majeed & Khan (2008) and Gkionis et al. (2015) indicate that to ensure growing capital stock in the country there must be higher rate of investment since investing in fixed capital stock can accelerate the economic growth. Gross Fixed Capital Formation (GFCF) is commonly known as the net investment, refers to the total fixed amount of the capital accumulated. It measures the capital stock; in the measurement it excludes land purchase but includes the disposal of fixed assets. Meaning increasing capital stock, excluding the land purchase and less disposable of fixed assets. As a result it can therefore be used as a measure of investment activity of a country (Mishkin, 2016).
During the 1980s and...