Title: Causality between foreign direct investment, exports and economic growth in Lesotho

Authors: Malefa Rose Malefane

Addresses: Department of Economics, University of South Africa, Room 4-41 Anton Lembede Building, Pretoria, South Africa

Abstract: This article examines the causal relationship between foreign direct investment (FDI), exports and economic growth in Lesotho during the period 1980 to 2019 using the vector error correction model and the Toda-Yamamoto (1995) method. The Toda-Yamamoto results show that although there is unidirectional causality from FDI to exports, there is no evidence of significant causality from exports to FDI nor between exports and economic growth. From sustainability perspective, the lack of a significant causal effect from FDI to economic growth, and from exports to economic growth suggests that Lesotho's economic policy, which is centred on private sector-led and export-led growth, has not significantly transformed the economy to bring about significant growth-enhancing effects. Based on the findings, this study recommends that policymakers in Lesotho could identify and implement measures targeted at enhancing export competitiveness alongside a systematic investment promotion that could assure wider access of the country's exports to international markets.

Keywords: foreign direct investment; exports; economic growth; Toda-Yamamoto; causality; least-developed economies; Lesotho.

DOI: 10.1504/IJSE.2021.118621

International Journal of Sustainable Economy, 2021 Vol.13 No.4, pp.402 - 419

Received: 17 Feb 2021
Accepted: 19 Apr 2021
Published online: 29 Oct 2021 *

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