International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2023, 13(2), 115-123. International Journal of Economics and Financial Issues | Vol 13 • Issue 2 • 2023 115 How Oil Price Changes Afect Foreign Direct Investment Infows in South Africa? An ARDL Approach Lavisa Tala, Tshembhani M. Hlongwane* School of Economics and Management, University of Limpopo, Sovenga, 0727, South Africa. *Email: tshembhanihlongwane@gmail.com Received: 12 December 2022 Accepted: 22 February 2023 DOI: https://doi.org/10.32479/ijef.13903 ABSTRACT The study examined how oil price changes afect foreign direct investment (FDI) infow in South Africa. The study used annual quantitative data, obtained from the South African Reserve Bank (SARB) and World Bank development indicators. With the exception of real exchange rate, Augmented Dicky Fuller (ADF) and Phillips-Peron (PP) tests for stationarity indicated variables become stationary after frst diferencing. Stationarity test results suggested application of ARDL bounds test for cointegration. ARDL bounds test for co-integration confrms that variables of the study have long-run relationship with F-statistic of 6.59, which is higher than the lower (2.98) and upper (3.78) boundaries at least 5% level of signifcance. In the long - run oil prices coefcient found to have negative and signifcant infuence in foreign direct investment infows during 1980-2020 period. Empirical results provide practical implications for South Africa, as oil importing country can hedge crude oil price changes to maintain future quantity of crude oil to be imported. The study recommends expansion of renewable energy sources to reduce South Africa’s vulnerability to oil price fuctuations. Moreover, since oil prices are exogenously determined, setting up forward looking institutions such as sovereign wealth funds and short- term stabilization funds will be better. Keywords: Oil Price, Consumer Price Index, Oil Reserves, Capital Productivity JEL Classifcations: E31, F23, F31 1. INTRODUCTION Foreign direct investment (FDI) has drawn the attention of both established and emerging nations over the past few decades, underscoring the fact that foreign capital fows complement domestic savings in an open economy by helping to build capital and boost economic growth (Mohamed and Mohammed, 2020). Oil, on the other hand, is nevertheless regarded as one of the most crucial commodities needed in every modern industrial economy. Various studies emphasise that oil has many economic importance around the world, such as electricity generation, fuelling transportation and in producing petroleum products such petrol, diesel, and parafn (Maruping and Mongale, 2017). Increase in demand and supply disruptions exert pressure on oil prices. From the demand and supply analysis, increase in demand holding supply constant shift the entire demand curve to the right resulting into higher price of the good in question. On the other hand, decrease in supply holding demand constant, will shift the entire supply curve to the left leading to a rise in the price of the commodity under consideration. Global demand for oil has been rising surpassing oil production. In relation to demand and supply framework, demand for oil is greater than supply of oil and we have excess demand or shortage of oil. Developing countries have been growing rapidly contributing to an increase in the world demand for oil while oil production is not growing. Additionally, political turmoil in oil producing countries such as Iran and Iraq disrupt the supply of oil. South Africa is a developing country faced with socio-economic challenges, compounded by the outbreak of COVI-19 pandemic. This Journal is licensed under a Creative Commons Attribution 4.0 International License