This paper takes a cursory look at the empirical relationship between the inflow of capital, globalization
(as proxied by the degree of openness), poverty, and economic growth in South Africa. The vector
autoregressive modeling technique was used in determining the relationship between these variables. It
was found that variation in economic growth in South Africa was explained by factors beyond foreign
capital inflow and economic openness in the short run; however, it is of little consideration in the long
run. Capital inflow explains a significant change noticed in the human development index as the inflow
of capital and economic openness had positive impact on poverty reduction.
In essence, trade liberalization has not substantially impacted on the growth rate of the South African
economy. This implies that fluctuations in real economic growth in this country should be seen beyond
the external shock from the capital inflows or trade flows.
Accordingly, the paper recommends that policy focus should be on areas that will encourage job
creation and these include, for instance, investments in real sector rather than portfolio investment,
which has been the case.