Does foreign direct investment cause economic growth? A dynamic panel data analysis for SADC countries

2016 ◽  
Vol 11 (3) ◽  
pp. 316-332 ◽  
Author(s):  
Edmore E Mahembe ◽  
Nicholas M Odhiambo
Keyword(s):  
Economic Growth ◽  
Data Analysis ◽  
Causal Relationship ◽  
Low Income ◽  
Panel Data Analysis ◽  
Low Income Countries ◽  
Middle Income ◽  
Fdi Inflows ◽  
Content Type ◽  
Middle Income Countries

Purpose – The purpose of this paper is to examine the causal relationship between inward foreign direct investment (FDI) and economic growth in Southern African Development Community (SADC) countries over the period 1980-2012. It also investigates whether the causal relationship between FDI inflows and economic growth is dependent on the level of income. Design/methodology/approach – In order to assess whether the causal relationship between FDI inflows and economic growth is dependent on the level of income, the study divided the SADC countries into two groups, namely, the middle-income countries and the low-income countries. The study used the recent panel-data analysis methods to examine this linkage. The Granger causality test for the middle-income countries was conducted within a vector-error correction mechanism framework; while that of the low-income countries was conducted within a vector autoregressions framework. Findings – The results for the middle-income countries’ panel show that there is a uni-directional causal flow from GDP to FDI, and not vice versa. However, for the low-income countries’ panel, there was no evidence of causality in either direction. The study concludes that the FDI-led growth hypothesis does not apply to SADC countries. Research limitations/implications – Methodology applied in this study is a bivariate framework which is likely to suffer from the omission of variable bias (Odhiambo, 2008, 2011). Second, the Granger causality analysis employed in this only investigates the direction of causality and whether each variable can be used to explain another, but does not directly test for the mechanisms through which FDI leads to economic growth and economic growth leads to FDI. Practical implications – Future studies may include a third variable such as domestic savings, exports, or financial development in a trivariate or multivariate panel causality model. A more complete analysis which seeks to explain the channels through which FDI impacts growth is suggested for future studies. Lastly, sector level analysis will help policy makers draft effective industrial policies, which can guide allocation of incentives. Social implications – The results of this study support the Growth-led FDI hypothesis, but not the FDI-led growth hypothesis. In other words, it is economic growth that drives FDI inflows into the SADC region and into Southern Africa, and not vice versa. This implies that the recent high economic growth rates that have been recorded in some of the SADC countries, especially the middle-income countries, have led to a massive inflow of FDI into this region. Originality/value – At the regional level, SADC as a regional bloc has been actively pursuing policies and strategies aimed at attracting FDI into the region. Despite the important role of FDI in economic development, and the increase in FDI inflows into SADC countries in particular, there is a significant dearth of literature on the causal relationship between FDI and economic growth. The study used the recent panel-data analysis methods to examine the causal relationship between FDI and economic growth in SADC countries.

scholarly journals Is export-led growth hypothesis still valid for sub-Saharan African countries? New evidence from panel data analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Low Income ◽  
Middle Income ◽  
Content Type ◽  
Middle Income Countries ◽  
Stage Of Development ◽  
Panel Granger Causality ◽  
Causality Model ◽  
Ssa Countries

PurposeThis study examines the causal relationship between exports and economic growth in sub-Saharan African (SSA) countries during the period 1980 to 2017. The study also examines whether the causality between these two macroeconomic variables depends on the countries' stage of development as proxied by their per capita income.Design/methodology/approachThe study uses a panel cointegration test and panel Granger-causality model to examine the link between exports and growth. The study also incorporates external debt as an intermittent variable in a bivariate setting between exports and economic growth, thereby creating a dynamic multivariate panel Granger-causality model.FindingsAlthough the study found the existence of a long-run relationship between exports and economic growth, the study failed to find any export-led growth response in both low-income and middle-income countries. Instead, the study found evidence of a bidirectional causality and a neutrality response in middle-income and low-income countries, respectively. The study, therefore, concludes that the benefits of an export-led growth hypothesis may have been oversold, and that the strategy may not be desirable to some low-income developing countries.Practical implicationsThese findings have important policy implications as they indicate that the causality between exports and economic growth in SSA countries varies with the countries' stage of development. Consistent with the contemporary literature, the study cautions low-income SSA countries against over-relying on an export-led growth strategy to achieve a sustained growth path as no causality between exports and economic growth has been found to exist in those countries. Instead, such countries should consider pursuing new growth strategies by building the domestic demand side of their economies alongside their export promotion strategies in order to expand the real sector of their economies. For middle-income countries, the study recommends that both export promotion strategies and pro-growth policies should be intensified as economic growth and exports have been found to reinforce each other in those countries.Originality/valueUnlike the previous studies, the current study disaggregated the full sample of SSA countries into two subsets – one comprising of low-income countries and the other consisting of middle-income countries. In addition, the study uses a multivariate Granger-causality model in order to address the emission-of-variable bias. To our knowledge, this may be the first study of its kind in recent years to examine in detail the causal relationship between exports and economic growth in SSA countries using an ECM-based multivariate panel Granger-causality model.

scholarly journals On the determinants of trade openness in low- and lower–middle-income countries in Africa: how important is economic growth?

2019 ◽  
Vol 5 (1) ◽  
Author(s):  
Dennis Boahene Osei ◽  
Yakubu Awudu Sare ◽  
Muazu Ibrahim
Keyword(s):  
Economic Growth ◽  
Low Income ◽  
Trade Openness ◽  
Generalized Method Of Moments ◽  
Low Income Countries ◽  
Special Focus ◽  
Middle Income ◽  
Middle Income Countries ◽  
Real Gdp Per Capita ◽  
The Impact

AbstractThe existing literature highlights the determinants of trade openness with disregard to the income classifications of countries in examining whether the determinants differ given their income levels. This study, therefore, re-examines the drivers of trade openness in Africa relying on panel data with special focus on the role of economic growth. More specifically, we perform a comparative analysis of the factors influencing trade openness for low-income and lower–middle-income countries using the system generalized method of moments. Our findings suggest that, while economic growth robustly enhances openness in low-income countries, in the case of lower–middle-income countries, the impact is not robust and largely negative suggesting that higher growth is associated with less openness. We also find that, economic growth–openness nexus for the lower-income countries exhibits non-linearities and inverted U-shaped relationship in particular. Thus, while increases in real GDP per capita enhance openness, beyond an estimated threshold point, any increases in economic growth dampen openness. We discuss key implications for policy.

On the structure of the present-day convergence

2014 ◽  
Vol 31 (2/3) ◽  
pp. 139-152 ◽  
Author(s):  
Andrey Korotayev ◽  
Julia Zinkina
Keyword(s):  
Global Convergence ◽  
Low Income ◽  
High Income ◽  
Low Income Countries ◽  
Unconditional Convergence ◽  
Gdp Per Capita ◽  
Middle Income ◽  
Content Type ◽  
Middle Income Countries ◽  
Per Capita

Purpose – A substantial number of researchers have investigated the global economic dynamics of this time to disprove unconditional convergence and refute its very idea, stating the phenomenon of conditional convergence instead. However, most respective papers limit their investigation period with the early or mid-2000s. In the authors’ opinion, some of the global trends which revealed themselves particularly clearly in the second half of the 2000s call for a revision of the convergence issue. The paper aims to discuss these issues. Design/methodology/approach – Several methodologies for measuring the global convergence/divergence trends exist in the economic literature. This paper seeks to contribute to the existing literature on unconditional β-convergence of the per capita incomes at the global level. Findings – In the recent years, the gap between high-income and middle-income countries is decreasing especially rapidly. The gap between high-income and low-income countries, meanwhile, is decreasing at a much slower pace. At the same time, the gap between middle-income and low-income countries is actually widening. Indeed, in the early 1980s GDP per capita in the low-income countries was on average three times lower than in the middle-income countries, and this gap was totally overshadowed by the more than ten-time abyss between the middle-income and the high-income countries. Now, however, the GDP per capita in low-income countries lags behind the middle-income ones by more than five times, which is largely the same as the gap (rapidly contracting in the recent years) between the high-income and the middle-income countries. This clearly suggests that the configuration of the world system has experienced a very significant transformation in the recent 30 years. Research limitations/implications – The research concentrates upon the dynamics of the gap in per capita income between the high-income, the middle-income, and the low-income countries. Originality/value – This paper's originality/value lies in drawing attention to the specific changes in the structure of global convergence/divergence patterns and their implications for the low-income countries.

Entrepreneurship and Income Inequality: A Dynamic Spatial Panel Data Analysis

Tékhne ◽  
2019 ◽  
Vol 17 (1) ◽  
pp. 10-30
Author(s):  
Hanen Ragoubi ◽  
Sana El Harbi
Keyword(s):  
Data Analysis ◽  
Income Inequality ◽  
Low Income ◽  
Panel Data Analysis ◽  
Entrepreneurial Activity ◽  
Low Income Countries ◽  
Middle Income ◽  
Spatial Panel ◽  
Short Run ◽  
Spatial Panel Data

Abstract This paper extends the empirical debate of Ragoubi and El Harbi (2018) on the dynamic relationship between entrepreneurship and income inequality. Using a dynamic spatial panel data analysis for both 33 high-income countries and 39 middle-income and low-income countries over the period 2004–2014, the main empirical findings are summarised as follows. First, the results indicate that entrepreneurship is a spatial and persistent phenomenon. Second, there is strong support for the existence of an inverted U-shaped relationship between entrepreneurship and income inequality espoused by the Kuznets Curve hypothesis for middle-income and low-income countries. Third, the interaction between income inequality and income per capita has a significant negative effect on the entrepreneurial activity for middle-income and low-income countries. Fourth, a significant positive association is found between the interaction variable and entrepreneurship for high-income countries. Fifth, the findings show evidence of significant positive and negative short-run direct effects of income inequality on the entrepreneurial activity for middle-income and low-income countries. Finally, there are significant negative short-run spillover effects of income inequality on the entrepreneurial activity for middle-income and low-income countries.

scholarly journals Does more energy consumption support economic growth in net energy-importing countries?

2017 ◽  
Vol 22 (42) ◽  
pp. 75-98 ◽  
Author(s):  
Ömer Esen ◽  
Metin Bayrak
Keyword(s):  
Economic Growth ◽  
Energy Consumption ◽  
Panel Data ◽  
Low Income ◽  
Panel Data Analysis ◽  
Income Level ◽  
Net Energy ◽  
Middle Income ◽  
Important Indicator ◽  
Content Type

Purpose This study aims to examine the effects of energy consumption on economic growth by means of a panel data analysis of 75 net energy-importing countries for the period 1990 to 2012. Design/methodology/approach For the purpose of the analysis, the countries are classified into two groups, and each group is then classified into subgroups. The first group is formed based on the energy import dependence of the countries and is classified into two subgroups according to whether their dependence is greater than or less than 50 per cent. The second group is formed based on the income level of the countries and is classified into four subgroups, specifically, low-income economies, lower-middle-income economies, upper-middle-income economies and high-income economies. Findings The findings obtained for both panel data and for each country indicate that there is a positive and statistically significant relationship between energy consumption and economic growth over the long term such that energy consumption contributes more to economic growth as the import dependence of the country decreases. Moreover, the effect of energy consumption on economic growth decreases as the income level of the country increases. This indicates that the efficient use of energy is as important as energy consumption, which is regarded as an important indicator of economic development. Originality/value The authors expect that these findings will make a valuable contribution to the results of future studies, as they analyze the relationships among the variables by including the energy intensities of the countries.

scholarly journals Post-Financial Crises Puzzle of Economic Growth in Low and Lower-Middle Income Countries: Evidence from Static and Dynamic Panel Estimations

2020 ◽  
Author(s):  
Mohammad m shafiq ◽  
Bosede Ngozi ADELEYE
Keyword(s):  
Economic Growth ◽  
Labor Force ◽  
Low Income ◽  
Government Expenditure ◽  
Capital Formation ◽  
Low Income Countries ◽  
Dynamic Panel ◽  
Middle Income ◽  
Middle Income Countries ◽  
Determinants Of Economic Growth

Abstract This paper investigates economic growth in 65 low and lower-middle-income countries from 2010 to 2017. Results from static and dynamic panel data techniques show that foreign direct investment (FDI), capital formation, and labor force significantly increase economic growth while government expenditure decreases growth. Mobile phone subscription reveals no significant impact on growth at aggregate levels. Furthermore, analyses at the income group level reveal substantial differences between the determinants of economic growth in low and lower-middle-income countries. For instance, FDI is a significant predictor of growth in low-income countries, but not in lower-middle-income countries. Similarly, government expenditure and mobile cellular subscriptions are not significant predictors in low-income countries relative to lower-middle-income countries. Interestingly, capital formation and labor force are the two common significant predictors across low and lower-income countries.

scholarly journals FDI and economic growth: the role of natural resources?

2018 ◽  
Vol 45 (2) ◽  
pp. 283-295 ◽  
Author(s):  
Arshad Hayat
Keyword(s):  
Economic Growth ◽  
Host Country ◽  
Natural Resource ◽  
High Income ◽  
Middle Income ◽  
Fdi Inflows ◽  
Content Type ◽  
Middle Income Countries ◽  
Resource Sector ◽  
The Impact

PurposeThe purpose of this paper is to investigate the foreign direct investments (FDI)-growth nexus and the impact of natural resource abundance in the host country on the FDI-growth nexus.Design/methodology/approachFor a large data set of 104 countries for the period 1996-2015, Arellano and Bond’s GMM estimation method is applied to investigate the impact of FDI inflow on economic growth and the role of the natural resource sector on the FDI-growth relationship.FindingsThe paper found a positive and significant effect of FDI inflows on economic growth of the host country. However, the impact of FDI inflows on economic growth changes with the changes in the size of the natural resource sector. The estimated positive impact of FDI inflows on economic growth declines with the expansion in the size of natural resources. Beyond a certain limit, a further expansion in the size of natural resource sector will lead to a negative effect of FDI on economic growth.Research limitations/implicationsThe paper found a positive and significant impact of FDI inflows on economic growth of the host country. However, the impact of FDI inflows on economic growth changes with the changes in the size of the natural resource sector. The estimated positive impact of FDI inflows on economic growth declines with the expansion in the size of the natural resources. Beyond a certain limit, a further expansion in the size of the natural resource sector will lead to a negative effect of FDI on economic growth. The same analysis is repeated for groups of countries divided into different income groups. FDI inflows are found to have significant growth enhancing role in all three groups of countries. However, FDI inflows-induced growth was found to be more pronounced in the middle- and low-income countries compared to high-income countries. Further, FDI-induced economic growth is slowed down in low-income and middle-income countries by the increase in size of the natural resource sector. While in high-income countries, the size of the natural resource sector has no significant role on the FDI-growth nexus.Practical implicationsWhile countries use their natural resource sector as an instrument to attract FDI into the countries, low- and middle-income countries face the dilemma of experiencing the resource curse in the form of watered down FDI-induced growth. Therefore, low- and middle-income countries need to try at the same time to attract FDI into the non-resources sector to keep the relative size of the natural resource sector low as to avoid hampering the FDI-induced economic growth. High-income countries, on the other hand, do not experience the FDI-induced growth hampering impact of the natural resource sector. Therefore, high-income countries should attract FDI into the countries regardless of the sector attracting the foreign investments.Originality/valueThe paper is part of the author’s PhD research and is an original contribution.

scholarly journals Causal Relationship Between Air Transport and Economic Growth: Evidence from Panel Data for High, Upper-Middle, Lower-Middle and Low-Income Countries

2019 ◽  
Vol 22 (3) ◽  
pp. 24-43
Author(s):  
Kasım Kiracı ◽  
Mahmut Bakır
Keyword(s):  
Economic Growth ◽  
Causal Relationship ◽  
Low Income ◽  
Income Level ◽  
Air Transport ◽  
Low Income Countries ◽  
Middle Income ◽  
Panel Causality ◽  
Income Levels ◽  
Study Panel

This study aims to find out the causal relationship between air transport and economic growth based on income level. To this end, selected countries with high-income, uppermiddle-income, lower-middle-income, and low-income levels were included in the analyses for this study. Focusing on the 1990-2016 period, a total of 70 countries were classified according to their income levels and were analyzed empirically. In the study, panel causality analyzes by Kónya (2006) and Emirmahmutoğlu & Köse (2011) were used. Our findings show that GDP has a certain degree of effect on air transport. They also indicate that the unidirectional or bidirectional causal relationships running from GDP to air transport and air transport to GDP vary by the income level of countries.

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