Economic Growth, Regional Savings and FDI in Sub-Saharan Africa: Trivariate Causality and Error Correction Modeling Approach

Abstract

Empirical studies examining the dynamic causal relationship between key macroeconomic variables using varied forms of bivariate causality methodology abound in the macroeconomic and finance literature. Causal inference based on such bivariate causality approach however, has been criticized for its inherent likelihood to draw causal inference or attribute causation to variables in scenarios where an omitted variable might have a better claim; Lutkephol (1982), Umberto Triacca (1998. This study is modeled to reduce this inherent weakness by employing trivariate causality methodology through error correction approach. Using aggregate data on Sub-Sahara Africa spanning the period 1977 to 2010, this study finds joint uni-directional causal relationship running from FDI and Gross Regional Savings growth to regional GDP growth. Empirical results further document additional uni-directional joint causal relationship stemming from GDP growth and Gross Regional Savings to growth in FDI inflow into the sub-region.

The Impact of Domestic Saving and Foreign Direct Investment on Economic Growth Emprical Study in Case of Yemen (1990-2012)

“…Furthermore, investment has a strong positive influence on economic growth rate (Mohamed 2003) and Ghazali 2010). (Abaidoo 2012) Explore the dynamic causal relationship in key macroeconomic variables using aggregate data on Sub-Sahara of Africa spanning during the period 1977 to 2010. This study finds combined uni-directional causal relationship running from FDI and Gross Regional Savings growth to regional GDP growth.…”