Research Article
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Year 2019, Volume: 5 Issue: 2, 83 - 105, 01.10.2019

Abstract

References

  • [1] Akpansung, A. O. and Babalola, S. J. (2012). Banking Sector Credit and Economic Growth in Nigeria: An Empirical Investigation. CBNJournal of Applied Statistics, 2 (2):51 -62. [2] Alfaxard, K. G. (2013). Factors influencing strategy implementation among flower firms in Naivasha, Kenya. Unpublished MBA Thesis. [3] Anthony, O. (2012). Bank savings and bank credits in Nigeria: Determinants and impact on economic growth. International Journal of economics and financial issues, 2(3), 357-372. [4] Ayanwale, A.B. (2007). FDI and Economic Growth: Evidence from Nigeria, African. Economic Research Consortium Research, Paper 165. Nairobi. [5] Choong, Chee-Keong., Yusop, Zulkornain., Soo, Siew-Ohoo (2004). Foreign Direct Investment and Financial Sector Development: A Comparative Analysis. ASEAN Economic Bulletin. Retrieved on April 14, 2009 at http://goliath.ecnext.com/coms2/gi_0199-4433728/Foreigndirect- investment-economic-growth.html [6] Dey, M. K. and Flaherty, S. (2005), Stock Exchange Liquidity, Bank Credit, and Economic Growth. Paper presented at the Max Fry Conference on Finance and Development, University of Birmingham, The Business School University House, Birmingham B15 [7] Hermes, N., & Lensink, R. (2013). Financial development and economic growth: theory and experiences from developing countries. Routledge. [8] Edimealem, M. M. (2017) Financial integration, foreign direct investment and economic growth in the EAC: A panel dynamic modeling approach, Journal of economics and sustainable development Vol.9, No. 3, pp. 30-36 [9] Eshatuu W.S., Casuality between financial development and economic growth: empirical evidence from Ethiopia, Vol:7, No:19, 2016. [10] Gokal, V., and Hanif, S., Relationship between inflation and economic growth, Economics Department Reserve Bank of Fiji. [11] Granger, C. W. J. (1982). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. doi: 10.2307/1912791 [12] Gries, T., & Redlin, M. (2012). Trade openness and economic growth: A panel causality analysis. Centre for International Economics, Canberra, Australia Working paper series, no. 2011-06. [13] Hermes N., and Lensink R., (2003), Foreign direct investment, financial development and economic growth, vol. 40, issue 1, 142-163. [14] Malefane, M. R. and Odhiambo N. M., Impact of trade openness on economic growth: empirical evidence from South Africa, (2018), Unisa Economic Research Working Paper Series. [15] Mallik, G. and Chowdhury, A. (2011) Inflation and Economic Growth: Evidence from Four South Asian countries, Asian Pacific Development Journal, Vol. 8, No. 1, pp. 123-135. [16] Mamo, F. (2012). Economic Growth and Inflation: A panel data analysis. [17] Mumtaz, H. S. (2016). Financial development and foreign direct investment: the case of the Middle East and North Africa developing countries. MPRAPaper No: 82013 [18] Mutandwa, E., (2014), Foreing direct investment and Rwanda’s Economic Performance 1970-2011, Vol:6, No:17. [19] Ngugi W.R. & Nyangoro, O. (2005). Institutional Factors and Foreign Direct Investments Flows Implications for Kenya. Discussion Paper Series DP/48/2005, Published by the Kenya Institute for Public Policy Research and Analysis [20] Njeru B.N. (2013). The impact of foreign direct investment on economic growth in Kenya. [21] Obwona, M. (1999). “Foreign Direct Investments Growth Linkage and Institutional Constraints in Sub-Sahara Africa: A case of Uganda”. African Review of Money. [22] Owusu-Nantwi, V. (2019). Foreign direct investment and institutional quality: empirical evidence from South America. Journal of Economic and Administrative Sciences. [23] Quartey, P. (2010) Price Stability and the Growth-Maximizing rate of inflation for Ghana, Business and Economic Journal, Vol. 1, No. 1, pp. 180-194 [24] Rigobon R. & Rodrik D. (2004) “Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships.” NBER Working Papers, Vol 13(3), 533–564. [25] Rigova, S. (2018). The Impact of Foreign Direct Investment on Economic Growth: The Case of Selected European Countries (Doctoral dissertation, Webster University, Vienna). [26] Rodriguez F. & Rodrik D. (1999) “Trade policy and economic growth: a skeptic’s guide to the cross-national evidence.” NBER Working Paper 7081, Cambridge MA: National Bureau of Economic Research, p. 261-338. [27] Sattarov, K., Inflation and Economic Growth, analyzing the threshold level of inflation, case study of Finland 1980-2010, Umea Universitet, Master Thesis. [28] Sergii, P. (2009) Inflation and Economic Growth: The Non-Linear relationship. Evidence from CIS Countries, Kyiv School of Economics, Ukraine. [29] Sindre, R., (2011), The effects of foreign investment on the Ugandan economy: a case study of the impact of foreign direct investment in Uganda with an emphasis on employment, Universty of Adger, Master Thesis, [30] Shan, J. and Jianhong, Q. (2006). “Does Financial Development lead to Economic Growth? The case of China”, Annals of Economics and finance, 1: 231–250 [31] Rigova, S. (2018). The Impact of Foreign Direct Investment on Economic Growth: The Case of Selected European Countries (Doctoral dissertation, Webster University, Vienna). [32] Steve, L. (2016) Essays on the impact of foreign direct investment in Africa, HAL archives-ouverts [33] Tanggapan D., Geetha C., Mohidin R., and Vincent V., The relationsip between economicgrowth and foreign direct investment in Malaysia: analysis based on location advantage theory, International Journal of Economics and Management Sciences, Vol:1, No:2 2011, s.24- 31. [34] Tshipo S Masipa. (2018) The relationship between foreign direct investment andeconomic growth in South Africa: Vector eror correlation analysis: ActaCommer. vol.18 n.1 Johannesburg 2018. [35] Zeren, F., & Ari, A. (2013). Trade openness and economic growth: A panel causality test. International Journal of Business and Social Science, 4(9), 317-324 [36] Xiao, J., The Relationship between Inflation and Economic Growth of China: Empirical Study from 1978 to 2007. https://www.ceicdata.com/en/indicator/kenya/foreign-direct-investment https://www.trademarkea.com/news/kenya-trails-east-africa-economiesin- fdi-flow/ https://www.indexmundi.com/facts/burundi/foreign-direct-investment https://www.investburundi.com/fdi-in-burundi/ https://tradingeconomics.com/rwanda/foreign-direct-investment https://www.indexmundi.com/facts/tanzania/foreign-direct-investment https://www.indexmundi.com/facts/burundi/foreign-direct-investment https://www.indexmundi.com/facts/uganda/foreign-direct-investment

Effect Of Foreign Direct Investment And Financial Development On The Economic Growth In The East African Community

Year 2019, Volume: 5 Issue: 2, 83 - 105, 01.10.2019

Abstract

This study aimed to investigate the effect of foreign direct investment and financial development on the economic growth in the East African Community (EAC) using panel cross-sectional time-series data collected separately from 5 countries during the period from 1996 to 2015. The role of foreign direct investment (FDI) and financial development (FD) on the growth of an economy has been a topic of study for many researchers in several countries. A positive and negative impact of FDI and financial development has been found depending on countries or regions. A cross-sectional time-series regression analysis was used to measure the degree to which foreign direct investment, financial development, and economic growth are related to each other. The study investigated furthermore the relationship between trade openness, inflation and economic growth in the EAC. Using the Johansen cointegration model, we found between variables a long-run relationship. The study also found that all the variables are non-stationary at the level (0) form but have a unit root and are integrated at first difference I(1) by using the Augmented Dickey-Fuller unit root test for examining the stationarity of variables. The results of regression reveal that FDI has a negative effect on economic growth, it is found also that an increase or decrease in FDI does not generate economic growth in the countries of the EAC. Findings expose that economic growth is highly determined by domestic credit to the private sector, that the improvement of financial development can transform and generate economic growth in the countries of the EAC. The thesis finally revealed a positive and

References

  • [1] Akpansung, A. O. and Babalola, S. J. (2012). Banking Sector Credit and Economic Growth in Nigeria: An Empirical Investigation. CBNJournal of Applied Statistics, 2 (2):51 -62. [2] Alfaxard, K. G. (2013). Factors influencing strategy implementation among flower firms in Naivasha, Kenya. Unpublished MBA Thesis. [3] Anthony, O. (2012). Bank savings and bank credits in Nigeria: Determinants and impact on economic growth. International Journal of economics and financial issues, 2(3), 357-372. [4] Ayanwale, A.B. (2007). FDI and Economic Growth: Evidence from Nigeria, African. Economic Research Consortium Research, Paper 165. Nairobi. [5] Choong, Chee-Keong., Yusop, Zulkornain., Soo, Siew-Ohoo (2004). Foreign Direct Investment and Financial Sector Development: A Comparative Analysis. ASEAN Economic Bulletin. Retrieved on April 14, 2009 at http://goliath.ecnext.com/coms2/gi_0199-4433728/Foreigndirect- investment-economic-growth.html [6] Dey, M. K. and Flaherty, S. (2005), Stock Exchange Liquidity, Bank Credit, and Economic Growth. Paper presented at the Max Fry Conference on Finance and Development, University of Birmingham, The Business School University House, Birmingham B15 [7] Hermes, N., & Lensink, R. (2013). Financial development and economic growth: theory and experiences from developing countries. Routledge. [8] Edimealem, M. M. (2017) Financial integration, foreign direct investment and economic growth in the EAC: A panel dynamic modeling approach, Journal of economics and sustainable development Vol.9, No. 3, pp. 30-36 [9] Eshatuu W.S., Casuality between financial development and economic growth: empirical evidence from Ethiopia, Vol:7, No:19, 2016. [10] Gokal, V., and Hanif, S., Relationship between inflation and economic growth, Economics Department Reserve Bank of Fiji. [11] Granger, C. W. J. (1982). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. doi: 10.2307/1912791 [12] Gries, T., & Redlin, M. (2012). Trade openness and economic growth: A panel causality analysis. Centre for International Economics, Canberra, Australia Working paper series, no. 2011-06. [13] Hermes N., and Lensink R., (2003), Foreign direct investment, financial development and economic growth, vol. 40, issue 1, 142-163. [14] Malefane, M. R. and Odhiambo N. M., Impact of trade openness on economic growth: empirical evidence from South Africa, (2018), Unisa Economic Research Working Paper Series. [15] Mallik, G. and Chowdhury, A. (2011) Inflation and Economic Growth: Evidence from Four South Asian countries, Asian Pacific Development Journal, Vol. 8, No. 1, pp. 123-135. [16] Mamo, F. (2012). Economic Growth and Inflation: A panel data analysis. [17] Mumtaz, H. S. (2016). Financial development and foreign direct investment: the case of the Middle East and North Africa developing countries. MPRAPaper No: 82013 [18] Mutandwa, E., (2014), Foreing direct investment and Rwanda’s Economic Performance 1970-2011, Vol:6, No:17. [19] Ngugi W.R. & Nyangoro, O. (2005). Institutional Factors and Foreign Direct Investments Flows Implications for Kenya. Discussion Paper Series DP/48/2005, Published by the Kenya Institute for Public Policy Research and Analysis [20] Njeru B.N. (2013). The impact of foreign direct investment on economic growth in Kenya. [21] Obwona, M. (1999). “Foreign Direct Investments Growth Linkage and Institutional Constraints in Sub-Sahara Africa: A case of Uganda”. African Review of Money. [22] Owusu-Nantwi, V. (2019). Foreign direct investment and institutional quality: empirical evidence from South America. Journal of Economic and Administrative Sciences. [23] Quartey, P. (2010) Price Stability and the Growth-Maximizing rate of inflation for Ghana, Business and Economic Journal, Vol. 1, No. 1, pp. 180-194 [24] Rigobon R. & Rodrik D. (2004) “Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships.” NBER Working Papers, Vol 13(3), 533–564. [25] Rigova, S. (2018). The Impact of Foreign Direct Investment on Economic Growth: The Case of Selected European Countries (Doctoral dissertation, Webster University, Vienna). [26] Rodriguez F. & Rodrik D. (1999) “Trade policy and economic growth: a skeptic’s guide to the cross-national evidence.” NBER Working Paper 7081, Cambridge MA: National Bureau of Economic Research, p. 261-338. [27] Sattarov, K., Inflation and Economic Growth, analyzing the threshold level of inflation, case study of Finland 1980-2010, Umea Universitet, Master Thesis. [28] Sergii, P. (2009) Inflation and Economic Growth: The Non-Linear relationship. Evidence from CIS Countries, Kyiv School of Economics, Ukraine. [29] Sindre, R., (2011), The effects of foreign investment on the Ugandan economy: a case study of the impact of foreign direct investment in Uganda with an emphasis on employment, Universty of Adger, Master Thesis, [30] Shan, J. and Jianhong, Q. (2006). “Does Financial Development lead to Economic Growth? The case of China”, Annals of Economics and finance, 1: 231–250 [31] Rigova, S. (2018). The Impact of Foreign Direct Investment on Economic Growth: The Case of Selected European Countries (Doctoral dissertation, Webster University, Vienna). [32] Steve, L. (2016) Essays on the impact of foreign direct investment in Africa, HAL archives-ouverts [33] Tanggapan D., Geetha C., Mohidin R., and Vincent V., The relationsip between economicgrowth and foreign direct investment in Malaysia: analysis based on location advantage theory, International Journal of Economics and Management Sciences, Vol:1, No:2 2011, s.24- 31. [34] Tshipo S Masipa. (2018) The relationship between foreign direct investment andeconomic growth in South Africa: Vector eror correlation analysis: ActaCommer. vol.18 n.1 Johannesburg 2018. [35] Zeren, F., & Ari, A. (2013). Trade openness and economic growth: A panel causality test. International Journal of Business and Social Science, 4(9), 317-324 [36] Xiao, J., The Relationship between Inflation and Economic Growth of China: Empirical Study from 1978 to 2007. https://www.ceicdata.com/en/indicator/kenya/foreign-direct-investment https://www.trademarkea.com/news/kenya-trails-east-africa-economiesin- fdi-flow/ https://www.indexmundi.com/facts/burundi/foreign-direct-investment https://www.investburundi.com/fdi-in-burundi/ https://tradingeconomics.com/rwanda/foreign-direct-investment https://www.indexmundi.com/facts/tanzania/foreign-direct-investment https://www.indexmundi.com/facts/burundi/foreign-direct-investment https://www.indexmundi.com/facts/uganda/foreign-direct-investment
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Details

Primary Language English
Subjects Economics
Journal Section Research Article
Authors

Ahmet Sedat Aybar This is me

Niyimba Joyce This is me

Publication Date October 1, 2019
Published in Issue Year 2019 Volume: 5 Issue: 2

Cite

APA Aybar, A. S., & Joyce, N. (2019). Effect Of Foreign Direct Investment And Financial Development On The Economic Growth In The East African Community. Florya Chronicles of Political Economy, 5(2), 83-105.


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