Empirical Analysis of Foreign Direct Investment on Economic Growth: Evidence from the East African Community

Öz

This paper empirically examines the impact of foreign direct investment on economic growth in the East Africa Community throughout 1970-2017. The study used Pedroni test of cointegration for testing long-run relationship and VECM to inspect the long- run and short-run Granger causality between FDI and economic growth. The paper confirmed the integration of order one among the variables at the first difference. The results from Pedroni cointegration and VECM found that FDI is statistically significant and positively associated to economic growth in East Africa Community country members. The gross capital formation also is affirmative and statistically noteworthy connected to economic progress in the region, while inflation and Population growth were found as statistically significant and negatively correlated with economic, and thus, government final consumption expenditure and trade respectively are negatively and positively statistically insignificant. The VECM Granger causality exploration discovered the bi-directional Granger causality between GDP per capita and population growth rate; FDI and population growth rate, and gross capital formation and population growth. As well, unidirectional Granger causality was found among some variables. On the policy perspective, the study recommended the EAC members to strengthen the foreign direct investment policy through inducements to investors, availability of basic infrastructure, and establishment of the better macroeconomic environment.

Anahtar Kelimeler

• FDI
• Economic growth
• East African Community
• Padroni Cointegration
• VECM

Kaynakça

1. Adams, S. (2009). Can foreign direct investment ( FDI ) help to promote growth in Africa ? African Journal of Business Management, 3(5), 178–183. https://doi.org/10.5897/AJBM09.001
2. Adel Shekeeb Mohsen; Soo Y. Chua. (2015). Effects of Trade Openness, Investment and Population on the Economic Growth: A Case Study of Syria. Hyperion Economic Journal, 3(2), 14–23.
3. Adeyeye, O. D. A. O. P., & Olawumi. (2016). “ Impact of foreign direct investment on economic growth in Africa .” Problems and Perspectives in Management, 14(2–2), 289–297. https://doi.org/10.21511/ppm.14(2-2).2016.04
4. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112. https://doi.org/10.1016/S0022-1996(03)00081-3
5. Alguacil, M., Cuadros, A., & Orts, V. (2011). Inward FDI and growth: The role of macroeconomic and institutional environment. Journal of Policy Modeling, 33(3), 481–496. https://doi.org/10.1016/j.jpolmod.2010.12.004
6. Ang, J. B. (2009). Foreign direct investment and its impact on the Thai economy: the role of financial development. Journal of Economics and Finance, 33, 316–323. https://doi.org/10.1007/s12197-008-9042-6
7. Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign Direct Investment and Growth in EP and is Countries. The Economic Journal, 106(434), 92–105. https://doi.org/10.2307/2234933
8. Barro, R. J. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal OfEconomics, 106(2), 407–443.

9. Bellak, C., & Leibrecht, M. (2016). The Use of Investment Incentives: The Cases of R&D-Related Incentives and International Investment Agreements. In: Tavares-Lehmann, A., Toledano, P., Johnson, L. and Sachs, L. (Eds.) Rethinking Investment Incentives: Trends and Policy Options. Columbia University Press, New York, Pp. 63-93. ISBN 9780231172981. https://doi.org/10.7312/tava17298-005
10. Belloumi, M. (2014). The relationship between trade, FDI and economic growth in Tunisia: An application of the autoregressive distributed lag model. Economic Systems, 38(2), 269–287. https://doi.org/10.1016/j.ecosys.2013.09.002
11. Carkovic, M., & Levine, R. E. (2002). Does Foreign Direct Investment Accelerate Economic Growth? SSRN Electronic Journal, 195–220. https://doi.org/10.2139/ssrn.314924
12. Dickey, D. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366a), 427–431.
13. E. Borensztein , J. De Gregorio, J.-W. L. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45, 115–135. https://doi.org/10.1080/10978526.2010.486715
14. EAC[EAST AFRICAN COMMUNITY]. (2011). EAC Development Strategy ( 2011 / 12 – 2015 / 16 ) Deepening And Accelerating Integration One People , One Destiny. Enders, W. (2004). Applied Econometric Time Series, 2nd edition. Wiley & Son Inc: Hoboken, New Jersey, USA.
15. Gideon Kiguru Thuku, Gachanja Paul, O. A. (2016). The Impact of Population Change on Economic Growth in Kenya. International Journal of Economics and Management Sciences, 2(6), 43–60. https://doi.org/http://dx.doi.org/10.1108/09564230910978511
16. GRANGER, C. W. J., & NEWBOLD, P. (1974). Spurious Regressions in Econometrics. Journal of Econometrics, 2, 111–120. https://doi.org/10.1002/9780470996249.ch27
17. Gunby, P., Jin, Y., & Robert Reed, W. (2017). Did FDI Really Cause Chinese Economic Growth? A Meta-Analysis. World Development, 90, 242–255. https://doi.org/10.1016/j.worlddev.2016.10.001
18. Herzer, D., Nowak-Lehmann, F. D., & Siliverstovs, B. (2006). Export-led growth in Chile: Assessing the role of export composition in productivity growth. The Developing Economies, 44(3), 306–328. https://doi.org/10.1111/j.1746-1049.2006.00019.x
19. Iamsiraroj, S. (2016). The foreign direct investment-economic growth nexus. International Review of Economics and Finance, 42, 116–133. https://doi.org/10.1016/j.iref.2015.10.044
20. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74. https://doi.org/10.1016/S0304-4076(03)00092-7
21. IMF [International Monetary Fund]. (2016). World Economic Outlook: Subdued Demand: Symptoms and Remedies. Washington, D.C.
22. Jorge Garza-Rodriguez, Cecilia I. Andrade-Velasco, Francisco D. Renteria-Rodriguez, Karen D. Martinez-Silva, P. A. V.-C. (2016). The relationship between population growth and economic growth in Mexico. Economics Bulletin, 36(1), 1–13.
23. Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90, 1–44.
24. Kevin Honglin Zhang. (2001). Does Foreign Direct Investment Promote Economic Growth? Evidence from East Asia and Latin America. Contemporary Economic Policy, 19(2), 175–185. https://doi.org/10.1111/j.1465-7287.2001.tb00059.x
25. Kizilkaya, O., Ay, A., & Akar, G. (2016). Dynamic relationship among foreign direct investments, human capital, economic freedom and economic growth: Evidence from panel cointegration and panel causality analysis. Theoretical and Applied Economics, XXIII(3608), 127–140.
26. Laura Alfaro, Areendam Chanda, Sebnem Kalemli-Ozcan, S. S. (2003). FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics, 713–743.
27. Levin Andrew, Chien-Fu Lin, C.-S. J. C. (2002). Unit root tests in panel data:asymptotic and "nite-sample properties. Journal of Econometrics, 108, 1–24. https://doi.org/10.1097/00000441-191105000-00057
28. Liu, L., & Li, W. (2017). The relation between population and economic development based on empirical research on dynamic VEC model in Xinjiang, 32(14), 206–215.
29. Liu, X., Burridge, P., & Sinclair, P. J. N. (2002). Relationships between economic growth, foreign direct investment and trade: Evidence from China. Applied Economics, 34(11), 1433–1440. https://doi.org/10.1080/00036840110100835
30. Magnus Blomstrom, Robert E. Lipsey, M. Z. (1992). What Explains Developing Country Growth (No. Working Paper No.4132). National Bureau of Economic Research, Cambridge, MA 02138.
31. Mah, J. S. (2010). Foreign direct investment inflows and economic growth of China. Journal of Policy Modeling, 32, 155–158. https://doi.org/10.1016/j.jpolmod.2009.09.001
32. Mamingi, N., & Martin, K. (2018). Foreign direct investment and growth in developing countries: Evidence from the countries of the Organisation of Eastern Caribbean States. CEPAL Review, (124), 79–98. https://doi.org/10.18356/e270b670-en
33. Masipa, T. S. (2018). The relationship between foreign direct investment and economic growth in South Africa : Vector error correction analysis. Acta Commercii, 18(1), 1–8. https://doi.org/doi.org/10.4102/ ac.v18i1.466
34. Mehic, E., Silajdzic, S., & Babic-Hodovic, V. (2013). The Impact of FDI on Economic Growth: Some Evidence from Southeast Europe. Emerging Markets Finance and Trade, 49(sup1), 5–20. https://doi.org/10.2753/ree1540-496x4901s101
35. Mounir Belloumi, Atef, A. (2018). The Impacts of Domestic and Foreign Direct Investments on Economic Growth in Saudi Arabia. Economies, 1–17. https://doi.org/10.3390/economies6010018
36. Naguib, R. I. (2012). The effects of privatisation and Foreign Direct Investment on economic growth in Argentina. The Journal of International Trade & Economic Development : An International and Comparative Review, 21(1), 51–82. https://doi.org/10.1080/09638199.2012.643014
37. Nicet-Chenaf, D., & Rougier, E. (2009). FDI and growth: A new look at a still puzzling issue.
38. Olawumi D. Awolusi, Olufemi P. Adeyeye, T. G. P. (2017). Foreign direct investment and economic growth in Africa : A comparative analysis. Int. J. Sustainable Economy, 9(3), 183–198. https://doi.org/10.1504/IJSE.2017.085062
39. Onyebuchi Asogwa and Manasseh Charles Osondu. (2014). The impact of Foreign Direct Investment on Economic Growth in Niger. IOSR Journal of Economics and Finance, 3(5), 37–45. https://doi.org/10.9790/5933-0802032833
40. Ozturk, I. (2007). Foreign Direct Investment – Growht Nexus: A Review of The Recent Literature. International Journal of Applied Econometrics and Quantitative Studies, 4(2), 79–98.
41. Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61, 653–670.
42. Pedroni, P. (2000). Fully Modified OLS for Heterogeneous Cointegrated Panels. Advances in Econometrics, 15, 93–130.
43. Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20(3), 597–625. https://doi.org/10.1017/S0266466604203073
44. Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124–132. https://doi.org/10.1016/j.jeca.2015.05.001
45. Penev, S., & Marusic, A. (2014). Attractiveness of East African Community (EAC) for Foreign Direct Investment. Economic Analysis, 47, 35–49.
46. Perron, P., & Phillips, P. C. B. (1988). Testing for a Unit Root in a Time Series Regression. Biometrika, 75(2), 335–346. https://doi.org/10.1080/07350015.1992.10509923
47. Peterson, E. W. F. (2017). The role of population in economic growth. SAGE Open, 1–15. https://doi.org/10.1177/2158244017736094
48. Philip Alege and Adeyemi Ogundipe. (2013). Sustaining Economic Development of West African Countries: A System GMM Panel Approach. MPRA Paper No. 51702. Covenant University, Ota, Ogun State. Nigeria.
49. Sakyi, D., & Egyir, J. (2017). Effects of trade and FDI on economic growth in Africa : an empirical investigation. Transnational Corporations Review. https://doi.org/10.1080/19186444.2017.1326717
50. Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65–94.
51. Soltani, H., & Ochi, A. (2012). Foreign Direct Investment (FDI) and Economic Growth: an approach in terms of cointegration for the case of Tunisia. Journal of Applied Finance & Banking, 2(4), 193–207.
52. Stmatiou & Dritsakis. (2013). A Causal Relationship between Exports , Foreign Direct Investment and Economic Growth for five European countries . A panel data. Presented at the 12th annual EEFS conference, Berlin, Germany, 20–23 June. https://doi.org/10.13140/2.1.5080.0329
53. Syed Zia Abbas Rizvi & Muhammad N. (2009). The Impact of Foreign Direct Investment on Employment Opportunities : Panel Data Analysis : Empirical Evidence from Pakistan, India and China. The Pakistan Development Review, 48, 841–851. https://doi.org/10.30541/v48i4IIpp.841-851
54. Tsaurai, K., Odhiambo, M. N. (2012). Foreign direct investment and economic growth in Zimbabwe : a dynamic causality test. Int. J. Economic Policy in Emerging Economies, 5(2).
55. Tsen, W. H., & Furuoka, F. (2005). The Relationship between Population and Economic Growth in Asian Economies. Asean Economic Bulletin, 22(3), 314–330. https://doi.org/10.1355/ae22-3e
56. UNCTAD. (2015). World Investement Report 2015: Reforming International Investment Governance. New York and Geneva. United Nations, Geneva.
57. UNCTAD. (2018). World Investment Report 2018. Investment and new industrial policies. United Nations Publications, Geneva. https://doi.org/10.18356/a1e0466b-en
58. Uneze, E. (2013). The relation between capital formation and economic growth: Evidence from sub-Saharan African countries. Journal of Economic Policy Reform, 16(3), 272–286. https://doi.org/10.1080/17487870.2013.799916
59. Victor Owusu-Nantwi; Christopher Erickson. (2017). Foreign Direct Investment and Economic Growth in South America. Journal of Social Economics. https://doi.org/10.1108/ijse.2006.00633baa.001
60. Xinfeng Yan, Majagaiya, K. P. (2011). Relationship between Foreign Direct Investment and Economic Growth Case Study of Nepal. International Journal of Business and Management, 6(6), 242–246. https://doi.org/10.5539/ijbm.v6n6p242
61. Xinshen Diao, Margaret McMillan, D. R. (2017). The Recent Growth Boom in Developing Economies : A Structural-Change Perspective. Working Paper. Cambridge, MA: National Bureau of Economic Research; World Bank Economic Review.
62. Zekarias, S. M. (2016). The Impact of Foreign Direct Investment ( FDI ) on Economic Growth in Eastern Africa : Evidence from Panel Data Analysis. Applied Economics and Finance, 3(1), 145–160. https://doi.org/10.11114/aef.v3i1.1317