Abstract
In this paper, we investigate the linkage between FDI and economic growth using macro econometric model in the Ghanaian context. Structural shocks in an SVAR model were used to identify the contemporaneous and short run relationships effects of these variables. The AB model restriction approach was used for the Identification and was compared to the Cholesky decomposition. We showed that, there exit a contemporaneous short run positive effects of FDI inflows on GDP growth but as the time horizon expands these effects tend to converge to the equilibrium, however FDI’s deteriorate domestic investment.
Highlights
The economic progress of countries depends to a large extent on the opportunity of making profitable investments and accumulating capital
In this paper, we investigate the linkage between foreign direct investment (FDI) and economic growth using macro econometric model in the Ghanaian context
There exit a contemporaneous short run positive effects of FDI inflows on GDP growth but as the time horizon expands these effects tend to converge to the equilibrium, FDI’s deteriorate domestic investment
Summary
The economic progress of countries depends to a large extent on the opportunity of making profitable investments and accumulating capital. There is a widespread belief that foreign direct investment (FDI) enhances the productivity of host countries and promotes economic development. We identify the contemporaneous and short run relationships effects of these variables using Structural shocks in an SVAR model. Market size, trade policy regime followed by host countries development policies influences significantly both the amount of inward FDI received by recipient countries and the impact of foreign direct investment on growth. Baba Insah (2013) investigated the relationship between economic growth and FDI inflows using Dynamic Ordinary Least Squares (DOLS) technique. Under the VAR model methodologies, the relationships of the variables were determined with their optimal lag length effects. AB model by Amisano and Giannini is obtained by multiplying (7) by and assuming that
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