The Effect of Financial Crises on Growth and FDI in some African Countries: A Panel VECM Approach

Mary O Oche,Gisele Mah,Yohane Khamfula

doi:10.6000/1929-7092.2019.08.114

Abstract

This study investigates the effects of financial crises on economic growth and foreign direct investment in some African countries. A panel vector error correction model is used for the analysis of annual time series data for the period 1994 to 2014. From economic growth model, in the long run, it is observed that gross domestic product per capita is positively influenced by investment, trade and foreign direct investment; with investment and trade being statistically significant. Gross domestic product per capita has a negative significant relationship with real effective exchange rate. On the other hand, in the long run, the investment model shows that investment has a significant positive relationship with both gross domestic product per capita and investment; while it has a negative significant relationship with real effective exchange rate and trade. Also observed from the results is that financial crisis has a negative relationship with both economic growth and foreign direct investment. This study recommends more openness of the economy so as to promote both economic growth and inflow of foreign direct investment in countries. It also recommends the need to encourage more gross fixed capital formation in order to promote both economic growth and foreign direct investment.

Highlights

Since the early 1980s, the global economy has witnessed a number of financial crises
This study employed the Fisher- Johansen panel cointegration test and the results for both models 1 and 2 are presented in Table 2a and 2b, respectively, as shown below: In Table 2a below, both Trace test and Max-eigen test statistics indicate that there are at most four cointegrating equations at 5% significance level for the growth model, and from Table 2b, Trace test identifies at most four cointegrating equations while max-eigen test found at most three cointegrating equations for the foreign direct investment (FDI) model
This study investigates the effect of financial crisis on both economic growth and FDI in the BRICS countries

Summary

Introduction

Since the early 1980s, the global economy has witnessed a number of financial crises. The main objective of this study is to build macro-econometric models that are capable of explaining the growth and inflow of FDI in the economies of some African countries with specific interest in the impact of financial crisis on economic growth and FDI in these economies. The study uses a panel data set to analyse the effects of financial crises on economic growth and foreign direct investment for the period 1994 – 2014. This study is the only one that simultaneously examines the impact of financial crisis on both economic growth and FDI by building two econometric models that will help to capture the effects of the financial crisis variable

Objectives

Results

Conclusion