The Impact of Domestic and Direct Foreign Investment on the Economic Growth in Sudan: Evidence from Granger Causality and VAR Framework

Abstract

The Impact of Domestic and Direct Foreign Investment on the Economic Growth in Sudan: Evidence from Granger Causality and VAR Framework Dr. Musa Albur Abstract Foreign Direct Investment and Domestic Investment provide a crucial basis for economic development of any country. This study examines the causes and impacts of Real Gross Domestic Product (RGDP), Real Domestic Investment (DI) and Real Foreign Direct Investment (FDI) in Sudan for the period from 1990 to 2011.The importance of this study stems from the vital role of investment (domestic and foreign) in the development process through enhancing economic growth, improving infrastructure and achieving welfare. This study adopted Vector Autoregressive Model and Granger Causality Test (1969). The study depended on secondary data collected from Central Bank of Sudan and Central Bureau of Statistics. Our empirical evidence suggests that the causality directions running positively in the period (1990-2011). There is unidirectional causality of Foreign Direct Investment (FDI) to Real Gross Domestic Product (RGDP), from Real Gross Domestic Product (RGDP) to Foreign Direct Investment (FDI), from Domestic Investment (DI) to Real Gross Domestic Product (RGDP), from real gross domestic product (RGDP) to domestic investment (DI), from foreign direct investment (FDI) to domestic investment (DI), and from domestic investment (DI) to foreign direct investment (FDI). Granger causality results show that there are no statistically significant implications of the independence causality relationship between Domestic Investment( DI) and Real Gross Domestic Product (RGDP), Real Gross Domestic Product(RGDP) to Domestic Investment( DI), Foreign Direct Investment (FDI) ) to Real Gross Domestic Product (RGDP), Real Gross Domestic Product (RGDP) to Foreign Direct Investment (FDI), Foreign Direct Investment (FDI) ) to Domestic Investment(DI), and Domestic Investment ( DI) to Foreign Direct Investment(FDI). The VAR estimation shows that the coefficients of lagged RGDP significant in the regression of the RGDP, the coefficients of lagged DI significant in the regression of the DI and FDI, the coefficients of lagged DI insignificant in the regression of the RGDP, and the coefficients of lagged FDI insignificant in the regression of the RGDP.The study recommends raising more real financial resources for the purpose of investing in economic and social infrastructure as well as in oil exploration. Industrialization is highly recommended for import substitution purpose and for increasing the value added for Sudan's exports to benefit more from international trade. These require encouraging domestic saving, attraction of foreign funds to supplement the domestic component, strengthening foreign relations, and facilitating the investment procedures and thus achieving economic growth in the country. Full Text: PDF DOI: 10.15640/jeds.v7n4a9