The nexus between key macroeconomic determinants and economic growth in Zambia: a dynamic multivariate Granger causality linkage

Abstract

This study investigates the nexus between key macroeconomic determinants and economic growth in Zambia by employing the Autoregressive Distributed Lag model to test for Granger causality covering the period 1970–2015. The empirical results reveal that there are three distinct Granger causality hypotheses that exist in Zambia related to economic growth. The dominant hypothesis is the feedback hypothesis between investment, population growth, foreign aid and economic growth both in the short- and long-run; between real exchange rate, trade openness and economic growth in the short-run; and between government consumption, inflation and economic growth in the long-run. The second is the supply-leading hypothesis that runs from government consumption, and inflation to economic growth in the short-run; and from real exchange rate, and trade openness to economic growth in the long-run. Lastly, the neutrality hypothesis holds between human capital and economic growth in the short-run. These results have significant policy implications for the Zambian economy. They imply that the authorities should focus on promoting economic incentives that encourage the growth of real GDP per capita and investment, improve the quality of human capital, trade reforms, population control, macroeconomic stability, and the effectiveness of foreign aid.