The relationship between foreign direct investment and economic growth: A multivariate causality approach from Namibia

Abstract

AbstractThe paper empirically investigates the short and long‐run causal relationship between foreign direct investments, credit to the private sector, trade openness, gross national expenditure and economic growth in Namibia. In doing this, the paper employs multivariate Granger‐causality within an Auto‐regression distributed lag‐bounds approach to co‐integration and unrestricted error correction model. The paper finds a strong bi‐directional causal relationship between FDI inflow and economic growth both in the short and the long run. Suggesting that FDI inflow spurs economic growth and economic growth promotes FDI inflow and also, FDI inflow, credit to the private international trade and national expenditure spur economic growth both in the short and the long runs in Namibia. The policy implication therefore is to provide incentives for private sector innovation and production away from the export and import sector.