Gross Fixed Capital Formation Research Articles

Urbanization as a catalyst for structural transformation in developing countries: The mediating impact of foreign direct investment

This article analyzes the link between urbanization and the process of structural transformation (ST) in developing countries, taking into account the mediating role that FDI can play. We use secondary data from 2000 to 2023 to determine if FDI positively or negatively influences the ST process in these countries, thereby, altering urbanization patterns. By estimating the Generalized Method of Moments (GMM), the study explores the relationship between urbanization, the ST process, and the mediating role played by FDI. In addition, it takes into account control variables such as gross fixed capital formation (GFCF), gross domestic product per capita (GDPPC), and diversification of production structure (DPS) to analyze their effect on urbanization and, more specifically, on the ST process. The econometric results showed a negative correlation between FDI flows and urbanization, demonstrating that FDI could hinder the success of the ST process in developing countries. On the contrary, econometric results showed that the control variables, GFCF, GDPPC, and DPS, positively influence urbanization in developing countries, indicating that these variables are more conducive to a successful ST process than FDI. Based on the econometric results, policymakers in developing countries are called upon to strengthen urbanization in these countries, by encouraging local investment and the diversification and sophistication of production and export structures, rather than relying solely on FDI. Over the period studied, FDI has not contributed as expected to advancing the urbanization process, a crucial element in the ST process in developing countries.

Macroeconomic Impact of Value Added Tax in Nepal: A 2SLS and 3SLS Approach

The study’s aim to evaluate the impact of VAT on macroeconomic variables (TCON, GDP, Import (M) and GOVEXP) and the reverse effects of Macro variables on VAT. This study included macroeconomic development variables such as GDP, GDP (-1), VAT, remittance (REM), total consumption (TCON), export (X), import (M), gross fixed capital formation (GFCF), bank rate (BRATE), trade openness (TOPEN), government expenditure (GOVEXP) and one period lagged government expenditure (GOVEXP (-1)). However, this study has been enhanced over previous analyses by incorporating 45 years of nominal data from 1974/1975 to 2018/19. It examines the connection between VAT and significant macroeconomic variables such as GDP, GDP (-1), REM TCON, X, M, GFCF, BRATE, TOPEN, GOVEXP and GOVEXP (-1). To address the challenges of simultaneous equation bias and inconsistent findings, this study utilized the two-stage least squares (2SLS) and three-stage least squares (3SLS) methodologies to assess the impact of VAT on macroeconomic variables. The findings of the study are that value-added tax (VAT) negatively impacts TCON. VAT positively and significantly impacts on GDP, import(M), and GOVEXP. The study revealed that while TOPEN negatively affected Nepal’s GDP, GOVEXP, GFCF, and X had a significant and positive influence on GDP.

An eco-efficient European metal industry transition towards Circular Economy

The European metal industry can minimize carbon and energy intensity through Circular Economy (CE) solutions in order to achieve the Agendas’ 2030; 2050 targets. This paper evaluates the eco-efficiency in 21 European countries using hybrid window data envelopment analysis (WDEA) across two scenarios. The study compares short- and a meso-term policies by choosing different window widths. Inputs include gross fixed capital formation (GFCF), labor force, and energy intensity value added, with value added as desirable output and carbon intensity value added as undesirable output. Results show that the meso-term policy yields an average eco-efficiency of 47%, while the short-term policy achieves 55%, suggesting that short-term strategies are more effective for the metal industry in reaching the Net-Zero goals. Geographically, Western and Northern Europe exhibit better eco-efficiency than Eastern and Southern Europe. In essence, the European metal industry can reach a Net-Zero status through deep CE transformations in energy and carbon intensity via cleaner production.

Shift in the Importance of Consumption of Professional Services and Investments (GFCF) for Manufacturing Industries by R&D Intensity in Advanced Economies

The research revealed and analysed a trend, between 1995-2020, of a declining gross fixed capital formation (GFCF) to domestic value added in gross exports (DVA in Gross exports) ratio in manufacturing industries for most Advanced Economies, which occurred on the backdrop of increasing of intermediate consumption of professional services. Our model proves the partial substitution of GFCF with intermediate consumption of professional services in Advanced Economies due to the change of production operating model (value chain management in manufacturing industries), which is evidenced by high influence of the combined factor on the DVA in Gross exports. This substitution facilitates the upgrading of value chain by creation of backward and forward linkages for manufacturing industries, depending on their R&D intensity. Systemic and long-term nature of changes may reflect potential paradigm shift in Advanced Economies' production operating models.

A Panel Data Analysis on the Relationship between Financial Development and Economic Growth: The Case of Asian Countries

The causal relationship between economic growth and financial development is crucial for the dynamics of economic growth and the financial background it generates. However, doubts about the shape of the relationship may lead to indecision in the economic policies to be implemented. The aim of this study is to analyze and provide evidence on the relationship between the two variables in order to overcome this ambivalence. In this panel data analysis of 24 Asian countries covering the 2000-2020 period, firstly Cross-sectionally Augmented Dickey-Fuller (CADF) Unit Root Test, one of the second-generation unit root tests, and then Dumitrescu & Hurlin (2012) Panel Z_NT causality tests were applied. According to the causality test results, there is a bidirectional relationship between GDP and financial development. In addition, gross fixed capital formation (GFCF), which is included in the model as a control variable, is also found to have a bidirectional relationship with both variables. Thus, the evidence supporting the interaction view that combines supply and demand side theories reveals the importance of taking both variables into account in economic policy decisions.

Evaluating the Effectiveness of Investment in Boosting South Africa’s Economic Growth: A Comparative Analysis across Different Administrations

South Africa’s economic growth has been slow since the 1980s due to inefficiencies in the manufacturing, mining and quarrying, ICT, electricity, gas, and water sectors. This article uses the theoretical framework and growth rates to identify key reasons for this slowdown. Key issues include inefficiencies within the gross fixed capital formation (GFCF) and inadequate infrastructure, primarily due to government behavior. This article used secondary data to perform the desktop analysis. To promote economic growth, the South African government and allied stakeholders should consider increasing investments in public infrastructure and financing research and development. This article argues that economic growth is driven by government expenditure, easy access to financing, and technological advancements. To promote economic growth, a comprehensive approach is needed, including tax breaks, loan guarantees, and pro-business legislation.

Impacts of Capital Formation and Investment Sources on Total Factor Productivity: The Example of Nigeria’s Agriculture

The study was designed to analyse the impact of capital formation and investment sources on Nigeria's agricultural productivity from the period 1980 - 2021. The time series data were analysed with Malmquist Data Envelopment Analysis (DEA) and the tobit regression models using DEA, the Total Factor Productivity Change, which quantifies the degree of productivity, was estimated at 1.022, which implies an average productivity progress of 2.2% annually. Again, since the value of technical efficiency change is less than technological change, it implies that the productivity gains are mainly attributable to technological progress instead of efficiency improvements in the periods under the study. The results of tobit regression indicate that domestic capital formation significantly influences agricultural TFP, highlighting the importance of government expenditure on agriculture (GEA) and gross fixed capital formation (GFCF) in enhancing productivity, although with minimal effects. Human capital formation (HCF) also showed positive impacts on Total Factor Productivity TFP, suggesting that improvements in workforce skills and knowledge are crucial for agricultural efficiency. However, FDI exhibited no significant correlation with TFP, implying that local investments are more beneficial than foreign aids in the context of Nigeria's agricultural sector. The findings emphasize the need for robust policy frameworks that align capital disbursements with agricultural production periods to optimize TFP. This study contributes to the discourse on agricultural productivity by providing empirical evidence on the critical role of capital investments in enhancing TFP within developing economies like Nigeria.

Towards A Debt-Overhanged Economy: Causes and Consequences for the Economy of Pakistan

The reliance on debt is not only essential but also a key factor in economic growth of poor countries like Pakistan because of a meager tax base and an annuity of fiscal deficit. Trade surplus is a common tool that covers the budget deficit but twin deficit makes the economic conditions worst. The excessive borrowing can stimulate the economic cycle in the short run but in the in the long-run it creates the issues of debt-overhang. This timely study is an attempt to investigate the short-run and long-run dynamics of debt on the economy of Pakistan. The empirical results (ARDL co-integration) suggests that long-run relationships exist among the variables under consideration such as Exports and Remittances have negative effects on debt, while other variables have positive effects. The Error-Correction-Model (ECM) analysis indicates mean-reverting behavior, where the dependent variable returns to its long-run equilibrium. Post-estimation tests support the model's assumptions. The Jarque–Bera test shows that residuals exhibit normal distribution. CUSUM and CUSUMsq tests indicate reliability and stability of the regression model. There is a long-run relationship between exports of goods and services (EGS), imports of goods and services (IGS), gross fixed capital formation (GFCF), net official development assistance (NOD), personal remittances (PRR), and debt in Pakistan. In the long-run, Exports of goods and services have a negative impact, Imports of goods and services have a significantly positive impact, Gross fixed capital formation has a positive impact, Net official development assistance has a positive impact, Personal remittances have a negative impact on debt respectively. However, Trade as a percentage of GDP has an insignificant impact on debt in the long run. The study also found that the impact of each variable on Debt is different in the short run. Overall, the study provides valuable insights into the factors that affect Debt in Pakistan.

The Effect of Capital Market on Industrial Development of Nigeria

The study examined the effect of capital market on industrial development in Nigeria for the period of 33 years spanning from 1990-2022. The independent variable employed in study are; market capitalization (MCAP), Industrial loan (INDL), Total volume (TV) and GFCF (Gross fixed capital formation), and industrial development proxy Industrial Output (INDOPT). Data were collected from the CBN Statistical Bulletin and World Bank data for 1990-2022. Data set was described using descriptive statistics, correlation analysis ARDL with the help of E-VIEW version 9.0. The study concluded that MCAP, TV have significant relationship with INDOPT both on the short & long run respectively, meanwhile GFCF has significant relationship with INDOPT only on the long run. The study thereby recommends that positive impact of total volumes calls for proper policies to be implemented so as to attract more investors to invest in the market. There is also need to relax some stringent registration and operating procedures to enable more people and organizations to participate in the market. There is also need to institute policies that will further increase the value of market transaction in the market.

Capital Market and Economic Growth in Nigeria

In spite of its expected role of bridging the saving and investment gap for economic growth, the impact of the Nigerian capital market on the growth of the economy remains unclear. This study looked at the influence of the capital market on economic growth in Nigeria between 1981 and 2022, using vector autoregressive (VAR) analysis. The variables used included: real gross domestic product (RGDP), market capitalization (MCAP), total value of securities traded (TVST), and gross fixed capital formation (GFCF). The study concluded that while RGDP and MCAP influenced their own outcome as well as the outcome of other variables positively in both the short and long run, TVST and GFCF influenced their own outcome as well as the outcome of other variables negatively in both the short and long run, using the VAR system tools of impulse response function and forecast error variance decomposition. Based on the findings of this study, we recommended among others the urgent need to boost the perception of local firms listed in the Nigerian stock exchange both locally and internationally in terms of the total value of their corporate assets and performance measured by price-to-earnings, price-to-sales and return-on-equity metrics. This can be improved upon when these firms are able to increase the quality of their products and services thereby making them better competitors in the global space.

Dynamic Analysis of Environmental Degradation and Economic Activities in the Asia-Pacific Region

Economic growth is crucial for assessing a country's economic success, measured by its per capita income increase over time, primarily through Gross Domestic Product (GDP). This study investigates the impact of Gross Fixed Capital Formation (GFCF), energy consumption, CO2 emissions, and renewable energy on economic growth in the Asia-Pacific region from 2016 to 2021. Using the Difference Generalized Method of Moments (Difference GMM) and Stata 14, the findings show that GFCF positively influences economic growth in developing countries but not significantly in developed ones. Energy consumption positively affects economic growth in developing countries, but not in developed ones. CO2 emissions have no significant impact on economic growth. Renewable energy negatively affects economic growth in developing countries, while its impact is insignificant in developed ones.

Green Energy Pathways Towards Carbon Neutrality

Trying to reach carbon neutrality is by no means plain sailing in times of energy crisis, price volatility, and war. The European Green Deal (EGD) prioritizes green pathways, but it is not enough when it copes with greenhouse gases (GHGs). The present research utilizes the Malmquist–Luenberger productivity index (MLPI) to estimate advancements in total factor productivity (TFP) in the European Union (EU). The study uses panel data from 1995 to 2019, in addition, there is comparison between two periods: 1995 – 1996 and 2018 – 2019, would provide important information about TFP progress or recession during a turbulent European era. Two MLPI models are applied, one that utilizes only non-renewable energy sources (NRES), while the other adopts renewable energy sources (RES). Encompassing inputs such as: electricity generation, labour force, and gross fixed capital formation (GFCF); desirable output: gross domestic product; and undesirable outputs: carbon dioxide (CO2) and methane (CH4). There is average productivity progress, more specifically the MLPI average productivity for NRES and RES is 2.14% and 7.34% respectively, meaning that the RES adoption leads to greater productivity performance by almost three times. This novel analysis might offer useful and practical information to policymakers through the measuring of TFP in order to effectively attain and accomplish carbon neutrality objectives.

The Relationship between Electricity Consumption and Economic Growth in BRICS Countries

This study analyzed the Gross Domestic Product (GDP) determinants in Brazil, Russia, India, China, and South Africa (BRICS). The method used in this study is a Fully Modified Ordinary Least Square (FMOLS) panel that can overcome the problem of non-stationary panels and the effect of heterogeneity between countries. The analysis range of this study is from 1992 to 2021, with three independent variables, namely electrical energy consumption, labor force, and gross fixed capital formation (GFCF) or investment. The results showed a significant favorable influence on energy consumption, labor force, and investment in GDP in BRICS countries from 1992-2021. This research resulted in a review of one of the policy recommendations to improve the economy in BRICS countries.

Foreign Direct Investment and Economic Growth in Nigeria: A Revisit

This study examined the impact of foreign direct investment (FDI) on economic growth in Nigeria from 1981 to 2022. Real gross domestic product growth rate (RGDPGR) was the proxy for economic growth while foreign direct investment (FDI), gross fixed capital formation (GFCF), per capita income (PCI) and exchange rate (EXR) were the explanatory variables. The study employed the autoregressive distributed lag (ARDL) technique to estimate the model, while the eclectic paradigm and endogenous growth theory served as the theoretical framework for the study. The results revealed that in the long run, foreign direct investment, per capita income and exchange rate were positive but statistically insignificant to economic growth in Nigeria, while gross fixed capital formation was insignificant. However, in the short, GFCF had significant negative impact on economic growth in the second lagged year showing that a unit increase in GFCF decreased RGDPGR by approximately 10.21% while per capita income impacted positively on the growth of the Nigerian economy. Consequently, the study recommended that as a signal of market size for the inflow of FDI and particularly as a signal of human capital development, the government should increase her investment in human capital development focusing on technical skills relevant in manufacturing and service sectors to engender growth in per capita income to attract FDI and economic growth in Nigeria.

Revisiting natural resources and financial development nexus in China under the lens of time‐frequency approach

AbstractExamining the relationship between natural resources and financial development (FD) has been a crucial research area for several years. This study examines the time‐ and frequency‐varying influence of natural resources on FD in China under the “resource curse” concept. In contrast to previous studies, additional economic factors such as economic policy uncertainty (EPU), technological innovation, gross fixed capital formation (GFCF), and government stability (GS) are also considered in the model. Wavelet approaches were used to examine the time‐ and frequency‐based nexus among the variables, covering the period from 1995 to 2021. The outcomes indicate an adverse impact of natural resources on FD in long‐term frequencies during the analyzed period, confirming the “resources curse” in China. The other variables, including technological innovation, gross fixed capital formation, and government stability, are positively linked, while EPU is negatively linked to FD. The policy implications of this study highlight the need for effective resource management, amplifying technological innovation, and efficient governments to spur FD in China.

Do ICT Development and labor force foster Economic Growth in Indonesia?

Purpose: This paper aims to determine the ICT Development Index and other supporting variables affecting Indonesia's economic growth.Methods: This study uses secondary data from 1996-2019. Using economic growth variables as endogenous variables, and labor force, gross fixed capital formation (GFCF), cellular phones per 100 people, fixed telephones per 100 people, and internet users as exogenous variables. The data analysis technique used OLS multiple linear regression with eviews 9 application.Finding: The neoclassical theory developed by Solow (1957) a name "Growth Accounting" that economic growth formed from the factors of production and technology. This finding only the variable Mobile cellular per 100 people does not affect economic growth in Indonesia, and other variables are significant.Novelty: This study uses an innovation variable, namely the ICT Development Index, to complement the variables of production factors (labor and GFCF). This study focuses on Indonesia because it is about Indonesia's potential use of technology and information, among indications of the use of telephone and internet users in Indonesia.Implications: Further research can apply other ICT Development variables such as ICT exports or use the other countries.Keyword: GDP, Gross Fix Capital Formation, Internet User, Labor Force.

Африка южнее Сахары: тренды, пропорции и факторы развития

The author’s calculations and models show that although the countries of Sub-Saharan Africa (SSA) suffered greatly as a result of the plunder of their human and natural resources by the countries of the West during the period of colonial oppression and the centuries-old era of the slave trade, they have managed – after they gained political independence – to achieve on the whole a number of positive socio-economic results. The gross fixed capital formation (GFCF) as a percentage of GDP has doubled, the average number of years of education of the adult population has increased six times, the average life expectancy at birth has augmented by one and a half times, and the human development index has risen by 2.5 times. However, since SSA countries are growing on average slowly and unsteadily, the gap between SSA and the advanced economies as well as many Asian developing countries (ADCs) by levels of development has enlarged significantly, and the total number of poor people in SSA has more than tripled over the past forty years, reaching 1 billion people. Besides the demographic dividend coefficient that is almost twice as low as in ADCs, the low dynamics of per capita GDP growth in SSA, according to our model, is associated by 1/3, 1/4 and 1/10, respectively, with the low rate of GFCF, low growth rates of exports (mainly raw materials), low level of social institutions. Since the assistance of the countries of the West is small and decreasing, and the capacity of markets in SSA countries is low, in order to avoid worsening the situation, they need to (a) increase the share of investments in physical and human capital in GDP at least one and a half times (including by reducing unproductive use of resources), (b) more actively develop intra-African cooperation and foreign economic relations with other developing countries and the Russian Federation, (c) rely on export-oriented industrialization (as SSA lags the most – 3–4 times – behind ADCs in terms of output growth rates of manufacturing industry).

Impact of Public Domestic Borrowing on Private Sector Investments in Kenya

In recent there has been rapid increase in uptake of domestic debt by the government of Kenya. The purpose of this study was to establish the Impact of Public Domestic Debt on Private Investments in Kenya. The independent variable was public domestic debt while the dependent variable was private investment. Secondary data on Public domestic debt data and private investment was collected from Central Bank of Kenya. The secondary data was for the periods 1999 to 2021. Private investment was operationalised using Gross fixed capital formation (GFCF) and the study applied Autoregressive distributed lag (ARDL) econometric model. The study found out that the long-term analysis indicated sustained public domestic borrowing had a negative influence on GFCF, revealing a crowding-out effect. This implied that over time, persistent government debt led to reduced private sector investment.

Foreign aids and human capital development in Nigeria

Government efforts towards the development of human capital in Nigeria from government budgetary allocations have not yielded the desired result. This study therefore examined the impact of foreign aids on human capital development in Nigeria from 1985 to 2022. The variables of the study consist of human capital development (HCD), foreign aids (AIDS), gross fixed capital formation (GFCF), literacy rate (LITERACY), exchange rate (EXCHR) and inflation rate (INFLA). These variables were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and the National Bureau of Statistics (NBS). The analytical technique of this study was the error correction model (ECM). The key findings show that foreign aids has a positive but insignificant impact on human capital development in Nigeria. Also, there is unidirectional causality relationship between foreign aids and human capital development in Nigeria. The study recommended that the Nigerian government should optimize the use of aids funds by adequately monitoring and supervising how aid funds are being utilized in the health and education sectors.

G20 Economic Growth Analysis Using VECM

This study analyzes the effect of Gross Fixed Capital Formation (GFCF), Imports, Exports, and Government Expenditure of selected G20 member countries on Gross Domestic Product (GDP) using historical data from 1981 to 2021. The detailed analysis aims to explore the relationship between short-term and long-term causality that begins with examining and testing the degree of integration, Unit Root Test, Johansen cointegration test, and causality test. The Vector Error Correction Model (VECM) test results with a 95% confidence interval show that Gross Fixed Capital Formation causes Australia’s and South Africa’s long-term GDPs to have reached a balance point. In addition, Government Spending also causes the European Union’s Gross Domestic Product to achieve a balance point. Imports affect the GDP of the United States, China, and South Africa towards a balance point, and exports affect the GDP of Australia, China, and South Africa. The test results using VECM also conclude that GDP, GFCF, exports, and imports affect GDP growth in the short term. However, on the contrary, on the Australian continent, only GDP, GFCF, and imports which in the previous year had an impact on Australia’s GDP in the short term—concluded that differences in government policies in each country in regulating the economy could affect the causal relationship between the independent variable and GDP in the short and long term.