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Foreign Direct Investment and Trade Openness in Sub-Saharan Economies: A Panel Data Granger Causality Analysis

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  • Mebratu Seyoum
  • Renshui Wu
  • Jihong Lin

Abstract

This study uses annual balanced panel data for 25 sub-Saharan African economies over the period 1977-2009 to investigate the Granger causality relationship between trade openness and foreign direct investment (FDI) for the region. We took advantage of recent developments in econometric testing techniques for Granger noncausality heterogeneous panels that takes into consideration the effects of cross section dependence across the units of the panel data set to analyse the trade–FDI nexus in the region. The empirical result of this study reveals a bidirectional causal relationship between trade openness and foreign direct investment in sub-Saharan economies. Concurrently, African countries should devote more emphasis for the promotion and attraction of FDI in order to expand their productive capacity to produce and export; in this way, by addressing supply-side constraints, FDI will have positive multiplier effects on trade.

Suggested Citation

  • Mebratu Seyoum & Renshui Wu & Jihong Lin, 2014. "Foreign Direct Investment and Trade Openness in Sub-Saharan Economies: A Panel Data Granger Causality Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 82(3), pages 402-421, September.
    • Handle: RePEc:bla:sajeco:v:82:y:2014:i:3:p:402-421
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    5. Balcilar, Mehmet & Gupta, Rangan & Lee, Chien-Chiang & Olasehinde-Williams, Godwin, 2018. "The synergistic effect of insurance and banking sector activities on economic growth in Africa," Economic Systems, Elsevier, vol. 42(4), pages 637-648.
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    7. Polyxeni Kechagia & Theodore Metaxas, 2022. "FDI and Institutions in BRIC and CIVETS Countries: An Empirical Investigation," Economies, MDPI, vol. 10(4), pages 1-23, March.
    8. Malsha Mayoshi Rathnayaka Mudiyanselage & Gheorghe Epuran & Bianca Tescașiu, 2021. "Causal Links between Trade Openness and Foreign Direct Investment in Romania," JRFM, MDPI, vol. 14(3), pages 1-18, February.
    9. Godwin Olasehinde-Williams & Mehmet Balcilar, 2018. "The Long-run Effect of Geopolitical Risks on Insurance Premiums," Working Papers 15-44, Eastern Mediterranean University, Department of Economics.
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