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Re-examine foreign direct investment and economic growth: Panel co-integration and causality tests for sub-Saharan African countries

Author

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  • Akinlo Taiwo

    (Adeyemi College of Education, Nigeria)

  • Simon-Oke O. Olayemi

    (Federal University of Technology Akure, Ondo State Nigeria)

Abstract

This study examines the causal relationship between foreign direct investment and economic growth in sub-Saharan Africa from the period 1995–2011. The study uses annual data for a panel of 30 sub-Saharan Africa Countries. We test for Granger causality in heterogeneous panels by testing first for Homogeneous Non-Causality and Homogeneous Causality hypotheses. The non-homogeneous test, which tests the hypothesis that gross domestic product (GDP) does not Granger-cause foreign direct investment and foreign direct investment does not Granger-cause GDP, is rejected, and it is also shown that there is bidirectional causality between economic growth and insurance in sub-Saharan Africa. The homogeneous causality tests, which test the hypothesis that GDP Granger-causes foreign direct investment and foreign direct investment Granger-causes GDP, are accepted. It is also shown that causality is homogeneous across all members of the panel.

Suggested Citation

  • Akinlo Taiwo & Simon-Oke O. Olayemi, 2015. "Re-examine foreign direct investment and economic growth: Panel co-integration and causality tests for sub-Saharan African countries," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 18(1), pages 73-86, March.
    • Handle: RePEc:sae:intare:v:18:y:2015:i:1:p:73-86
    DOI: 10.1177/2233865914554469
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    References listed on IDEAS

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    More about this item

    Keywords

    Causality; economic growth; foreign direct investment; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • F01 - International Economics - - General - - - Global Outlook

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