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Testing for Simultaneity

Author

Listed:
  • Anthony Orji

    (Economics, University of Nigeria, Nsukka, Nigeria, tonyorjiuss@yahoo.com)

  • Peter N. Mba

    (Economics, University of Calabar, Nigeria, petermbanta@yahoo.com)

Abstract

This work studied the relationship between foreign private investment (FPI), capital formation and economic growth. Given the likely simultaneity between FPI, capital formation and growth, we used the two-stage least squares (2SLS) method of estimation to examine the nexus between these variables using Nigerian data. We found that foreign private investment has a negative impact on capital formation in Nigeria. We also found that both foreign private investment and capital formation, in addition to other factors, significantly determine economic growth in Nigeria. The study finds that the long-run impact of capital formation, and foreign private investment on economic growth is larger than their short-run impact. There is, thus, a long-run equilibrium relationship among the variables as the error correction term is significant, but the speed of adjustment is small in both models. The 2SLS estimates are very close to the OLS estimates suggesting that OLS estimates are consistent and unbiased. Hence, endogeneity was not a problem in the estimated models. There is, therefore, no simultaneity between GDP growth and capital formation model. These findings, therefore, have some policy implications as discussed in the work.

Suggested Citation

  • Anthony Orji & Peter N. Mba, 2010. "Testing for Simultaneity," Journal of Infrastructure Development, India Development Foundation, vol. 2(2), pages 105-120, December.
    • Handle: RePEc:sae:jouinf:v:2:y:2010:i:2:p:105-120
    DOI: 10.1177/097493061100200202
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    References listed on IDEAS

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    Cited by:

    1. Patricia Lindelwa Makoni, 2020. "Foreign Portfolio Investments, Exchange Rates and Capital Openness: A Panel Data Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 100-113.
    2. Onyinye I. Anthony-Orji & Anthony Orji & Jonathan E. Ogbuabor & Emmanuel Nwosu, 2017. "An Empirical Re-examination," Journal of Infrastructure Development, India Development Foundation, vol. 9(1), pages 36-48, June.

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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