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Foreign Direct Investment and Trade Openness in Sub‐Saharan Economies: A Panel Data Granger Causality Analysis
Author(s) -
Seyoum Mebratu,
Wu Renshui,
Lin Jihong
Publication year - 2014
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/saje.12022
Subject(s) - foreign direct investment , openness to experience , economics , panel data , granger causality , nexus (standard) , international economics , order (exchange) , international trade , monetary economics , macroeconomics , econometrics , psychology , social psychology , finance , computer science , embedded system
Abstract This study uses annual balanced panel data for 25 sub‐Saharan A frican 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, A frican 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.