Acta Universitatis Danubius. Œconomica, Vol 15, No 2 (2019)

Panel Cointegration and Granger Causality Approach to Foreign Direct Investment and Economic Growth in BRICS Countries.

Timothy Ayomitunde Aderemi, Abiola Georgina Adebayo, Jolayemi Lydia Bose, Grace Toluwanimi Kalejaiye

Abstract


In the recent time, empirical studies have failed to examine the long run relationship between FDI inflows, growth rate of economy and economic growth in BRICS countries. This paper employs Johansen Fisher Panel Cointegration and Pairwise Dumitrescu Hurlin Panel Causality Tests to address the objective of this study. The findings from this study show that all the variables have a long run equilibrium relationship. However, panel causality test indicates the existence of unidirectional causality which runs from FDI inflows to economic growth. This study upholds the propositions of Harrod-Domar and Solow growth models, which both submitted that investment is a necessary condition for economic growth in any economy. Similarly, there is one way causality that runs from growth rate of economy to FDI inflows. Therefore, the study recommends that all the policy makers in BRICS countries should embark on more foreign investment oriented policies that would boost further attraction of FDI inflows into all sectors of their economies. Also, policy should be geared towards the promotion of a stable political goodwill and macroeconomic variables that would ensure the sustainable growth rate of BRICS economies.

 

 

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