Relationship between foreign capital flows, domestic investment and savings in the SADC region

Figures & data

Table 1. Panel unit root tests: level series.

Panel	GFCF	GDS	GDP	I	INF	DCP	M2	FDI	CBF	REM	OPE
LL	0.8573	−1.7143	−1.2853	−0.3136	−0.7572	1.49033	1.0283	−0.7868	2.7009	1.2513	−0.5005
IPS	1.8754	−1.9303	−0.7302	−0.4866	−0.5127	2.30491	1.3185	−0.9540	−0.4215	0.8761	−2.4030
MW	0.2547	−2.2931	−0.5390	−1.4557	−0.9907	2.5572	2.1987	−0.9983	0.6683	−0.7546	0.92879

Notes: GFCF = gross fixed capital formation; GDS = gross domestic savings; GDP = gross domestic savings; I = interest rate; INF = inflation; DCP = domestic credit to the private sector; M2 = Monetary aggregate 2; FDI = foreign direct investment; CBF = cross border finance; REM = remittances; OPE = openness. LL, Levin & Lin test; IPS, Im, Pesaran & Shin test; MW, Maddala and Wu.

(1) The t-statistics for each test are reported.

(2) The null hypothesis: variable has a unit root.

Source: Author's calculations

Table 2. Panel unit root test: first difference series.

Panel	GFCF	GDS	GDP	I	INF	DCP	M2	FDI	CBB	REM	OPE
LL	−6.585***	−7.581***	−11.41***	−9.353***	−10.29***	−5.002***	−6.930***	−15.08***	−4.080***	−5.4157***	−7.788***
IPS	−7.874***	−10.77***	−16.39***	−11.68***	−15.58***	−7.539***	−7.799***	−15.74***	−7.636***	−4.5124***	−10.08***
MW	−9.584***	−15.861***	−16.47***	−14.38***	−17.76***	−12.55***	−11.04***	−17.81***	−12.26***	−7.4872***	−3.110***

Notes: GFCF = gross fixed capital formation; GDS = gross domestic savings; GDP = gross domestic savings; I = interest rate; INF = inflation; DCP = domestic credit to the private sector; M2 = Monetary aggregate 2; FDI = foreign direct investment; CBF = cross border finance; REM = remittances; OPE = openness. LL, Levin & Lin test; IPS, Im, Pesaran & Shin test; MW, Maddala and Wu.

(1) The t-statistics for each test is reported.

(2) The null hypothesis: variable has a unit root.

(3) The null hypothesis of stationarity is tested. *, **, *** indicate the parameters that are significant at 10%, 5%, 1% probability, respectively.

Source: Author's calculations

Table 3. Kao cointegration test results of the savings function.

	t-statistic	P-value
ADF	−2.72806**	0.043
Residual variance	0.00780
HAC variance	0.00083

Notes: ADF, Augmented Dickey–Fuller; HAC, Heteroskedasticity and Autocorrelation Consistent covariance matrix estimator.

(1) Null hypothesis: No cointegration.

(2) The lags used were automatically selected based on the Newey–West bandwidth using the Bartlett kernel.

(3) The null hypothesis of no cointegration is tested. ** indicates the parameters are significant at 5% probability.

Source: Author's calculations.

Table 4. Pedroni cointegration test results on the savings function.

Tests (Pedroni, 1999)	Standardised statistics	P-values
Panel v statistic	−0.734059	0.7685
Panel p statistic	−0.677620	0.2490
Panel pp statistic	−1.973654	0.0242**
Panel adf statistic	−3.227043	0.0006***
Group p statistic	0.601690	0.7263
Group pp statistic	−2.154682	0.0156***
Group adf statistic	−3.175499	0.0007***

Notes: (1) Panel v is non-parametric variance ratio statistic. Panel p and panel pp are analogous to the non-parametric Phillips–Perron p and t-statistic, respectively. Panel adf is a parametric statistic based on the ADF statistic. Group p is analogous to the Phillips–Perron p statistic. Group pp and group adf are analogous to the Phillips–Perron t-statistic and the ADF statistic, respectively.

(2) The formulae for calculating these statistics can be found in Pedroni (1999), Table A1.

(3) The null hypothesis of no cointegration is tested. *, **, *** indicate the parameters that are significant at 10%, 5%, 1% probability, respectively.

Source: Author's calculations.

Table 5. Dynamic ordinary least squares (DOLS) investment function results for SADC countries, 1980–2013.

Variable	Model 1	Model 2	Model 3	Model 4	Model 5
FDI	0.0281***		0.0286***	0.0248***	0.0300***
CBF	0.0042*	0.0063*		0.0087*	0.0055*
REM	0.0708**	0.0705**	0.0718**		0.099***
ODA	0.0791	0.0798	0.0790	0.0889
OPE	0.0207*	0.0238*	0.0204*	0.0198*	0.0262*
GDP	0.0424**	0.0399	0.0427**	0.0433**	0.0479*
GDS	0.0476**	0.0538	0.0488**	0.0144**	0.0507**
INF	−0.003**	−0.0029**	−0.0031**	−0.0029*	−0.0028*
I	−0.0147*	−0.0140**	−0.0148**	−0.0145**	−0.0138**
M2	0.027**	0.033**	0.029**	0.025**	0.012**
DCP	0.051**	0.041**	0.040**	0.032**	0.035**
R^2	0.75	0.64	0.63	0.56	0.57
Adjusted R^2	0.72	0.60	0.61	0.50	0.53
Observations	442	442	442	442	442
Jarque–Bera test: 1.2756(p value: 0.5785)

Notes: FDI = foreign direct investment; CBF = cross border finance; REM = remittances; ODA, overseas development assistance; OPE = openness; GDP = gross domestic savings; GDS = gross domestic savings; INF = inflation; I = interest rate; M2 = Monetary aggregate 2; DCP = domestic credit to the private sector.

(1) The DOLS was estimated including two lags and one lead.

(2) All regressions include a constant not reported.

(3) *, **, *** denote significance at the 10%, 5% and 1% level, respectively.

Source: Author’s calculations.

Table 6. Panel Granger causality tests based on the panel vector auto regression (PVAR) Model in first difference (sample period: 1980–2013).

Dependent variable	Independent variables
	ΔInvestment	ΔSavings
ΔFDI	4.1426 (0.0301)**	5.8249 (0.0415)**
ΔCBF	0.0916 (0.0552)*	0.4996 (0.0790)*
ΔODA	6.7432 (0.0469)	5.7862 (0.0324)
ΔREM	5.9429 (0.0512)**	4.3494 (0.0136)**
ΔGDS	5.5339 (0.0629)*
ΔGFCF		3.5138 (0.0425)**

Notes: FDI = foreign direct investment; CBF = cross border finance; ODA, overseas development assistance; REM = remittances; GDS = gross domestic savings; GFCF = gross fixed capital formation.

(1) The optimum lag for each system was selected based on the Schwarz information criterion.

(2) *, ** denote rejection of H₀ at 10% and 5% level of significance, respectively.

(3) The F-statistic is reported with the significance level (). The H₀: No causality.

Pedroni, P, 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61(S1), 653–670. doi: 10.1111/1468-0084.61.s1.14

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