Threshold effects of inflation on the FDI – growth nexus: evidence from inflation-targeting countries in sub-Saharan Africa

Figures & data

Table 1. Variables’ description, sources and descriptive statistics.

Variables	Description	N	Mean	SD	Min	Max
GDP (Yit)	GDP per capita growth (annual %) sourced from WDI. The alternate [Y(a)it] GDP(a) is the GDP growth (annual %)	117	0.983	3.756	−13.15	12.46
Inflation (πit)	Inflation, consumer prices (annual %) sourced from WDI	117	17.00	16.88	−0.692	122.9
Local Investment (INVit)	Equivalent to gross fixed capital formation (% of GDP) sourced from WDI. The alternate (INV(a) is gross capital formation (% of GDP).	117	23.55	13.28	3.761	85.94
Population Growth (PGit)	Population growth (annual %) sourced from WDI	117	2.322	0.502	1.218	3.045
Government Expenditure (GEit)	General government final consumption expenditure (% of GDP) sourced from WDI	117	10.48	6.116	0.911	20.65
Household Expenditure (HCEit)	Households and NPISHs final consumption expenditure (% of GDP) sourced from WDI	117	66.71	15.16	12.35	94.23
Foreign Direct Investment (FDIit)	Foreign direct investment, net inflows (% of GDP) sourced from WDI	117	1.854	2.144	−0.766	9.467
Openness (OPit)	Equivalent to the sum of import and export goods and services (annual % growth) sourced from WDI	117	48.98	21.64	6.320	116.0

Note: This table reports descriptive statistics based on a balanced panel with 117 firm-year observations covering the 3 countries over a period of 39 years. All variables are sourced from WDI.

Source: Authors’ compilation and Stata output of descriptive statistics.

Table 2. Single threshold estimator and effect test (level = 95).

Baseline Model				Robustness Test Model			Additional Test Model
Model	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value
Single	16.4946	3.15	0.0467	16.4946	3.14	0.0867	16.4946	2.98	0.0800

Note: This table reports the inflation threshold values and the sequential threshold effect test. A rejection of the null hypothesis in a single threshold model implies a double threshold model must be tested for. Single corresponds to Ho (linear model) and Ha (single threshold model); Double corresponds to Ho (single threshold model) and Ha (double threshold model); and Triple corresponds to Ho (double model) and Ha (triple threshold model).

Source: Stata output of single threshold estimator.

Table 3. Double threshold estimator and effect test (level = 95).

Baseline Model				Robustness Test Model			Additional Test Model
Model	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value
Single	16.4946	3.15	0.0833	16.4946	3.14	0.0767	16.4946	2.98	0.1167
Double	7.2646	2.32	0.0000	7.2646	2.31	0.0000	7.2646	2.34	0.0000

Note: This table reports the inflation threshold values and the sequential threshold effect test. A rejection of the null hypothesis in a single threshold model implies a double threshold model must be tested for. Single corresponds to Ho (linear model) and Ha (single threshold model); Double corresponds to Ho (single threshold model) and Ha (double threshold model); and Triple corresponds to Ho (double model) and Ha (triple threshold model).

Source: Stata output of double threshold estimator.

Table 4. Triple threshold estimator and effect test (level = 95).

Baseline Model				Robustness Test Model			Additional Test Model
Model	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value	Threshold Estimate	F-Stat	P-Value
Single	16.4946	3.15	0.0667	16.4946	3.15	0.0567	16.4946	2.98	0.0933
Double	7.2646	2.32	0.0000	7.2646	2.32	0.0000	7.2646	2.34	0.0467
Triple	8.0625	1.43	0.6400	8.0625	1.43	0.5867	8.0625	1.43	0.4933

Note: This table reports the inflation threshold values and the sequential threshold effect test. A rejection of the null hypothesis in a single threshold model implies a double threshold model must be tested for. Single corresponds to Ho (linear model) and Ha (single threshold model); Double corresponds to Ho (single threshold model) and Ha (double threshold model); and Triple corresponds to Ho (double model) and Ha (triple threshold model).

Source: Stata output of triple threshold estimator.

Table 5. Correlation coefficients and VIFs.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	VIFS
(1) Yit	1.000
(2) πit	−0.209** (0.024)	1.000							1.26
(3) INVit	−0.289*** (0.002)	0.100 (0.283)	1.000						5.99
(4) PGit	−0.010 (0.918)	0.432*** (0.000)	0.194** (0.036)	1.000					2.24
(5) OPit	0.374*** (0.000)	−0.101 (0.279)	−0.287*** (0.002)	−0.200** (0.031)	1.000				2.25
(6) FDIit	0.351*** (0.000)	0.007 (0.943)	−0.045 (0.629)	−0.013 (0.889)	0.459*** (0.000)	1.000			1.61
(7) HCEit	0.318*** (0.000)	0.100 (0.284)	−0.780*** (0.000)	0.159* (0.087)	0.473*** (0.000)	0.279*** (0.002)	1.000		6.05
(8) GEit	−0.048 (0.609)	−0.332*** (0.000)	−0.562*** (0.000)	−0.597*** (0.000)	0.323*** (0.000)	−0.180* (0.053)	0.208** (0.025)	1.000	3.16

Note: This table presents pair-wise correlation coefficients which are based on a balanced panel with 177 firm-year observations. The variables are as defined in Table 1. Asterisks indicate significance at 10% (*) 5% (**) and 1% (***).

Source: Stata output of correlation and VIF coefficients.

Table 6. Linear regression results of the FDI - growth nexus using FE, FGLS and PCSE estimators.

Variables	(1)	(2)	(3)	(4)	(5)	(6)
	FE	FE D-K	FGLS CAR1	FGLS PSAR1	PCSE CAR1	PCSE PSAR1
πit	−0.0762**	−0.0762***	−0.0709***	−0.0712***	−0.0679***	−0.0690***
	(0.0157)	(0.0160)	(0.0206)	(0.0204)	(0.0210)	(0.0208)
INVit	−0.257**	−0.257***	−0.219***	−0.230***	−0.224***	−0.238***
	(0.0359)	(0.0450)	(0.0620)	(0.0605)	(0.0636)	(0.0620)
PGit	−2.824	−2.824***	−1.255	−0.870	−0.458	−0.0540
	(1.145)	(0.968)	(0.915)	(0.976)	(0.988)	(1.051)
OPit	0.0955**	0.0955***	0.0892***	0.0911***	0.0849***	0.0880***
	(0.0182)	(0.0301)	(0.0221)	(0.0217)	(0.0229)	(0.0223)
FDIit	0.428*	0.428***	0.185	0.207	0.207	0.233
	(0.116)	(0.144)	(0.176)	(0.171)	(0.185)	(0.179)
HCEit	−0.0619	−0.0619	−0.0609	−0.0766	−0.0766	−0.0941*
	(0.0285)	(0.0533)	(0.0515)	(0.0506)	(0.0530)	(0.0520)
GEit	−0.0759	−0.0759	−0.461***	−0.452***	−0.410***	−0.403***
	(0.207)	(0.109)	(0.0957)	(0.0969)	(0.101)	(0.102)
Constant	388.6	388.6***	182.6**	174.8**	147.8*	150.0*
	(135.1)	(100.8)	(81.31)	(83.87)	(88.96)	(90.34)
Time-Fixed-Effects	Yes	Yes	Yes	Yes	Yes	Yes
Observations	117	117	117	117	117	117
R-squared	0.437	0.437			0.335	0.355
Number of groups	3	3	3	3	3	3
F-statistic	59.64**	13.71***
Wald chi-square statistic			60.91***	61.28***	51.98***	54.51***

Note: This table reports empirical results from estimating the study’s model through the use of the FE, FGLS and PCSE Estimators. FE D-K refers to FE with Driscoll-Kraay standard errors estimator. CAR1 refers to common AR1 and PSAR1 refers to panel-specific AR1. Asterisks indicate significance at 10% (*), 5% (**) and 1% (***). The notations in all the regression tables are as defined in Table 1.

Source: Stata output of linear regression results.

Figure 1. LR statistic of two thresholds (using critical value of 7.35 at 95% CI) (Hansen, 2000).

Source: Stata output of LR statistic of the two thresholds.

Table 7. Baseline results on the inflation threshold effects on the FDI – growth nexus.

Variables	(1)	(2)	(3)
	Model 1	Model 2	Model 3
πit	−0.0663***	−0.0681***	−0.0658***
	(0.0203)	(0.0202)	(0.0201)
INVit	−0.241***	−0.250***	−0.242***
	(0.0563)	(0.0561)	(0.0561)
PGit	−2.722**	−3.311***	−3.439***
	(1.219)	(1.258)	(1.255)
OPit	0.0948***	0.0944***	0.0958***
	(0.0199)	(0.0198)	(0.0197)
GEit	−0.0627	−0.0590	−0.0204
	(0.149)	(0.148)	(0.150)
HCEit	−0.0491	−0.0544	−0.0364
	(0.0583)	(0.0579)	(0.0589)
0b._cat#c.FDIit	0.594***	0.109	0.172
	(0.207)	(0.353)	(0.354)
1._cat#c.FDIit	0.291	0.678***	1.617**
	(0.196)	(0.211)	(0.685)
2._cat#c.FDIit		0.299	0.682***
		(0.194)	(0.210)
3._cat#c.FDIit			0.330*
			(0.195)
Constant	391.3***	410.8***	436.7***
	(100.1)	(99.84)	(100.9)
Time-fixed-effects	Yes	Yes	Yes
Observations	117	117	117
R-squared	0.448	0.462	0.473
Number of groups	3	3	3
F-statistic	9.45***	8.95***	8.41***

Note: This table reports empirical results from estimating a fixed effect panel threshold regression model with inflation as the threshold variable and FDI as the region variable. This regression was executed via the community contributed Stata command ‘xthreg’. Asterisks indicate significance at 10% (*), 5% (**) and 1% (***). The notations in all the regression tables are as defined in Table 1.

Source: Stata output of single, double and triple threshold regression results.

Table 8. Robustness test results on the inflation threshold effects on the FDI – growth nexus.

Variables	(1)	(2)	(3)
	Model 1	Model 2	Model 3
πit	−0.0681***	−0.0699***	−0.0675***
	(0.0208)	(0.0207)	(0.0206)
INVit	−0.247***	−0.256***	−0.248***
	(0.0577)	(0.0575)	(0.0575)
PGit	−1.755	−2.359*	−2.489*
	(1.250)	(1.289)	(1.286)
OPit	0.0972***	0.0967***	0.0982***
	(0.0204)	(0.0203)	(0.0202)
GEit	−0.0624	−0.0586	−0.0191
	(0.153)	(0.152)	(0.153)
HCEit	−0.0507	−0.0561	−0.0376
	(0.0597)	(0.0593)	(0.0604)
0b._cat#c.FDIit	0.608***	0.111	0.175
	(0.212)	(0.362)	(0.363)
1._cat#c.FDIit	0.298	0.694***	1.655**
	(0.201)	(0.217)	(0.702)
2._cat#c.FDIit		0.307	0.698***
		(0.199)	(0.216)
3._cat#c.FDIit			0.339*
			(0.200)
Constant	400.3***	420.2***	446.7***
	(102.6)	(102.3)	(103.5)
Time-fixed-effects	Yes	Yes	Yes
Observations	117	117	117
R-squared	0.429	0.444	0.455
Number of groups	3	3	3
F-statistic	8.77***	8.32***	7.83***

Note: This table reports empirical results from estimating a fixed effect panel threshold regression model with inflation as the threshold variable and FDI as the region variable. Y(a)_it is a used as dependent variable in this table Asterisks indicate significance at 10% (*), 5% (**) and 1% (***). The notations in all the regression tables are as defined in Table 1.

Source: Stata output of single, double and triple threshold regression results.

Table 9. Additional tests results on the inflation threshold effects on the FDI – growth nexus.

Variables	(1)	(2)	(3)
	Model 1	Model 2	Model 3
πit	−0.0695***	−0.0716***	−0.0691***
	(0.0213)	(0.0211)	(0.0211)
INV(a)it	−0.144**	−0.156***	−0.146**
	(0.0582)	(0.0581)	(0.0582)
PGit	−2.215*	−2.851**	−2.981**
	(1.275)	(1.317)	(1.313)
Export (EXPit)	0.183***	0.183***	0.185***
	(0.0411)	(0.0407)	(0.0406)
GEit	0.0331	0.0354	0.0771
	(0.152)	(0.150)	(0.152)
HCEit	0.0548	0.0476	0.0676
	(0.0622)	(0.0618)	(0.0630)
0b._cat#c.FDIit	0.629***	0.113	0.178
	(0.216)	(0.368)	(0.369)
1._cat#c.FDIit	0.304	0.717***	1.690**
	(0.205)	(0.220)	(0.713)
2._cat#c.FDIit		0.313	0.721***
		(0.203)	(0.219)
3._cat#c.FDIit			0.346*
			(0.203)
Constant	385.7***	407.0***	433.9***
	(104.0)	(103.8)	(105.0)
Time-fixed-effects	Yes	Yes	Yes
Observations	117	117	117
R-squared	0.409	0.426	0.437
Number of groups	3	3	3
F-statistic	8.09***	7.71***	7.27***

Note: This table reports empirical results from estimating a fixed effect panel threshold regression model with inflation as the threshold variable and FDI as the region variable. Y(a)_it is a used as dependent variable in this table. Also, EXP_it is used in place of OP_it whereas INV(a)_it is used in place of INV_it. Asterisks indicate significance at 10% (*), 5% (**) and 1% (***). The notations in all the regression tables are as defined in Table 1.

Source: Stata output of single, double and triple threshold regression results.

Figure A1. Source: Stata graphs of trends in inflation, FDI and GDP of South Africa.

Figure A2. Source: Stata graphs of trends in inflation, FDI and GDP of Nigeria.

Figure A3. Source: Stata graphs of trends in inflation, FDI and GDP of Ghana.

Figure A4. Source: Stata graphs of trends in inflation, FDI and GDP of South Africa, Nigeria and Ghana.

Hansen, B. E. (2000). Sample splitting and threshold estimation. Econometrica, 68(3), 575–603. https://doi.org/10.1111/1468-0262.00124

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Data availability statement

Data for the study was obtained from publicly available sources and can be made available upon request.