Revisiting endogeneity among foreign direct investment, economic growth and stock market development: Moderating role of political instability

Figures & data

Table 1. GDP Growth in recent political turbulent years

	FY06	FY07	FY13	FY14
Panel A: Growth of GDP
GDP	6.68	7.06	6.01	6.12
Panel B: Growth of production components
Manufacturing	10.81	10.54	10.31	8.68
Service	6.60	6.49	5.51	5.83
Agriculture	5.55	6.69	2.46	3.35
Panel C: Growth of expenditure components
Private consumption	7.05	7.43	5.13	2.73
Public consumption	8.15	3.06	5.79	11.90
Private investment	9.95	9.70	1.74	3.74
Public investment	9.68	−2.31	20.22	15.46
Exports	25.48	12.98	2.45	6.34
Imports	18.19	15.99	1.22	−0.86

Note: Numbers are in percentage form.

Source: Bangladesh Bureau of Statistics, Bangladesh National Account statistic 2014 and World Bank country update (April, 2015)

Figure 1. Survey on investors sentiment.

Figure 2. The conceptual model for endogeneity testing.

Figure 3. The conceptual model for meditation and moderation testing.

Table 2. Summary statistics and correlation matrix

	GROWTH	FDI	SMD	PI
Panel A: Descriptive statistics
Mean	5.52	0.69	16.14	−1.07
Median	5.26	0.66	8.35	−1.14
Maximum	7.11	1.73	43.48	−0.45
Minimum	3.83	0.005	1.40	−1.84
Std. dev.	0.96	0.52	15.39	0.43
Skewness	0.03	0.29	0.72	0.007
Kurtosis	1.93	1.93	1.84	1.60
Jarque-Bera	1.14	1.47	3.41	1.87
Probability	0.56	0.47	0.181	0.39
Panel B: Correlation matrix
Economic growth (Growth)	1.00
Foreign direct investment (FDI)	0.64***	1.00
Stock market development (SMD)	0.46**	0.74***	1.00
Political instability (PI)	−0.66***	−0.70***	−0.39**	1.00

Note: ***, **, and * denote statistical significant at 1%, 5%, and 10% level, respectively.

Table 3. Unit root test results

	ADF		PP
	At level	At first difference	At level	At first difference
Economic growth (Growth)	−3.23	−5.11***	−3.20	−5.81**
Foreign direct investment (FDI)	−3.50*	−5.39***	−3.19	−6.10**
Stock market development (SMD)	−1.82	−5.62**	−1.75	−5.94***
Political instability (PI)	−1.58	−6.20***	−1.59	−6.31***

Note:

1. ***, **, and * indicate ADF and PP score is significant at 1%, 5%, and 10% level, respectively, i.e. we can reject the null hypothesis that the series has a unit root.

2. MacKinnon (1996) one-sided p values are used to check the statistical significance.

3. Lag length-based on SIC, maximum lag is 4.

Table 4. Bounds test for Eqs. 4, 5, and 6

Models	Dependent variable	Lag order	F statistics	Outcome
A	Economic growth (Growth)	3	5.38**	Cointegration exists
B	Foreign direct investment (FDI)	3	1.93	No cointegration
C	Stock market development (SMD)	3	4.91**	Cointegration exists

Notes:

1. ***, **, and * indicate F-statistics is significant at 1%, 5%, and 10% level, respectively.

2. Asymptotic critical value bounds are obtained from Table C(I) of Pesaran and Pesaran (2009). Case: Un/Restricted intercept and no trend for k = 2 Pesaran and Pesaran (2009). The lower and upper bounds for the F-test statistic at the 10%, 5%, and 1% significance levels are [3.17, 4.14], [3.79, 4.85], and [5.15, 6.36], respectively. Model selection summary are presented in Appendices.

Table 5. Long-run coefficients from the estimated ARDL models

	Model A (Dep. var. growth)	Model B (Dep. var. FDI)	Model C (Dep. var. SMD)
Constant	4.43 (32.39) ***	−0.93 (1.26)	50.80 (1.65)
Growth		0.269 (1.85)*	−11.31 (−1.72)
FDI	2.28 (6.68)***		51.62 (3.45) ***
SMD	−0.03 (−2.53)**	0.011 (1.18)

Table 6. Error correction representations of the selected ARDL models

	Model A, ARDL [3, 3, 0] (Dep. var. growth)	Model B, ARDL [1, 0, 0] (Dep. var. FDI)	Model C, ARDL [1, 0, 2] (Dep. var. SMD)
Constant	6.88*** (4.77)	−0.50 (1.94)*	16.82* (1.83)*
D (Growth)		0.15 (1.52)	−3.61* (−1.97)*
D[Growth(−1)]	0.77*** (3.34)
D[Growth(−2)]	0.33 (1.66)*
D(FDI)	0.77** (2.02)		0.74 (0.18)
D[FDI(−1)]	−1.21** (2.38)		−13.37** (−2.89)
D[FDI(−2)]	−1.04** (2.16)
D(SMD)	−0.04** (2.51)	0.006 (1.92)
D[SMD(−1)]
ECM (−1)	−1.55*** (−4.86)	−0.54 (−1.30)	−0.35** (−2.68)
R^2	0.8336	0.7044	0.9053
F-statistics	7.51***	15.09***	30.60***
Wald test	4.76**		3.83**
Durbin-Watson test	2.11	1.88	2.37
LM test	0.33	1.75	1.98
Breusch-Pagan-Godfrey test	0.96	1.08	0.631

Note: ***, **, and * indicate the level of significance at 1%, 5%, and 10% level, respectively.

Table 7. Regression results for meditation and moderations

	Model D	Model E	Model F	Model G
Constant	21.6 (1.79)*	−48.90 (−2.06) **	−4.13 (−3.21)***	−9.7 (−1.10)
Growth	−4.58 (−1.97)**	−13.34 (−2.39) **	0.854 (3.41)***
FDI	14.03 (2.21)**			18.12 (1.69) *
PI		−78.21 (−2.79)**	−2.96 (−2.61)**	−19.98 (−1.97)**
Growth* PI		−11.41 (−2.52)**	−0.4914 (−2.09) **
FDI* PI				−19.04 (−2.13) **
Indirect effects	4.17**
Directs effects (Eq. 4)	−4.5
R-square	0.3412	0.4199	0.7142	0.4376
Change in R^−sq due to interactions		0.22**	0.082**	0.0709**
F-value	3.83	4.74	16.90	4.93
p value	0.0575	0.0121	.0000	0.0110

Notes:

In model D, E, and G, stock market development employed as dependent variable. Equations 10–12 are employed in model A. On the other hand, Eqs. 13 and 15 considered in models B and D, respectively.

In model F, foreign direct investment employed as dependent variable. Equation 14 employed.

***, **, and * indicate the coefficients are significant at 1%, 5%, and 10% level, respectively.

Pesaran, B., & Pesaran, M. H. (2009). Microfit 5.0. Oxford: Oxford University Press.

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