A vector autoregression (VAR) analysis of corruption, economic growth, and foreign direct investment in Ghana

Figures & data

Table 1. Data source and variable description

Variable	Notation	Description	Data source
Foreign direct investment	FDI	Foreign direct investment (% of GDP)	WGI
Economic Growth	LNGDPPC	Natural log of GDP per capita (current US$)	WDI
Corruption	CORR	Control of Corruption: Estimate	WGI

Note: WDI = World Development Indicators: WGI = World Governance Indicators

Table 2. Descriptive statistics

	CORR	FDI	GDPPC
Mean	−0.219	2.420	1146.392
Median	−0.255	1.496	11.438
Maximum	0.039	9.467	11,489.320
Minimum	−0.367	−0.660	0.013
Std. Dev.	0.084	2.617	2634.913
Skewness	1.648	1.228	2.590
Kurtosis	4.919	3.404	8.753
Jarque-Bera	36.374	15.500	149.820
Probability	0.000	0.000	0.000
Observations	60.000	60.000	60.000

Table 3. Granger causality test

Excluded	Chi-sq	df	Prob.
Dependent variable: CORR
FDI	4.054525	1	0.0441
LNGDPPC	1.328722	1	0.2490
All	9.506618	2	0.0086
Dependent variable: DFI
CORR	16.15448	1	0.0001
LNGDPPC	4.915135	1	0.0266
All	22.16537	2	0.0000
Dependent variable: LNGDPPC
CORR	0.005064	1	0.9433
FDI	3.971342	1	0.0463
All	7.374436	2	0.0250

Table 4. Lag order selection criteria

Lag	LogL	LR	FPE	AIC	SC	HQ
0	−191.5010	NA	0.236725	7.072762	7.182253	7.115103
1	38.86776	427.2292*	7.56e-05*	−0.977009*	−0.539046*	−0.807645*
2	47.43061	14.94607	7.71e-05	−0.961113	−0.194677	−0.664726
3	52.56499	8.401710	8.94e-05	−0.820545	0.274364	−0.397135
4	62.24753	14.78787	8.86e-05	−0.845365	0.578017	−0.294931
5	65.82422	5.072404	0.000111	−0.648154	1.103701	0.029303

* indicates lag order selected by the criterion

LR: sequential modified LR test statistic (each test at 5% level)

FPE: Final prediction error

AIC: Akaike information criterion

SC: Schwarz information criterion

HQ: Hannan-Quinn information criterion

Table 5. Unit root test

	FDI	COR	LNGDPPC
Level
ADF	−4.24***	−2.87**	−4.89***
PP	−4.23***	−2.95**	−4.90***
First difference
ADF	−7.95***	−7.38***	−6.13***
PP	−27.67***	−8.22***	−32.99***

Source: Authors estimate from research data; $P<{0.01}^{\ast \ast \ast }$ $P<{0.05}^{\ast \ast }$

Table 6. VAR results

	CORR	FDI	LNGDPPC
CORR(−1)	0.427682***	10.27135***	−0.026034
	(0.13844)	(2.55553)	(0.36583)
	[3.08931]	[4.01926]	[−0.07116]
FDI (−1)	0.009940**	0.554767***	−0.025997**
	(0.00494)	(0.09113)	(0.01305)
	[2.01359]	[6.08767]	[−1.99282]
LNGDPPC(−1)	0.002426	0.086119**	1.014646***
	(0.00210)	(0.03884)	(0.00556)
	[1.15270]	[2.21701]	[182.469]
C	−0.151724***	3.229285***	0.259429**
	(0.03979)	(0.73453)	(0.10515)
	[−3.81298]	[4.39638]	[2.46724]
R-squared	0.596403	0.858732	0.999056
Adj. R-squared	0.574389	0.851027	0.999005
Sum sq. resids	0.167173	56.96515	1.167355
S.E. equation	0.055132	1.017708	0.145687
F-statistic	27.09156	111.4439	19,405.21
Log likelihood	89.33743	−82.68199	32.00514
Akaike AIC	−2.892794	2.938373	−0.949327
Schwarz SC	−2.751944	3.079222	−0.808477
Mean dependent	−0.218131	2.434932	2.157035
S.D. dependent	0.084507	2.636751	4.617756

Note: Standard errors in () and t-statistics in [] and ^{***, **, *} represents significance at 1%, 5%, and 10%, respectively.

Table 7. Variance decomposition of CORR

Period	S.E.	CORR	FDI	LNGDPPC
1	0.055132	100.0000	0.000000	0.000000
2	0.061983	97.61157	2.385644	0.002790
3	0.065432	95.84205	4.147374	0.010573
4	0.067540	94.80021	5.175752	0.024040
5	0.068882	94.20089	5.755716	0.043390
6	0.069743	93.85451	6.076936	0.068554
7	0.070294	93.65285	6.247872	0.099277
8	0.070644	93.53334	6.331480	0.135182
9	0.070866	93.45871	6.365476	0.175811
10	0.071006	93.40640	6.372929	0.220671

Table 8. Variance decomposition of FDI

Period	S.E.	CORR	FDI	LNGDPPC
1	1.017708	8.697080	91.30292	0.000000
2	1.365751	33.88244	66.11031	0.007244
3	1.577034	44.26923	55.70656	0.024203
4	1.705946	49.14902	50.79945	0.051534
5	1.786216	51.77019	48.14006	0.089753
6	1.836823	53.30142	46.55957	0.139009
7	1.868854	54.23742	45.56349	0.199094
8	1.889099	54.81917	44.91133	0.269506
9	1.901848	55.17737	44.47312	0.349509
10	1.909866	55.38875	44.17303	0.438213

Table 9. Variance decomposition of LNGDPPC

Period	S.E.	CORR	FDI	LNGDPPC
1	0.145687	7.235132	6.926162	85.83871
2	0.212208	5.478945	12.41238	82.10868
3	0.265839	3.666823	16.81037	79.52281
4	0.314012	2.677623	20.42069	76.90169
5	0.359375	2.432851	23.38278	74.18437
6	0.402972	2.701185	25.80379	71.49503
7	0.445229	3.280204	27.78046	68.93934
8	0.486316	4.025253	29.39802	66.57673
9	0.526300	4.841533	30.72811	64.43036
10	0.565212	5.670285	31.82892	62.50079

Cholesky Ordering: CORR DFI LNGDPPC

Figure 1. Impulse response functions.

Figure 2. Inverse Roots of AR Characteristic Polynomial

Table 10. Model stability test

Root	Modulus
1.001812	1.001812
0.829954	0.829954
0.165329	0.165329

Warning: At least one root outside the unit circle.

VAR does not satisfy the stability condition.

Table

LIST OF ACRONYMS
ADF	The Augmented Dickey Fuller
AIC	Akaike information criterion
CORR	Control of Corruption Estimate
FDI	Foreign direct investment as a percentage of Gross Domestic Product
FEVD	forecast error variance decomposition
FPE	Final prediction error
GDP	Gross Domestic Product
GDPPC	Gross Domestic Product Per Capita
HQ	Hannan-Quinn information criterion
IRF	Impulse Response Functions
LNGDPPC	Natural log of GDP per capita (current US$)
MNC	Multinational Companies
PP	Phillips–Perron test
SC	Schwarz information criterion
SDG	Sustainable Development Goals
VAR	Vector Autoregression
WDI	World Development Indicators
WGI	World Governance Indicators

Data availability statement

The data that support the findings of this study are available within the World Governance Indicators and World Development Indicators at https://databank.worldbank.org/source/worldwide-governance-indicators; and https://databank.worldbank.org/source/world-development-indicators; available in the public domain.