The dynamic interactions of economic growth, foreign direct investment, and exchange rates in Ghana

Figures & data

Table 1. Measurement of variables

VARIABLE	NOTATION	MEASUREMENT SCALE	SOURCE
Economic growth	GDPG	Percentage change in real GDP	Economist Intelligence Unit (EIU)
Inflows of foreign direct investment	FDI	First difference inward foreign direct investment capital by non-locals into the country, as a percentage of gross fixed investment	Economist Intelligence Unit (EIU)
Real exchange rate index(Real effective exchange rate)	RER	First difference of log of Trade-weighted basket of currencies transformed to an index and adjusted for relative price movements. .	Economist Intelligence Unit (EIU)

Table 2. Summary statistics of the variables

Variables	Mean	Std. Dev.	Minimum	Maximum
RER	1.566250	1.367371	0.163667	4.584967
GDPG	6.101130	2.519187	2.178000	14.04700
FDI_GFI	24.18513	21.80253	2.800000	68.18300

Table 3. Result for unit root test in the variables

	ADF		PP		KPSS
Variables	t-statistic	p-value	Adj. t-statistic	p-value	LM-Statistic
GDP	−2.318	0.5896	−3.007	0.3387	0.184
FDI	−2.204	0.2105	−1.531	0.4993	0.169
RER	2.469	0.9999	2.479	0.8999	0.964
D(GDP)	−3.008***	0.0247	−3.007***	0.0297	0.089***
D(FDI)	−3.291***	0.0285	−3.280***	0.0292	0.077***
D(RER)	−4.494***	0.0020	−4.491***	0.0015	0.059***

Note: ***, **, and * indicates significant levels of 1%, 5% and 10%. D indicates the first-order difference of the variables. The critical values are obtained from MacKinnon (1991).

Table 4. Bound test for cointegration results

Dependable Variable	F-statistic For Three Variables	5%		10%
		I(0)	I(1)	I(0)	I(1)
GDPG	2.74	3.79	4.85	3.17	4.14
FDI	1.00	3.79	4.85	3.17	4.14
RER	0.93	3.79	4.85	3.17	4.14

*, ** denotes that the null hypothesis of no cointegration is rejected at 5% and 10%, respectfully.

Table 5. Optimum VAR lag-length selection

Lag	LogL	LR	FPE	AIC	SC	HQ
0	−93.78740	NA	9.401490	10.75416	10.90255	10.77462
1	−78.42946	23.89013*	4.743185*	10.04772	10.64130*	10.12956
2	−74.18940	5.182295	8.958273	10.57660	11.61537	10.71983
3	−62.41486	10.46626	8.843136	10.26832	11.75227	10.47293
4	−43.75607	10.36599	6.182990	9.195119*	11.12426	9.461121*

Note: * indicates lag order selected by the criterion (each test at 5%level)HQ: Hannan-Quinn information criterion SC: Schwarz information criterion

Table 6. Estimated standard VAR results

Variables	GDPG	FDI	RER
GDPG (−1)	0.357137***(0.20598)	−1.877136 (0.70243)	−0.011099 (0.01144)
FDI (−1)	0.439877** (0.16979)	0.439877***(0.16979)	0.001842*** (0.00277)
RER (−1)	4.065804**(1.39034)	30.38698**(14.5371)	0.009285 (0.23677)

**, ***: statistical significance at 5% and 10% respectively Standard errors in brackets.

Table 7. Residual diagnostic test

Residual Test	Statistic value	Probability value
Serial correlation: Lags 1	LM-Stat 2.549257	0.9795
Lags 2	LM-Stat 6.634501	0.6751
Heteroscedasticity	Chi-square 42.35124	0.2159
Normality	Jarque-Bera 8.449907	0.2105

Figure 1. Inverse root of characteristic AR polynomial.

Table 8. Granger causality test

Variable	Chi-sq	Prob. value
RER does not cause FDI	6.871328**	0.0343
FDI does not cause RER	1.038731	0.1488
GDPG does not cause FDI	1.552470	0.4601
FDI does not cause GDPG	8.729382***	0.0049
GDPG does not cause RER	1.678756	0.2620
RER does not cause GDPG	4.850354**	0.0458

Table 9. Variance decomposition percentage of ten-year error variance results

Variance Decomposition of GDPG:
Period	S.E.	GDPG	FDI	RER
1	2.395718	100.0000	0.000000	0.000000
2	2.677229	90.87467	3.538073	5.587260
3	2.764710	85.39819	6.247144	8.354666
4	2.815179	84.62819	6.740458	8.631350
5	2.835521	84.82524	6.664885	8.509871
6	2.840534	84.79273	6.672580	8.534692
7	2.841899	84.71222	6.710461	8.577320
8	2.842677	84.69163	6.722172	8.586199
9	2.843042	84.69388	6.721628	8.584488
10	2.843143	84.69426	6.721357	8.584386
Variance Decomposition of FDI:
1	8.169793	5.375755	94.62425	0.000000
2	10.64748	20.34500	65.98217	13.67283
3	11.61635	32.08774	56.17538	11.73688
4	11.86907	34.51878	53.93576	11.54546
5	11.92812	34.31215	53.78424	11.90361
6	11.95753	34.28566	53.69884	12.01550
7	11.97304	34.41775	53.58351	11.99873
8	11.97798	34.46970	53.53961	11.99069
9	11.97908	34.47012	53.53466	11.99522
10	11.97953	34.46841	53.53393	11.99767
Variance Decomposition of RER:
1	0.133062	5.144179	0.042337	94.81348
2	0.137143	9.563466	1.174940	89.26159
3	0.138344	11.12301	1.158241	87.71875
4	0.138638	11.34106	1.213577	87.44537
5	0.138729	11.32703	1.273966	87.39901
6	0.138782	11.36293	1.290608	87.34646
7	0.138805	11.39123	1.290977	87.31779
8	0.138811	11.39720	1.291402	87.31139
9	0.138813	11.39704	1.292333	87.31062
10	0.138813	11.39739	1.292690	87.30992

Cholesky Ordering: GDPG FDI RER

Figure 2. Impulse response function.

Table A1. Robustness checks result—replaced RER with TO

Variables	GDPG	FDI	TO
GDPG (−1)	0.391747*** (0.21047)	−1.663659 (0.70401)	−0.002524 (0.01108)
FDI (−1)	0.177171** (0.05218)	0.414080*** (0.17454)	0.003050 (0.00275)
TO (−1)	1.457375** (3.60251)	13.54525** (12.0499)	0.654122 (0.18973)

**, ***: statistical significance at 5% and 10% Standard errors in brackets.

Table A2. Robustness checks result – an alternative proxy for FDI

Variables	GDPG	FDI	RER
GDPG (−1)	0.245052*** (0.21735)	−0.051013 (0.12224)	−0.012370 (0.01204)
FDI (−1)	0.228320** (0.17993)	0.912156*** (0.10120)	0.001235 (0.00997)
RER (−1)	3.145548** (4.18462)	23.682824** (2.35348)	0.038588 (0.23186)

**, ***: statistical significance at 5% and 10% Standard errors in brackets.This table reports the robustness check results for alternative proxy for FDI. The study employed FDI as a percentage of the gross domestic product as an alternate proxy for FDI as a percentage of gross fixed investment. The coefficient estimates of the main underlying variables remain the same and statistically significant even upon utilizing different indicator measures of FDI. Juxtaposing these results with the main findings reveals that the conclusion or results of the main study is robust.

MacKinnon, J. (1991) Critical Values for Cointegration Tests. In: Engle, R. and Granger, C., Eds., Long Run Economic Relationships (pp. 267-276). Oxford University Press, Oxford.

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