Stimulating Economic Growth Through Foreign Direct Investment In Namibia: Evidence from Quarterly Data
Capital movements whether in the form of foreign direct investment or foreign portfolio investment are expected to have a positive multiplier effect on host economies. The study contributes to the empirical literature by investigating whether foreign direct investment affects economic growth using Namibia as a test centre. Cointegration procedures that incorporate the following are employed to examine the relationship: Unit root tests, co‐integration tests, estimation of the long‐run equation, and diagnostic checks for autocorrelation, heteroscedasticity and normality, causality tests, as well as the forecast error variance decomposition analysis. A quarterly data covering 1990 to 2014 was employed. The results found cointegrating relationships among the four variables that were investigated. The results also found a certain degree of positive association between net FDI and growth. Surprisingly, no causality was found between net foreign direct investment and growth. Real exchange rate and net foreign direct investment contributed more towards innovations in economic growth during the forecast horizon compared to the openness index. The study concludes by crafting possibilities for further inquiries.
Keywords- Causality, cointegration, foreign direct investment, long‐run equation