An Empirical Analysis of the Effect of Foreign Direct Investment on Economic Growth in Eswatini
Keywords:
Eswatini, foreign direct investment, economic growth, ARDL bounds test, cointegration, error correction modelAbstract
This study examined the effect of foreign direct investment (FDI) on economic growth in Eswatini over the period 1980-2018, using the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and error correction model (ECM). The study showed that 59.3% of the annual variation in GDP was jointly explained by the variables included in the model. Foreign direct investment (p<0.01) and labour (p<0.01) have positive effect on economic growth, while domestic investment (p<0.05) and trade openness (p<0.01) have negative effect on economic growth in the long run. In the short run, economic growth is positively influenced by foreign direct investment (p<0.01) and negatively influenced by domestic investment (p<0.01). The study recommends that government should adopt measures that will help attract more FDI. The government should thus continue improving the investment climate through accelerating implementation of the reforms to investor roadmap to remove restrictions to FDI. The government should promote policies intended for human capital formation and skills development to enhance absorptive capacity and productivity. There is need for government to invest in building domestic manufacturing capabilities with a view to fast-tracking the country’s transition towards industrialization, bolster export diversification and enhance international competitiveness.
References
. F. H. Ahmeti, & H. Kukaj. “The Importance of Foreign Direct Investment in Economic Development in Transition Countries: A Case Study of Kosovo.” European Scientific Journal, 12(7), pp. 288-305, 2016.
. Z.S. Mkhatshwa, A.A., Tijani & B.S., Masuku. “Analysis of the Relationship between Inflation, Economic Growth and Agricultural Growth in Swaziland from 1980-2013”. Journal of Economics and Sustainable Development, 6(18), pp, 189 -204, 2015.
. B.P. Dlamini. “Exchange Rate Volatility and its effects on Macroeconomic Management”. Central Bank of Swaziland, Mbabane, 2014
. M.B. Masuku & T.S. Dlamini. “Determinants of Foreign Direct Investment Inflows in Swaziland. Journal of Development and Agricultural Economics, l (5), pp. 177 – 184, 2009.
. Central Bank of Eswatini. “Annual Report”. Mbabane, Eswatini, 2015.
. N.P. Hlophe & K.O. Emenike. “Relationship between Financial Indicators and Foreign direct Investment in Eswatini.” Accounting and Financial Review, vol.3, pp.14-24, 2020.
. N. Rijkenberg N. “Annual Budget Speech”. Ministry of Finance, Mbabane, Eswatini,2019
. N. Rijkenberg N. “Annual Budget Speech.” Ministry of Finance, Mbabane, Eswatini, 2020
. B.P. Dlamini. “An Empirical Analysis of the Effects of External Shocks on Key Macroeconomic Indicators in Eswatini.” Central Bank of Eswatini Research Bulletin, Vol. 4, pp. 17-30, 2020
. F. Thompson. Swaziland Business Year Book, 25th Edition, Mbabane, Swaziland, pp: 17, 2016.
L.R. De Mello. “Foreign Direct Investment-led growth: Evidence from the Time Series and Panel Data.” Oxford Economic Papers, Vol.51, pp. 133 – 151, 1999.
OECD. “OECD Benchmark Definition of Foreign Direct Investment, 4th Edition, Paris: Organization of Economic Cooperation and Development, 2008.
R.M. Solow, (1956). “A contribution to the theory of economic growth”, Oxford Review of Economic Policy, Vol. 23 No. 1, pp. 3-14, 1956.
. L.R. de Mello. “Foreign Direct Investment in Developing Countries.” The Journal of Development Studies, Vol. 34(1), pp. 1-34, 1997
. P.M. Romer. “The Origins of Endogenous Growth”. Journal of Economic Perspective, 8(1), pp.3-22, 1994
. E. Boreinzstein, J. De Gregorio &, J.W. Lee. “How does foreign direct investment affect economic growth?” Journal of International Economics, Vol.45, pp, 1 11-115, 1998.
.M. Rui & R. Forte. “The Effects of Foreign Direct Investment on the host country economic growth: theory and empirical evidence.” Singapore economic review, 2013.
. A. Mazenda. “The Effect of Foreign Direct Investment on Economic Growth: Evidence from South Africa.” Mediterranean Journal of Social Sciences, 5(10), pp.95 – 108, 2014.
. T. Masipa. “The Impact of Foreign Direct Investment on Economic Growth and Employment in South Africa: A Time Series Analysis”. Mediterranean Journal of Social sciences, 5(25), pp.18-27, 2014.
. A.A.K. Aga. “The Impact of Foreign Direct Investment on Economic Growth: A Case Study of Turkey 1980 – 2012”. International Journal of Economics and Finance, 6(7), pp. 71 – 84, 2014.
. K. Tsaurai & N.M. Odhiambo. “Foreign Direct Investment and Economic Growth in Zimbabwe: a dynamic causality test.” International Journal of Economic Policy in Emerging, 5(1), pp. 183 – 196, 2012.
. H. Mahmood & A.R. Chaudhary. “Application of Endogenous Growth Model to the Economy of Pakistan: A Cointegration Approach.” Pakistan Journal of Commerce and Social Sciences, 2, 2009.
. S. Sabeen & A. Afshan. “.Determinants of Economic Growth in Pakistan: A time Series Analysis.” European Online Journal of Natural and Social Sciences, 6, 4, pp. 650 – 700, 2017.
. H.M. Siddique, R. Ansar, M.M. Naeem, S. Yaqoob. “Impact of Foreign Direct Investment on Economic growth: Evidence from Pakistan.” Bulletin of Business and Economics, 6, 3, pp.111 – 116, 2017.
. I.C. Oluseye & A.A. Gabriel. “Determinants of Inclusive Growth in Nigeria: An ARDL Approach.” American Journal of Economics, 7(3), pp. 97-109, 2017.
. P. Kotrajaras. “Foreign Direct Investment and Economic Growth: A Comparative Study among East Asian Countries.” Applied Economics Journal, 17 (2), pp.12-26, 2010.
. M.R., Mohamed, K.S.J. Sing & C-Y. Lieu. “Impact of Foreign direct Investment and Domestic Investment on Economic Growth of Malaysia.” Malaysian Journal of economic Studies, 50(1), pp.21-35, 2013.
. A. Moudatsou. “Foreign Direct Investment and Economic Growth in the European Union.” Journal of Economic Integration, 18(4), pp.689 -709, 2003.
. T. T-H. Dinh, D.H. Vo, A.H. Vo, & T.C. Nguyen T.C. “Foreign Direct Investment and Economic Growth in the Short Run and Long run: Empirical Evidence from Developing countries.” Journal of Risk and Financial Management, 12,176, 2019.
. S.G. Dlamini, A. Edriss, A.R. Phiri & M.B. Masuku. “Determinants of Swaziland’s Sugar Exports: A Gravity Model Approach”. Journal of Economics and Finance, 8(10), pp.71-81, 2016.
. N.P. Samantha & H. Liu. “The Impact of FDI on the economic Growth of Sri Lanka: An ARDL Approach to Cointegration”. International Journal of Innovation and Economic Development, 3(5), pp.70-82, 2017.
. S.S. Guerin & S. Manzocchi. “When FDI Flows from Rich to Poor Countries: Do democracy and economic reform matter?” Luis Lab on European Economics (LLEE) Working Document No. 38. http://www.luiss.it/ricerca/centri/llee/file/llwp38.pdf, (Accessed 05/08/2021), 2006.
. C. Granger. “Sorne properties of time series data and their use in econometric model specification.” Journal of Econometrics, 28, pp. 121-130, 1981.
. N. Gujarati, & D.C. Porter. “Basic Econometrics”, 5th Edition. New York, McGraw-Hill/Irwin, 2009
. C.W.J. Granger & P. Newbold. “Spurious Regression in Econometrics.” Journal of Econometrics, 2, pp. 111 -120, 1974.
. C.W.J. Granger. “Developments in the study of cointegrated variables”. Oxford Bulletin of Economics and Statistics, 48(3), pp.213-228, 1986.
. J.J. Dolado, T. Jenkinson & S. Sosvilla-Rivero. “Cointegration and Unit Roots”. Journal of Economic surveys. https://doi.org/10.111/j.1467-6419.1990.tb00088.x, 1990
. R.F. Engle & C.W.J. Granger. “Cointegration and error correction representation: Estimation and testing.” Econometrica, 55(2), pp. 251-276, 1987.
. D. A. Dickey & W.A. Fuller. “Distribution of Estimators for Autoregressive Time Series with a Unit Root.” Journal of the American Statistical Association, 74(366), pp. 427 – 431, 1979.
. P.C.B. Phillips & P. Perron. “Test for Unit Root in time series regression.” Biometrika, 75(2), pp. 335 – 346, 1988.
. D.N. Gujarati. “Basic Econometrics.” Third Edition, McGraw-Hill International Editions, Singapore, 2004.
. S. Johansen & K. Juselius. “Maximum Likelihood Estimation and Inference on Cointegration – with Application to Demand for Money.” Oxford Bulletin of Economics, 52(2), pp. 169-210, 1990.
. H.M. Pesaran, Y. Shin & R. Smith. “Bounds Testing Approaches to the Analysis of Level Relationships”. Journal of Applied Econometrics, 16, pp. 289-326, 2001.
. N. Dlamini & Z. Mabuza. “Financial Innovation and Money Demand in Eswatini”. Central Bank of Eswatini Research Bulletin, 4(4), pp. 48 -58, 2020.
. D. F. Meyer, & T. Habanabakize. “An analysis of the relationship between foreign direct investment (FDI), political risk and economic growth in South Africa”. Business and Economic Horizons, 14(4), pp. 777-788, 2018.
. C-F.J. Lin & T. Terasvirta. “Testing the constancy of regression parameters against continuous structural change.” Journal of Econometrics, 62(2), pp. 211-228, 1994.
. R.L. Brown, J. Durbin & J.M. Evans. “Techniques for Testing the Constancy of Regression Relationships over Time.” Journal of the Royal Statistical Society. Series B (Methodological), 37(2), pp.149-192, 1975.
Downloads
Published
How to Cite
Issue
Section
License
Authors who submit papers with this journal agree to the following terms.
