IDEAS home Printed from https://ideas.repec.org/a/sgh/erfinj/v7y2022i1p71-94.html
   My bibliography  Save this article

Do Capital Inflows and Financial Development, Influence Economic Growth in West Africa? Further Evidence from Transmission Mechanisms

Author

Listed:
  • Anthony Orji

    (University of Nigeria, Nigeria)

  • Jonathan E. Ogbuabor

    (University of Nigeria, Nigeria)

  • Chiamaka F. Okolomike

    (University of Nigeria, Nigeria)

  • Onyinye I. Anthony-Orji

    (University of Nigeria, Nigeria)

Abstract

This study investigates the channels through which shocks from foreign capital inflows and financial development are transmitted to economic growth in the ECOWAS region using quarterly data for the period between 2000 and 2017. The work adopted the panel vector autoregressive (pVAR) model in a generalized method of moments (GMM) framework to actualize its objective. The empirical results show that foreign direct investment (FDI), net domestic credit (CRE), and economic growth (ECG) all have significant relationships with each other, while gross capital formation (GCF), labour force (LF), and foreign aid (AID) have significant relationships with FDI, CRE and ECG. Furthermore, FDI and CRE have negative relationship with economic growth in the short run but have positive impulse response functions with economic growth in the long run. FDI and CRE exhibit positive relationship between themselves in the short run and negative relationship in the long run. Thus, the study recommends concerned policy makers to pursue financial deepening and enact credible policies that strengthen the financial system. In addition, a conducive socio-economic environment should be actively maintained so as to attract the required foreign capital inflows. Finally, more efforts should be made towards the establishment of a single monetary union, as it is likely to further strengthen the region and improve the trade among the member-countries. This should lead to further growth within the region.

Suggested Citation

  • Anthony Orji & Jonathan E. Ogbuabor & Chiamaka F. Okolomike & Onyinye I. Anthony-Orji, 2022. "Do Capital Inflows and Financial Development, Influence Economic Growth in West Africa? Further Evidence from Transmission Mechanisms," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 7(1), pages 71-94.
    • Handle: RePEc:sgh:erfinj:v:7:y:2022:i:1:p:71-94
    DOI: https://doi.org/10.2478/erfin-2022-0002
    as

    Download full text from publisher

    File URL: https://www.erfin.org/journal/index.php/erfin/article/view/159/63
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.2478/erfin-2022-0002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Wumi Olayiwola & Henry Okodua & Evans S Osabuohien, 2014. "Finance For Growth and Policy Options for Emerging and Developing Economies: The Case of Nigeria," Asian Development Policy Review, Asian Economic and Social Society, vol. 2(2), pages 20-38.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Marta Bańbura, 2008. "Large Bayesian VARs," 2008 Meeting Papers 334, Society for Economic Dynamics.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Helmut Lütkepohl, 2005. "New Introduction to Multiple Time Series Analysis," Springer Books, Springer, number 978-3-540-27752-1, December.
    6. Koop, Gary & Korobilis, Dimitris, 2016. "Model uncertainty in Panel Vector Autoregressive models," European Economic Review, Elsevier, vol. 81(C), pages 115-131.
    7. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    8. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    9. Calderon, Cesar & Liu, Lin, 2003. "The direction of causality between financial development and economic growth," Journal of Development Economics, Elsevier, vol. 72(1), pages 321-334, October.
    10. Wumi Olayiwola & Henry Okodua & Evans S. Osabuohien, 2014. "Finance For Growth and Policy Options for Emerging and Developing Economies: The Case of Nigeria," Asian Development Policy Review, Asian Economic and Social Society, vol. 2(2), pages 20-38, June.
    11. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    12. Orji Anthony, 2012. "Bank Savings and Bank Credits in Nigeria: Determinants and Impact on Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 357-372.
    13. Onyinye I Anthony-Orji & Anthony-Orji & Jonathan E Ogbuabor & Emmanuel O Nwosu, 2018. "Foreign Capital Inflows and Unemployment in Nigeria: A New Evidence from ARDL-Bounds Testing Approach," International Journal of Business, Economics and Management, Conscientia Beam, vol. 5(6), pages 176-188.
    14. Emeka Nkoro & Aham KelvinUko, 2012. "Foreign Capital Inflows and Economic Growth in Nigeria: An Empirical Approach," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 2(5), pages 149-161, November.
    15. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    16. Litterman, Robert B, 1986. "Forecasting with Bayesian Vector Autoregressions-Five Years of Experience," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(1), pages 25-38, January.
    17. Hammed Oluwaseyi Musibau & Suraya Mahmood & Agboola Yusuf Hammed, 2017. "The Impact of Foreign Capital Inflows, Infrastructure and Role of Institutions on Economic Growth: An Error Correction Model," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(4), pages 35-49, December.
    18. Onyinye I. Anthony-Orji & Anthony Orji & Jonathan E. Ogbuabor & Emmanuel O. Nwosu, 2018. "Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria," Journal of Empirical Studies, Conscientia Beam, vol. 5(1), pages 1-11.
    19. Onyinye I. Anthony-Orji & Anthony- Orji & Jonathan E. Ogbuabor & Emmanuel O. Nwosu, 2018. "Foreign Capital Inflows and Unemployment in Nigeria: A New Evidence from ARDL-Bounds Testing Approach," International Journal of Business, Economics and Management, Conscientia Beam, vol. 5(6), pages 176-188.
    20. Onyinye I Anthony-Orji & Anthony Orji & Jonathan E Ogbuabor & Emmanuel O Nwosu, 2018. "Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria," Journal of Empirical Studies, Conscientia Beam, vol. 5(1), pages 1-11.
    21. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chan, Joshua C.C. & Eisenstat, Eric & Koop, Gary, 2016. "Large Bayesian VARMAs," Journal of Econometrics, Elsevier, vol. 192(2), pages 374-390.
    2. Joshua Chan, 2023. "BVARs and Stochastic Volatility," Papers 2310.14438, arXiv.org.
    3. Billio, Monica & Casarin, Roberto & Rossini, Luca, 2019. "Bayesian nonparametric sparse VAR models," Journal of Econometrics, Elsevier, vol. 212(1), pages 97-115.
    4. Andrejs Bessonovs, 2015. "Suite of Latvia's GDP forecasting models," Working Papers 2015/01, Latvijas Banka.
    5. Garegnani, Lorena & Gómez Aguirre, Maximiliano, 2018. "Forecasting Inflation in Argentina," IDB Publications (Working Papers) 8940, Inter-American Development Bank.
    6. Helmut Lütkepohl, 2012. "Fundamental Problems with Nonfundamental Shocks," Discussion Papers of DIW Berlin 1230, DIW Berlin, German Institute for Economic Research.
    7. Alfonso Mendoza-Velázquez & Luis Carlos Ortuño-Barba & Luis David Conde-Cortés, 2022. "Corporate governance and firm performance in hybrid model countries," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(1), pages 32-58, February.
    8. Rangan Gupta & Alain Kabundi & Stephen Miller & Josine Uwilingiye, 2014. "Using large data sets to forecast sectoral employment," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 23(2), pages 229-264, June.
    9. Gupta, Rangan & Wohar, Mark, 2017. "Forecasting oil and stock returns with a Qual VAR using over 150years off data," Energy Economics, Elsevier, vol. 62(C), pages 181-186.
    10. Gupta, Rangan & Kabundi, Alain & Miller, Stephen M., 2011. "Forecasting the US real house price index: Structural and non-structural models with and without fundamentals," Economic Modelling, Elsevier, vol. 28(4), pages 2013-2021, July.
    11. Demeshev, Boris & Malakhovskaya, Oxana, 2016. "BVAR mapping," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 43, pages 118-141.
    12. Warne, Anders & Coenen, Günter & Christoffel, Kai, 2010. "Forecasting with DSGE models," Working Paper Series 1185, European Central Bank.
    13. Binder, Michael & Hsiao, Cheng & Pesaran, M. Hashem, 2005. "Estimation And Inference In Short Panel Vector Autoregressions With Unit Roots And Cointegration," Econometric Theory, Cambridge University Press, vol. 21(4), pages 795-837, August.
    14. Kaabia, Olfa & Abid, Ilyes & Guesmi, Khaled, 2013. "Does Bayesian shrinkage help to better reflect what happened during the subprime crisis?," Economic Modelling, Elsevier, vol. 31(C), pages 423-432.
    15. Koop, Gary & Korobilis, Dimitris, 2010. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(4), pages 267-358, July.
    16. Dimitrios P. Louzis, 2017. "Macroeconomic and credit forecasts during the Greek crisis using Bayesian VARs," Empirical Economics, Springer, vol. 53(2), pages 569-598, September.
    17. Korobilis, Dimitris, 2016. "Prior selection for panel vector autoregressions," Computational Statistics & Data Analysis, Elsevier, vol. 101(C), pages 110-120.
    18. Karamanis, Dimitrios & Kechrinioti, Alexandra, 2023. "The Greek-Turkish rivalry: A Bayesian VAR approach," MPRA Paper 116827, University Library of Munich, Germany.
    19. Higgins, Patrick & Zha, Tao & Zhong, Wenna, 2016. "Forecasting China's economic growth and inflation," China Economic Review, Elsevier, vol. 41(C), pages 46-61.
    20. Fady Barsoum, 2013. "The Effects of Monetary Policy Shocks on a Panel of Stock Market Volatilities: A Factor-Augmented Bayesian VAR Approach," Working Paper Series of the Department of Economics, University of Konstanz 2013-15, Department of Economics, University of Konstanz.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sgh:erfinj:v:7:y:2022:i:1:p:71-94. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dobromił Serwa (email available below). General contact details of provider: https://edirc.repec.org/data/sgwawpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.