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apital flows and the openness-growth nexus: Toda-Yamamoto causality modeling

Author

Listed:
  • Mohammad I. Elian
  • Adil H. Suliman

    (Gulf University for Science and Technology (GUST), Kuwait)

Abstract

This article tests for the causal direct and interactive association between capital inflow, aid and domestic savings, and the trade-led growth nexus within the context of a market-oriented economy. We applied the Toda-Yamamoto (1995) causality test which eludes the shortfalls associated with the standard Granger (1969) causality test. The MWALD results revealed bi-directional causality between aid and growth and between trade openness and growth. One way causality is concluded between aid and openness, where the former Granger causes the latter. The reverse is not correct. As practical implications, the results reinforce that aid and trade openness are predominant conditions for economic growth. Given the shortfall in domestic savings, capital inflow can be motivated by investing in export oriented sectors to have improved competiveness. More innovative mechanisms are needed to increase the contribution of aids towards education and infrastructure. For trade, technical support programs are needed, i.e., building public awareness on trade strategies, assessing periodically the legislations of trade, and upgrading the capacities of local businesses.

Suggested Citation

  • Mohammad I. Elian & Adil H. Suliman, 2015. "apital flows and the openness-growth nexus: Toda-Yamamoto causality modeling," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(1), pages 85-105, January-M.
    • Handle: RePEc:jda:journl:vol.49:year:2015:issue1:pp:85-105
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    More about this item

    Keywords

    capital flow; aid; domestic savings; trade-led growth; Granger causality and Toda-Yamamoto test;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid

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