IDEAS home Printed from https://ideas.repec.org/a/khe/scajes/v3y2017i4p35-49.html
   My bibliography  Save this article

The Impact of Foreign Capital Inflows, Infrastructure and Role of Institutions on Economic Growth: An Error Correction Model

Author

Listed:
  • Hammed Oluwaseyi Musibau
  • Suraya Mahmood
  • Agboola Yusuf Hammed

Abstract

This study investigates the impact of foreign capital inflows, corruption, and infrastructure on economic growth among ECOWAS members over the period 1980 to 2016. We adopt the Two-Gap model and using ECM method. The empirical results revealed long run causality between the explanatory variables and growth. And also there are short run causality between FCI, infrastructure and corruption on growth but Political stability does not cause growth in short run. Findings of the study also established a negative relationship between FDI, Infrastructure and real growth while ODA, corruption, political stability have positive impact on real growth among ECOWAS members. We recommend policy across the ECOWAS countries that will attract foreign capital inflow. The policy makers should look inwards, re-strategize and begin to formulate and implement sound and credible economic policies that will be aimed at attracting productive capital inflows into the region.

Suggested Citation

  • 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.
    • Handle: RePEc:khe:scajes:v:3:y:2017:i:4:p:35-49
    as

    Download full text from publisher

    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_128.pdf
    Download Restriction: no
    File URL: http://www.ajes.ro/wp-content/uploads/AJES_article_1_128.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Furceri, Davide & Guichard, Stéphanie & Rusticelli, Elena, 2012. "The effect of episodes of large capital inflows on domestic credit," The North American Journal of Economics and Finance, Elsevier, vol. 23(3), pages 325-344.
    2. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    3. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
    4. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    5. repec:eco:journ1:2014-03-23 is not listed on IDEAS
    6. Bruno Decreuse & Paul Maarek, 2015. "FDI and the Labor Share in Developing Countries : A Theory and Some Evidence," Annals of Economics and Statistics, GENES, issue 119-120, pages 289-319.
    7. Oluwatosin Adeniyi & Festus O. Egwaikhide & Abimbola Oyinlola & Olusegun Omisakin, 2012. "Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies," Economic Analysis and Policy, Elsevier, vol. 42(1), pages 105-127, March.
    8. Camilla Mastromarco & Léopold Simar, 2015. "Effect of FDI and Time on Catching Up: New Insights from a Conditional Nonparametric Frontier Analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(5), pages 826-847, August.
    9. Clemens Breisinger & Xinshen Diao & Marie‐Helen Collion & Pierre Rondot, 2011. "Impacts of the Triple Global Crisis on Growth and Poverty: The Case of Yemen," Development Policy Review, Overseas Development Institute, vol. 29(2), pages 155-184, March.
    10. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    11. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.
    12. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    13. Steve Onyeiwu, 2015. "Regionalism and Industrial Development," Palgrave Macmillan Books, in: Emerging Issues in Contemporary African Economies, chapter 0, pages 105-124, Palgrave Macmillan.
    14. Abayomi Olakojo Solomon, 2017. "Working Paper 251 - Foreign trade and international financial flows: Implications for economic stability in ECOWAS countries," Working Paper Series 2361, African Development Bank.
    15. Akinlo, A. Enisan, 2004. "Foreign direct investment and growth in Nigeria: An empirical investigation," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 627-639, July.
    16. Uwaoma G. Nwaogu & Michael J. Ryan, 2015. "FDI, Foreign Aid, Remittance and Economic Growth in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 100-115, February.
    17. Nenad Stanisic, 2008. "Do Foreign Direct Investments Increase the Economic Growth of Southeastern European Transition Economies?," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 6(1), pages 29-38.
    18. Aurora A. C. Teixeira & Luís Guimarães, 2015. "Corruption and FDI: Does the Use of Distinct Proxies for Corruption Matter?," Journal of African Business, Taylor & Francis Journals, vol. 16(1-2), pages 159-179, January.
    19. Steve Onyeiwu, 2015. "Emerging Issues in Contemporary African Economies," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-40080-2, March.
    20. Aisen, Ari & Veiga, Francisco José, 2013. "How does political instability affect economic growth?," European Journal of Political Economy, Elsevier, vol. 29(C), pages 151-167.
    21. Jeanet Sinding Bentzen, 2012. "How Bad is Corruption? Cross‐country Evidence of the Impact of Corruption on Economic Prosperity," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 167-184, February.
    22. Joshua Aizenman & Yothin Jinjarak & Donghyun Park, 2013. "Capital Flows and Economic Growth in the Era of Financial Integration and Crisis, 1990–2010," Open Economies Review, Springer, vol. 24(3), pages 371-396, July.
    23. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," The World Bank Economic Review, World Bank, vol. 11(3), pages 451-470, September.
    24. Calderon,Cesar & Nguyen,Ha Minh, 2015. "Do capital inflows boost growth in developing countries ? evidence from Sub-Saharan Africa," Policy Research Working Paper Series 7298, The World Bank.
    25. Waqar Ahmed Wadho, 2014. "Education, Rent seeking and the Curse of Natural Resources," Economics and Politics, Wiley Blackwell, vol. 26(1), pages 128-156, March.
    26. Adams, Samuel, 2009. "Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 31(6), pages 939-949, November.
    27. Chengqi Wang & Junjie Hong & Mario Kafouros & Mike Wright, 2012. "Exploring the role of government involvement in outward FDI from emerging economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(7), pages 655-676, September.
    28. Collins Okafor & L. Murphy Smith & Nacasius U. Ujah, 2014. "Kleptocracy, nepotism, kakistocracy: impact of corruption in Sub-Saharan African countries," International Journal of Economics and Accounting, Inderscience Enterprises Ltd, vol. 5(2), pages 97-115.
    29. Olivier Blanchard & Jonathan D. Ostry & Atish R. Ghosh & Marcos Chamon, 2016. "Capital Flows: Expansionary or Contractionary?," American Economic Review, American Economic Association, vol. 106(5), pages 565-569, May.
    30. Solow, Robert M., 1999. "Neoclassical growth theory," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 9, pages 637-667, Elsevier.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olunkwa Chidi Ndubuisi & Shobande Olatunji Abdul, 2018. "Capital Flow Components and Industrial Sector Performance in Nigeria," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 48-57, July.
    2. 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.
    3. Asaduzzaman, Md, 2019. "FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis," MPRA Paper 110328, University Library of Munich, Germany, revised 05 Dec 2019.
    4. ORJI Anthony & OGBUABOR Jonathan E. & CHIAMAKA F. Okolomike & ANTHONY-ORJI Onyinye, 2022. "Capital Inflows, Financial Development And Growth In Ecowas Countries: A New Empirical Insight," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 22(1), pages 61-80.

    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. James Temitope Dada & Ezekiel Olamide Abanikanda, 2022. "The moderating effect of institutions in foreign direct investment led growth hypothesis in Nigeria," Economic Change and Restructuring, Springer, vol. 55(2), pages 903-929, May.
    2. Addis Yimer, 2023. "When does FDI make a difference for growth? A comparative analysis of resource‐rich and resource‐scarce African economies," International Finance, Wiley Blackwell, vol. 26(1), pages 82-110, April.
    3. Adams, Samuel & Opoku, Eric Evans Osei, 2015. "Foreign direct investment, regulations and growth in sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 48-56.
    4. Liu, Haiyun & Islam, Mollah Aminul & Khan, Muhammad Asif & Hossain, Md Ismail & Pervaiz, Khansa, 2020. "Does financial deepening attract foreign direct investment? Fresh evidence from panel threshold analysis," Research in International Business and Finance, Elsevier, vol. 53(C).
    5. Shah, Mumtaz Hussain & Azam, Ayesha, 2018. "Financial Development and Investors Location Choice in The Arab World," MPRA Paper 107245, University Library of Munich, Germany.
    6. Veundjua Muruko-Jaezuruka & Prashant Gupta, 2020. "Assessing Foreign Direct Investment Long-Run Contribution to Financial Development: Evidence from Namibia," Economics Bulletin, AccessEcon, vol. 40(4), pages 3111-3123.
    7. Fisayo Fagbemi & Tolulope T. Osinubi, 2020. "Leveraging Foreign Direct Investment for Sustainability: An Approach to Sustainable Human Development in Nigeria," Working Papers of the African Governance and Development Institute. 20/090, African Governance and Development Institute..
    8. Victor, Kidake, 2018. "Infrastructure and Foreign Direct Investment in Kenya: A Time Series Analysis 1980-2015," MPRA Paper 98014, University Library of Munich, Germany.
    9. John Kwaku Amoh & Abdul-Mumuni Abdallah & Richard Amankwa Fosu, 2019. "Does Foreign Direct Investment Cause Financial Sector Development €“ Evidence From An Emerging Economy," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 23, pages 33-55, June.
    10. Rudra P Pradhan, 2011. "Determinants of Foreign Direct Investment in SAARC Countries: An Investigation Using Panel VAR Model," Information Management and Business Review, AMH International, vol. 3(2), pages 117-126.
    11. Oktay KIZILKAYA & Ahmet AY & Gökhan AKAR, 2016. "Dynamic relationship among foreign direct investments, human capital, economic freedom and economic growth: Evidence from panel cointegration and panel causality analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(608), A), pages 127-140, Autumn.
    12. Christopher Malikane & Prosper Chitambara, 2017. "Foreign Direct Investment, Democracy and Economic Growth in Southern Africa," African Development Review, African Development Bank, vol. 29(1), pages 92-102, March.
    13. Munjal, Surender & Varma, Sumati & Bhatnagar, Ankur, 2022. "A comparative analysis of Indian and Chinese FDI into Africa: The role of governance and alliances," Journal of Business Research, Elsevier, vol. 149(C), pages 1018-1033.
    14. Amri, Fethi, 2016. "The relationship amongst energy consumption, foreign direct investment and output in developed and developing Countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 64(C), pages 694-702.
    15. Nyang`oro Owen, 2017. "Working Paper 285 - Capital Inflows and Economic Growth in Sub-Saharan Africa," Working Paper Series 2409, African Development Bank.
    16. Teimouri, Sheida & Zietz, Joachim, 2018. "The impact of surges in net private capital inflows on manufacturing, investment, and unemployment," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 158-170.
    17. Zezethu Zandile & Andrew Phiri, 2019. "Fdi As A Contributing Factor To Economic Growth In Burkina Faso: How True Is This?," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-27, March.
    18. Awolusi D. Olawumi, 2019. "Human Capital Development and Economic Growth in BRICS Countries: Controlling for Country Differences," Journal of Economics and Behavioral Studies, AMH International, vol. 11(4), pages 1-17.
    19. Justyna Pilarska, 2016. "Cultural Diversity as a Source of Conflict in the Focus of Non-Governmental and International Organizations: Bosnian Case Study," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 2, ejes_v2_i.
    20. Gulam Hassan, Mohamed Aslam & Abou Sakar, Sameer, 2013. "Foreign Direct Investment, Human Capital and Economic Growth in Malaysia," MPRA Paper 51930, University Library of Munich, Germany.

    More about this item

    Keywords

    Foreign capital flows; infrastructure; institutions; economic growth; ECM;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

    Statistics

    Access and download statistics

    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:khe:scajes:v:3:y:2017:i:4:p:35-49. 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: Adi Sava (email available below). General contact details of provider: https://edirc.repec.org/data/ffucdro.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.