Short and Long Run Dynamic Common Correlation Effects of External Capital Inflow on Economic Growth in SSA Countries

Abstract

The socioeconomic effects of shock in one country produce a spillover effect on other economies given the global village nature of the world today. Current economic analyses have tended to adopt methodologies that treat cross sectional dependence in analysing macroeconomic phenomena. We employ the novel dynamic common correlation effect technique of Chudik and Pesaran (2015) that accounts for cross sectional dependence to examine the short and long run effects of different sources of external capital (foreign direct investment (FDI), official development aid (ODA) and external debt) on economic growth within 36 Sub Saharan African countries between 1995-2018. The result indicates a negative effect of external debt and ODA on economic growth in both the short and long run but it's only statistically significant in the short run. FDI is positive but only statistically significant in the short run. Disparity is noticed in the results especially in the long run when the panel is sub divided into lower and middle income countries. ODA and FDI exert positive long run effect in low income countries but negative in middle income countries. Meanwhile debt is negative for both income groupings. Contribution/ Originality: This study uses the new estimation DCCE technique to examine capital inflow on economic growth in the presence of cross sectional dependence in SSA.

The Short and Long Run Effect of Domestic Investment, Foreign Direct Investment and Renewable Energy on Economic Development: Evidence from Cameroon

“…This was found to be significant at a 5% level of significance. This is however not in line with our apriori theoretical expectations and the findings of Agbloyor et al (2016) and Dinga et al (2020) who concluded on a short run positive effect of FDI on economic development within a panel framework. This finding is however in line with the findings of Ijirshar et al (2019) who found that in the short-run, foreign direct investment has a negative influence on growth of 24 countries.…”

“…Economic growth can then be self-sustaining, hence the Big Push. This positive long run outcome corroborates with the findings of Dinga et al (2020).…”