On the Determinants of Foreign Capital Flows - DAAD partnership ...
On the Determinants of Foreign Capital Flows - DAAD partnership ...
On the Determinants of Foreign Capital Flows - DAAD partnership ...
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factor is being reduced with high domestic inflows, thus foreign investors are apt to invest in<br />
such a country.<br />
Never<strong>the</strong>less, it is impossible to pronounce which one <strong>of</strong> <strong>the</strong>se variables causes FDI since<br />
relationship between factors does not mean causality <strong>of</strong> one variable on ano<strong>the</strong>r. To be more<br />
effective in policy making, it is hence imperative to look at <strong>the</strong> causality aspect <strong>of</strong> each <strong>of</strong><br />
<strong>the</strong>se determinants on FDI made possible through <strong>the</strong> cointegration and VAR/VECM model.<br />
The latter are also very useful on addressing <strong>the</strong> issues <strong>of</strong> dynamics and endogeneity in FDI<br />
modeling.<br />
COINTEGRATION AND VAR/VECM<br />
Since variables have already been for tested before for stationarity, <strong>the</strong>ir first differenced<br />
form shall be used for <strong>the</strong> VAR model to check for cointegration and fur<strong>the</strong>r, causality.<br />
Using <strong>the</strong> Johansen test for Cointegration confirmed <strong>the</strong> existence <strong>of</strong> co integration and a<br />
VECM is this employed to better capture and predict results about causality. The ECT (from<br />
Johansen procedure) is used toge<strong>the</strong>r with current and past differenced values <strong>of</strong> FDI<br />
determinants to get speed <strong>of</strong> adjustment.<br />
Causality Relationships<br />
Table 5.7 Error Correction Representations <strong>of</strong> <strong>the</strong> model<br />
Variables LFDI LGDP LOPEN LINV LPRO LRER ECT<br />
LFDI - Yes<br />
14.78<br />
(0.0020)<br />
LGDP Yes<br />
10.90<br />
(0.0123)<br />
Yes<br />
4.23<br />
(0.0081)<br />
- No<br />
2.02<br />
(0.5678)<br />
Yes<br />
12.67<br />
(0.0054)<br />
No<br />
7.15 (0.0672)<br />
22<br />
No<br />
1.30 (0.7283)<br />
No<br />
1.35 (0.7172)<br />
Yes<br />
22.63<br />
(0.0000)<br />
Yes<br />
14.52<br />
(0.0023)<br />
-0.856474<br />
t-stat : -5.95<br />
(0.000) 12<br />
-.5508932<br />
t-stat : -3.75<br />
(0.001)<br />
12 R-squared 0.8848 Adjusted R-squared 0.8291 F-Statistic 6.3241(0.000) Durbin Watson test 1.9876
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