A Dynamic Model for determining Inward Foreign ... - Business School

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inflation, interest rate, GDP and so on). More precisely, financial risk has negative effect on inward FDI and political risk significantly influences inward FDI with negative sign, but the economic risk has a significant positive sign in determining inward FDI. This seems to indicate that foreign investors would continue investing in Jordan although economic risk perceptions have worsened in the short-run. Nevertheless, this empirical observation does not encourage economic risk, but to highlight the short-run responses of inward FDI to Jordan’s economic risk. In the long run, the economic risk has negative impacts on the inward FDI in Jordan. It can be explained by Uctum and Uctum (2011, 475) study that economic risk reduces the inflow of FDI. Services, industry and general stock market price sectors affect inward FDI negatively, but the banking stock market positively influences Inward FDI and statistically insignificant. In the short-run high interest rate attracts more inward FDI. This shows that foreign investors would remain investing in Jordan. It can be explained by Farrell et al (200, 17); Pan (2003, 832); Tolentino (2010, 114) and Uctum and Uctum (2011, 466) who report that interest rate increase the inflow of FDI to host country. However, high interest rate would discourage the inflow of FDI in the long-run as it considers high borrowing cost. This conclusion supports Cuyvers et al (2011, 255) study the effects of interest rate on inward FDI in a developing economy such as Cambodia. Cuyvers et al point out that a negative nexus between interest rate and the level of inward FDI in a host country. Also, Wei and Liu findings (2001); they indicate economic linkages between FDI and cost of borrowing. This specifies that a lower cost of borrowing in the home country than in host country gives the home country firms a cost advantage over their rivals in the host economy. The significance of the error correction terms of these ECMs further reveals the following interpretations. Firstly, it confirms the presence of a long –run equilibrium relationship among the inward FDI and its determinants. Secondly, Jordan country risks, macroeconomic factors and stock market price do jointly Granger causes the level of inward FDI in Jordan. Finally, the estimated coefficient of error correction term indicate the speed of adjustment among the variables towards long run equilibrium take 2 years to 2.5 years (58 months) approximately to return to equilibrium. 26
Table7: Vector Autoregressive (VAR) Granger Causality/ Block Exogeneity Wald Test Equations FDI FR ER PR BS SS IS GS INF INT GDP FDI 21.35447* 22.92724* 25.2104** 29.84367** 39.17632*** FR 20.75454* 24.30078* 19.93121* ER 29.21642** 27.27689** 26.3925** 19.97094* PR BS 34.61184*** 43.15024*** 20.22188** 28.55694** 23.27832* 25.60021** SS 34.52445*** 30.65587** 28.45206** 23.4917* 26.55821** IS 35.52189*** 57.01017*** 18.648** 23.83057* 23.53805* GS 34.40376*** 42.53835*** 19.38172** 28.65669** 23.55297* 24.77008** INF 18.46742* 19.13671* 23.60268* 19.72975* 27.92124** INT 20.73333* 26.89246** GDP 17.58099* 25.57754** 52.80833*** Joint 405.9396*** 141.0835 681.7122*** 90.45212 127.8285 125.1251 301.3650*** 127.4321 280.6545*** 179.0602*** 456.8541*** The Chi-square tests are reported in each cell with their associated p-value. Significant at 10% (*), 5% (**) and 1% (***) 27
Page 1 and 2: A Dynamic Model for determining Inw
Page 3 and 4: 1. Introduction Foreign direct inve
Page 5 and 6: investors look for the markets whic
Page 7 and 8: macro or micro measures taken by th
Page 9 and 10: exchange rate between the Japanese
Page 11 and 12: Research Methodology and Empirical
Page 13 and 14: and error correction model (ECM) ar
Page 15 and 16: 3 Model Specifications 3.3.1 Unlagg
Page 17 and 18: uncorrelated and normally distribut
Page 19 and 20: ( ) ( ) ∑ ( ̂ ) ( ) ( ) ( ̂ ) W
Page 21 and 22: 4.2 Unit Root Test The Augmented Di
Page 23 and 24: Table 4: Summery Statistics of the
Page 25 and 26: Table (5) presents results of VAR l
Page 27: Table (7) presents the Granger caus
Page 31 and 32: Table 8 (part: b): Estimates of the
Page 33 and 34: services locally, remove any impedi
Page 35 and 36: Guru-Gharana, Kishor K., and Deergh

A Dynamic Model for determining Inward Foreign ... - Business School

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