The Dynamic Links between Investment, Trade Openness and Growth in SSA
| Title | The Dynamic Links between Investment, Trade Openness and Growth in SSA |
| Publication Type | Journal Article |
| Year of Publication | 2011 |
| Authors | Sisay, AMekonnen |
| Journal | Journal of African Development Studies |
| Volume | 4 |
| Issue | 1 |
| Date Published | 12/2011 |
| Keywords | Dynamic Links, F13, F43., Growth, Investment-Trade-Income Links, Panel Data, SSA JEL Classification: E22, SURE |
| Abstract | some studies are skeptical whether further investment is productive and trade
liberalization is promising for SSA economic growth. However, the skepticisms are mostly
reliant on single equation estimations of contemporaneous effects that may not account for
simultaneity and dynamic interactions. Tackling these econometric problems, this study
investigates the dynamic links between investments, trade and income growth in SSA economies
targeting at addressing the question: how the impacts amongst these economic forces flow?
The study estimates a system of dynamic simultaneous equations model with SURE using panel
data from 32 SSA countries over 1961-2003. The estimated results jointly reveal the existence
of a full cycle of impact flows from investment-GDP-trade openness-investment besides the
twin feedbacks between GDP growth and growths of investment & trade. The positive impact of
trade liberalization on SSA economic growth is found lagging for two years and persisting to
the subsequent year. Its growth effect is twofold. It enhances economic growth directly, and
indirectly through investment while the latter is also found growth spurring. Hence, deepening
trade liberalization policies, encouraging investment in the exporting sector through incentive
schemes favouring the import of technology embodying capital goods and enhancing their
synergetic links have been recommended for better economic performance of the region.
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