Modelling the connection between foreign trade and economic growth with OLS technique: Further empirical evidence from Namibia.

Abstract

Economic growth is undoubtedly one of the most complex processes in economic literature. It is therefore quite an enormous task in an attempt to try and construct an empirical model to explain in a detail manner the growth process of any modern economy. In this study, we have tried to isolate and investigate factors that could be of use in explaining the growth process by using Namibia as a laboratory test ground. More specifically, the following explanatory variables came under scrutiny-exports, imports, balance of payments‟ accounts, inflation, including foreign direct investment. In carrying out the investigation, we relied upon a combination of bivariate and multivariate regression models. We also specified and estimated the double log transformations of the various regression equations that were used in the study in order to determine the responsiveness of changes in the regressors with respect to economic growth. Macroeconomic data utilised runs from 1990 to 2008. The results of the study confirmed that exports and foreign direct investment, including the balance of payments‟ accounts are good predictors of economic performance, while imports and inflation are leakages and could be detrimental to the entire economy, especially, it left uncontrolled over a protracted period of time. The study concludes by recommending, inter alia, the pursuit of an export-led industrialization policy for Namibia, while at the same time creating an environment that would encourage investors, especially foreign investors to 3 relocate part of their capital to Namibia. We also put forward some proposals for researchers willing to carrying out further investigation regarding the issue under discussion.