FOREIGN DIRECT INVESTMENT AND ECONOMIC PROGRESS: APPLICATION OF A DYNAMIC MODEL

Abstract

Capital movements, whether in the form of foreign direct investment or foreign portfolio investment are considered to have a positive multiplier effect on the economy. The study contributes to the empirical literature by investigating whether foreign direct investment affects economic growth using Namibia as a test centre. The study made use of vector autoregression method to examine this relationship. A quarterly data covering 1990:Q1 to 2014:Q4 was employed. The results found cointegrating relationships among the four variables that were investigated. The estimated long-run equation also suggests a positive relationship amongst the variables that have been examined in the study. Surprisingly, no evidence of causality was found pertaining to the variables assessed in the study. Moreover, real exchange rate and net foreign direct investment contributed more towards innovations in economic growth during the forecast horizon compared to the openness index. The study concludes by crafting opportunities for further inquiries.