growth and contribution of FDI to GDP is more favourable according to the conintegration results of the equation. This implies that, in the long run when FDI inflow increases, its contribution to GDP will increase which in turn will increase economic growth through increased in real GDP. Increase in FDI inflow will increase investment which in turn will increase aggregate expenditure and thus increase aggregate demand. Increase in aggregate demand will GDP and thus leads to higher economic growth.
Table 4.7: Results of the long-run Coefficients of Cointegration Equation Variable
As noted already, the coefficient of real exchange rate was found to be -0.0339 and is statistically insignificant at 1%, 5% and 10% significance levels. Thus, a percentage increase in real exchange rate causes real GDP growth to decline by approximately 3.4%. This is quite implausible since it is expected that real exchange rate enhances terms of trade make domestic produced items competitive in international trade and hence economic growth. The coefficient of FDI as contribution to GDP in the long run growth equation is positive and significant at %1 significance level. The sign of the FDI GDP ratio variable supports the theoretical conclusion that FDI inflow contributes positively to real GDP growth. When ratio of FDI to GDP goes up by 1% real GDP growth goes up by 187%.
FDI and economic growth in ghana