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From Table 1, all the variables exhibit a positive mean return. Also, the sum squared deviation
row represents the net change over the sample period. It shows that the Inflation rate, export of
goods and services, Gross Domestic Product per Capita, Gross Domestic Product and interest
rate and Public debt declined by about 7.27%, 5.13%, 0.19%, 3.799%, 5.96% and 1.98%
respectively. In terms of skewness, FDI stocks has return distribution that is negatively skewed
while the Inflation rate, export of goods and services, Gross Domestic Product, interest rate and
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Public debt exhibit a positive skewness which implies that it has a fat right tail. Kurtosis value
of LFDI, LCPI, LEXPORT, LIR and LPD depicts that data are not normally distributed because
values of kurtosis are deviated from 3. The Jarque-Bera statistics and corresponding p-values are
used to check for the normality assumption. On the basis of Jarque-Bera statistics and p-values,
the normality assumption is rejected at 5 percent level of significance for LFDI, LCPI,
LEXPORT, LPD, LFDI, LEXPORT and LIR variables. The only variables that do not reflect this
are LGDPC and LGDP.
2007
2008
LFDI
LGDPC
LPD
2009
LCPI
LGPD
2010
2011
2012
LEXPORT
LIR
implies that whenever LCPI, LGDPC and LIR goes up FDI comes down and vice versa.
Similarly, when LEXPORT and LGDP go up FDI also goes up. The GDPC is highly negatively
correlated with LEXPORT and LPD and therefore was dropped to avoid multicollinerity problem
in our subsequent analysis.
LCPI
LEXPORT
LGDPC
LGPD
LIR
LPD
LFDI
1.00000
-0.23191
0.59954
-0.51112
0.42079
-0.22134
0.48068
LCPI
-0.23191
1.00000
-0.50348
0.31726
-0.38108
0.99641
-0.43840
LEXPORT
0.59954
-0.50348
1.00000
-0.89584
0.64881
-0.48225
0.78286
LGDPC
-0.51112
0.31726
-0.89584
1.00000
-0.62815
0.28071
-0.93130
LGPD
0.42079
-0.38108
0.64881
-0.62815
1.00000
-0.36599
0.55854
LIR
-0.22134
0.99641
-0.48225
0.28071
-0.36599
1.00000
-0.40953
LPD
0.48068
-0.43840
0.78286
-0.93130
0.55854
-0.40953
1.00000
ADF test
statistics
LCPI
ADF test
statistics
LEXPORT
ADF test
statistics
LGDPC
ADF test
statistics
LGDP
ADF test
statistics
LIR
1
5
10
-1.74642
-4.07386
-3.46555
-3.15937
0.7214
1
5
10
-2.44496
-4.07242
-3.46487
-3.15897
0.3543
1
5
10
0.887485
-4.09255
-3.47436
-3.1645
0.9998
1
5
10
-2.10094
-4.08688
-3.47169
-3.16295
0.5366
1
5
10
-1.7757
-4.07386
-3.46555
-3.15937
0.7076
ADF test
statistics
-2.70721
1
-4.07242
LPD
5
-3.46487
10
-3.15897
*MacKinnon (1996) one-sided p-values.
4.5
-5.40857
-4.07386
-3.46555
-3.15937
0.0001
1
5
10
-9.73476
-4.07386
-3.46555
-3.15937
0.0000
1
5
10
0.3221
1
5
10
-1.43581
-4.09255
-3.47436
-3.1645
-13.0415
-4.08688
-3.47169
-3.16295
0.0001
1
5
10
-5.17127
-4.07386
-3.46555
-3.15937
0.0003
1
5
10
0.0000
1
5
10
-10.2742
-4.07386
-3.46555
-3.15937
0.2366
Before estimating the model and determining the rank (r) to find the number of cointegrating
relations in the model, the optimal lag length was determined using 8 maximum lags in the
general VAR model. The aim is to choose the number of parameters, which minimize the value
4
of the information criteria. To make sure that there is no remaining autocorrelation in the VAR
model, the efficient lag is selected. The model lag length established in Table 4 indicates the
appropriate lag length of 8 for FPE, AIC and HQ. Having established the lag length, the presence
of long-run relationship among the variables were tested using Johansen's cointegration test
method. An intercept and trend was specified for the cointegration test.
Table 4: Lag Selection Creteria
Lag
LogL
LR
FPE
AIC
1 1101.074
NA
2.24E-21
-27.686160
2 1137.129
58.82723
3.23E-21
-27.345510
3 1157.609
29.64161
7.37E-21
-26.594970
4 1185.021
34.62518
1.51E-20
-26.026860
5 1216.376
33.83025
3.15E-20
-25.562510
6 1368.999
136.5575
3.23E-21
-28.289440
7 1546.662
126.345*
2.26E-22
-31.675310
8 1625.239
41.35642
3.4E-22*
-32.45366*
* Indicates lag order selected by the criterion
LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion
SC
-26.18345*
-24.340090
-22.086850
-20.016020
-18.048970
-19.273180
-21.156350
-20.431980
HQ
-27.085600
-26.144400
-24.793310
-23.624640
-22.559740
-24.686100
-27.471430
-27.64922*
Hypothesized
Trace
0.05
Critical
Value
No. of CE(s)
Eigenvalue
Statistic
Prob.**
None *
0.504315
114.8652
95.75366
0.0013
At most 1
0.249035
59.42185
69.81889
0.2535
At most 2
0.199743
36.7965
47.85613
0.3572
At most 3
0.122174
19.19353
29.79707
0.4791
At most 4
0.096091
8.899307
15.49471
0.3748
At most 5
0.011556
0.918251
3.841466
0.3379
Max-Eigen
0.05
No. of CE(s)
Eigenvalue
Statistic
Critical Value
Prob.**
None *
0.504315
55.44331
40.07757
0.0005
At most 1
0.249035
22.62535
33.87687
0.5592
At most 2
0.199743
17.60297
27.58434
0.5285
At most 3
0.122174
10.29422
21.13162
0.7166
At most 4
0.096091
7.981057
14.2646
0.3806
At most 5
0.011556
0.918251
3.841466
0.3379
one cointegrating vector, we proceeded to estimate the VECM to examine the short-run causal
associations between the variables. The result of the VECM estimation is shown in Table 6a.
1.2
0.8
0.4
0.0
-0.4
-0.8
-1.2
2006
2007
2008
2009
2010
2011
2012
Cointegrating relation 1
p-
value [0.00198] suggests that LCPI, LEXPORT, LIR, LGDP and LPD jointly impact on FDI.
7
This means that all the variables under study influence FDI in the long run. The Lag variables 1,
2 and 5 8 of LFDI independently influence the FDI in a negative way. Lag variables 2 8 of
LCPI, 1 8 of LGDP both independently influence FDI in a positive way, while 1 5 of
LEXPORT, 2 7 of LIR, and 1 3 of LPD independently influence LFDI in a negative way in a
short run. This implies that as both LCPI and LGDP increase, FDI stock also increases in Ghana
in the short run. Similarly, as LEXPORT, LIR and LPD increase, LFDI reduces.
LGDPt-2
3.02331
0.40085
7.54231
LGDPt-3
1.70792
0.28129
6.07177
LGDPt-4
1.78727
0.22946
7.78920
LGDPt-5
1.66176
0.23940
6.94137
LGDPt-6
1.78543
0.25919
6.88850
LGDPt-7
2.04294
0.30805
6.63195
LGDPt-8
1.43980
0.26535
5.42616
LIRt-1
-1.61443
0.80517
-2.00507
LIRt-2
-1.72503
0.75903
-2.27266
LIRt-3
-2.88179
0.70996
-4.05908
LIRt-4
-2.31056
0.81527
-2.83409
LIRt-5
-2.87497
0.84126
-3.41745
LIRt-6
-3.74440
0.80291
-4.66355
LIRt-7
-3.03715
0.96789
-3.13792
LIRt-8
-1.52011
0.76302
-1.99222
LPDt-1
-1.35925
0.37374
-3.63688
LPDt-2
-1.17775
0.36455
-3.23068
LPDt-3
-0.69264
0.30813
-2.24790
LPDt-4
-0.64544
0.34073
-1.89432
LPDt-5
-0.32876
0.35976
-0.91383
LPDt-6
-0.00299
0.37532
-0.00797
LPDt-7
0.67190
0.35650
1.88473
LPDt-8
0.19844
0.34582
0.57381
C
-0.04749
0.02305
-2.06056
ECM(-1)
-0.03033
0.00338
-8.98435
R-squared
0.8865870
Mean dependent var
Adjusted R-squared
0.6642980
S.D. dependent var
S.E. of regression
0.0596990
Akaike info criterion
Sum squared resid
0.0891000
Schwarz criterion
Log likelihood
146.16030
Hannan-Quinn criter.
F-statistic
3.9884470
Durbin-Watson stat
Prob(F-statistic)
0.00198**
Note: Prob. Values with ** are significant at the 5% significant level
0.0000**
0.0000**
0.0000**
0.0000**
0.0000**
0.0000**
0.0000**
0.055900
0.0319**
0.0004**
0.0009**
0.0022**
0.0001**
0.0043**
0.057400
0.0013**
0.0034**
0.0336**
0.069800
0.369500
0.993700
0.071100
0.571200
0.0499**
0.0000**
0.000332
0.103037
-2.564274
-1.019282
-1.947375
1.715778
given in Tables 5a, 5b and 6b. In accordance with these results, the levels of all series do not
include unit root at 1 percent significance level. This means that levels of these series are
stationary.
Table 6b: VECM Model Diagnostic Tests
Serial Correlation
F(8,17)=0.718903[0.6730]
Heteroskedasticity
F(54,20)=1.351899[0.2320]
Normality
X2 (2)=25.76546[0.0003]
The diagnostic test statistics reported in Table 6b indicates that the model passes serial
correlation and heteroscedasticity test at the 5% but fail normalilty test.
5
0
-5
-10
-15
IV
2010
II
III
2011
IV
II
III
IV
2012
CUSUM
5% Significance
4.11: Actual, Fitted and Residual Plots of the Foreign Direct Investment (FDI)
The actual, fitted, and residual plots in Figure 4 show that the model has a relatively good fit, as
the residual are stationary around zero (that is, mean reverting).
10
.4
.2
.0
.15
-.2
.10
-.4
.05
-.6
.00
-.8
-.05
-.10
-.15
2006
2007
2008
2009
Residual
2010
Actual
2011
2012
Fitted
Figure 4: Actual, Fitted and Residual Plots of the Foreign Direct Investment (FDI)
11