Determinants of FDI in Ghana: a cointegration analysis
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Date
2016-06
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KNUST
Abstract
ABSTRACT
The inflow of foreign direct investment is hailed in most developing countries since it
bridges gap between low domestic savings due to low incomes and hence low domestic
investment. This research studied the Determinants of FDI in Ghana using
Cointegration and VECM analysis. Using data from 1980 to 2014. Real exchange rate
and its volatility, inflation, infrastructure development, trade openness, return on
investment international interest rate and democracy (political stability) were the main
variables of interest. The ARCH/GARCH models was used to model the volatility of
real exchange rate. The volatility of real exchange in Ghana has been persistent over
the years which is mostly takes the form of the falling cedi. The study found that there
is positive long run causality running form Real Exchange Rate, Real, Infrastructure
and Return on Investment to FDI inflows in Ghana. Whiles that of exchange rate
volatility, inflation and trade openness has a negative long run relationship.
In the long run these variables today could determine FDI in the next generation. It
was found also that about 80% of irregularities in foreign direct investment inflow is
corrected within the same time period. The study also established that there exist short
run causality running from Real Exchange Rate, Trade Openness and Democracy to
foreign direct investment in Ghana. The other variable were established to have a weak
statistical significance
Description
A thesis submitted to the School of Business, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for the degree of Master of Science (Finance and Investment) School Of Business, College of Art and Social Sciences