Cointegration

MP A
R
Munich Personal RePEc Archive

Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships
Joseph Magnus Frimpong and Eric Fosu Oteng-Abayie
9. August 2006

Online at http://mpra.ub.uni-muenchen.de/352/
MPRA Paper No. 352, posted 10. October 2006

BOUNDS TESTING APPROACH: AN EXAMINATION OF FOREIGN DIRECT
INVESTMENT, TRADE, AND GROWTH RELATIONSHIPS

Frimpong Joseph Magnus
KNUST School of Business
Kwame Nkrumah University of Science & Technology
Kumasi – Ghana

Oteng-Abayie Eric Fosu
School of Business
Garden City University College
P.O. Box KS 12775
Kumasi – Ghana

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BOUNDS TESTING APPROACH: AN EXAMINATION OF FOREIGN DIRECT
INVESTMENT, TRADE, AND GROWTH RELATIONSHIPS

Frimpong Joseph Magnus∗
KNUST School of Business, Kwame Nkrumah University of Science & Technology

Oteng-Abayie Eric Fosu
School of Business, Garden City University College

Abstract
Research Paper
Purpose: This paper examines the long-run impact of foreign direct investment and trade on economic growth in Ghana.
Methodology: Using an augmented aggregate production function (APF) growth model, we apply the bounds testing (ARDL) approach to cointegration which is more appropriate for estimation in small sample studies. The data span for the study is from 1970 to 2002.
Findings: The results indicated the impact of FDI on growth to be negative which is consistent with other past studies. Trade however was found to have significant impact on growth. JEL Classification: C32, F14, F21, F39, O11, O4
Keywords: Ghana, ARDL cointegration, unit roots, equilibrium-correction, FDI, Trade

∗

Corresponding author: KNUST School of Business, Kumasi, Ghana; Email: [e-mail]

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1. INTRODUCTION
According Aryeetey (2005), for a developing country such as Ghana, trade may bring about the upgrading of skills through the importation or adoption of superior production technology and innovation.

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