Determinants of Economic Growth in Developing Countries
Determinants of Economic Growth in Developing Countries:
A Panel Cointegration Approach
Zequn (Charlie) Li
December 19, 2014
Economics 385
St. Olaf College
Abstract
Many factors influence the economic growth process. Especially, the inflow of foreign direct investment (FDI) has been found to play a crucial role in the economic growth of receiving countries. This paper examines determinants of economic growth in developing countries from 1991 to 2010. Using panel cointegration approach, with panel data across thirty countries in Africa, Asia and Latin America, this paper finds that real FDI does not have statistically significant influence on real GDP across developing countries from 1991 to 2010. Rather, it appears to be the economic factors internal to a country that have the most influence on real GDP over time: monetary and fiscal policy, household consumption, capital stock, number of person engaged in the work force, and export trade.
Introduction
A nation’s growth domestic product (GDP) represents the economic market values for the goods and services that businesses produce. Many factors influence the GDP growth process. These include government monetary and fiscal policy, political stability, domestic capital formation, development of human capital, banking and financial infrastructure, export policies and foreign direct investment. In many cases, these factors all occur differently in each nation; other times, different factors can play a role. These factors provide a significant platform to measure economic development collectively. But for the vast majority of the developing countries, due to the economic stages they are stuck in, lack of political will, shortage in capital or environmental resource or a combination of them, there have been cycles of economic chaos and encountered economic growth difficulties. For countries in Asia, Africa, and Latin America, sustained economic growth might be distant goal that is
A Panel Cointegration Approach
Zequn (Charlie) Li
December 19, 2014
Economics 385
St. Olaf College
Abstract
Many factors influence the economic growth process. Especially, the inflow of foreign direct investment (FDI) has been found to play a crucial role in the economic growth of receiving countries. This paper examines determinants of economic growth in developing countries from 1991 to 2010. Using panel cointegration approach, with panel data across thirty countries in Africa, Asia and Latin America, this paper finds that real FDI does not have statistically significant influence on real GDP across developing countries from 1991 to 2010. Rather, it appears to be the economic factors internal to a country that have the most influence on real GDP over time: monetary and fiscal policy, household consumption, capital stock, number of person engaged in the work force, and export trade.
Introduction
A nation’s growth domestic product (GDP) represents the economic market values for the goods and services that businesses produce. Many factors influence the GDP growth process. These include government monetary and fiscal policy, political stability, domestic capital formation, development of human capital, banking and financial infrastructure, export policies and foreign direct investment. In many cases, these factors all occur differently in each nation; other times, different factors can play a role. These factors provide a significant platform to measure economic development collectively. But for the vast majority of the developing countries, due to the economic stages they are stuck in, lack of political will, shortage in capital or environmental resource or a combination of them, there have been cycles of economic chaos and encountered economic growth difficulties. For countries in Asia, Africa, and Latin America, sustained economic growth might be distant goal that is