HIGH FDI FLOWS AND HIGH CENTRAL BANK INDEPENDENCE: A NOTE ON COORDINATED GROWTH IMPACT IN EMERGING COUNTRIES

Hermann Sintim-Aboagye, Montclair State University, Upper Montclair, New Jersey, U.S.A
Chandana Chakraborty Montclair State University, Upper Montclair, New Jersey, U.S.A

Published in

JOURNAL OF INTERNATIONAL FINANCE STUDIES
Volume 19, Issue 1, p11-16, March 2019

ABSTRACT

Based on the evidence that high central bank independence facilitates fdi driven growth, the objective of this note is to see if the coordination between fdi flows and high cbi environment benefits countries in general or the benefits are conditioned by the size of average fdi flows. We proceed by dividing the sample of 22 emerging countries into four different groups: countries with (1) high fdi flows and high cbi (HFHCBI); (2) high fdi flows and low cbi (HFLCBI); (3) low fdi flows and high cbi (LFHCBI); and (4) low fdi flows and low cbi (LFLCBI). For each of these groups, we examine the strength of the lationship between fdi and growth by Subjecting time series data on gdp and fdi flows to Granger causality tests. The results of these tests provide stark differences between the referred country groups. For the HFHCBI group, fdi and gdp shares a robust bidirectional link. Contrastingly, for the HFLCBI group, the link between fdi flows and gdp is unidirectional and runs only from gdp to fdi flows. For the remaining groups of LFHCBI and LFLCBI, fdi flows and gdp fails to influence each other either in the short run or in the long run. The evidence thus suggests that high cbi environment is effective in producing long run spillover growth only for countries that are capable of attracting above average fdi flows.

Keywords

Foreign Direct Investment, Economic Growth, Emerging Countries, and Central bank Independence.


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