Relationship Between Foreign Direct Investment, Financial Development And Economic Growth

This study is carried out to investigate the relationship between Foreign Direct Investment, Financial Development and Economic Growth in Togo over a time period between1975and2010. Overviews of Togo’s economy, Foreign Direct Investments, Financial Development as well as Economic Growth and some early literature on the relationship among the variables used were presented in the early stage of the study. We used Net Inflows of FDI as the proxy for Foreign Direct Investment. Liquid Liability (LLY) and Private Credit (PC) are used as indicators of Financial Development whereas Real GDP per capita is used to measure Economic Growth. All the variables are in real terms. Vector Autoregressive Model is employed in this study. After carrying out a Unit Root test using Augment Dicker-Fuller test, we realized that all the variables used, except FDI turn to be non-stationary at level. There first differences turn out to be stationary at order1. We further run a test of cointegration using Johansen test of cointegration and the result shows that there is no long run equilibrium relationship among the variables. Based on this finding, we estimate a Vector Autoregressive model. The result of this study shows that there is no statistical evidence to support the fact that, in the short run, a change in the regressors will help predict a change in the respective dependent variables. A further test to investigate a granger causality among the variables reveal that there is no granger causality among the variables used in the study. Clearly, the result from granger causality are supportive of those from the VAR analysis...