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The preoccupation of this study is to examine the
cointegrating relationship and direction of
causality between trade openness, foreign direct
investment, domestic investment, government
expenditure and economic growth for a panel of 17
highly aid-dependent Sub-Sahara African countries,
for the period 1975-2010. The selected countries
are: Benin, Botswana, Burkina Faso, Cameroon, Cote
d’Ivoire, Gabon, Gambia, Ghana, Kenya, Liberia,
Malawi, Nigeria, Senegal, Sierra Leone, Togo, Zambia
and Zimbabwe. The Kao and the Johansen-Fisher panel
cointegration tests identify cointegrating
relationships between the panel variables. The
long-run effects of trade openness, domestic
investment and government expenditure on economic
growth are significantly positive. However, the
long-run effect of foreign direct investment on
economic growth is insignificant. The direction of
causality between the panel variables is also
examined by performing the Engle and Granger (1987)
test on the first-differenced variables. Since the
long-run elasticities of economic growth with
respect to trade openness, domestic investment and
government expenditure are greater than the
short-run elasticities, it is recommended that
greater openness to international trade and
increases in domestic investment and government
expenditure will expectedly raise the economic
growth of the Sub-Sahara African countries.
Keywords: Dynamic panel,
Trade openness, Investment, Economic growth.
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