Victor Owusu-Nantwi and Gloria Owusu-Nantwi
The purpose of this paper is to examine the effect of corruption and shadow economy on public debt in 51 African countries. In addition, the study explores the causal linkage…
Abstract
Purpose
The purpose of this paper is to examine the effect of corruption and shadow economy on public debt in 51 African countries. In addition, the study explores the causal linkage between corruption, shadow economy and public debt.
Design/methodology/approach
The study employs vector error correction model and Kao cointegration test to examine the long-run relationship between corruption, shadow economy and public debt in Africa.
Findings
The study finds a positive and statistically significant relationship between corruption and public debt. Further, the study reports a positive and statistically significant effect of shadow economy on public debt. In the short run, the study finds a unidirectional causal relationship between corruption, shadow economy and public debt with the direction of causality running from corruption and shadow economy to public debt, respectively.
Practical implications
This study recommends that countries should pursue policies and programs that would provide resources to agencies tasked with the responsibility of fighting corruption. This would ensure that countries have effective institutions that curb vulnerabilities to corruption and reduce the size of the shadow economy and public debt.
Originality/value
This study contributes to the literature by showing how corruption and shadow economy affects public debts of African countries. To the best of the author's knowledge, this is the first attempt to examine this relationship in the context of Africa.
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The purpose of this paper is to investigate the effect of institutional quality on foreign direct investment (FDI) flows in South America.
Abstract
Purpose
The purpose of this paper is to investigate the effect of institutional quality on foreign direct investment (FDI) flows in South America.
Design/methodology/approach
The study uses two-stage least squares (2SLS) and fixed effect ordinary least squares regression analyses to examine the relationship between institutional quality and FDI in South America.
Findings
The study finds a significant positive relationship between institutional quality index and FDI. This implies that improvements in the institutional quality relate to increases in the flow of FDI to South America. Domestic capital, GDP per capita growth, and trade positively relate to FDI. However, the coefficient of trade is not significant. This implies that increases in these variables relate to increases in FDI flows to South America.
Practical implications
The study recommends that quality of institutions matter to the flow of FDI and therefore, efficient institutional reforms should be a priority for policymakers as this creates a conducive investment environment to attract FDI in South America. Further, policies that are focused on promoting competition, open market, and effective non-corrupt public institution as well as open and transparent legal and regulatory regimes, and effective delivery of government services should be the priority of policymakers in South America (Mishra and Daly, 2007).
Originality/value
The study uses a single measure of institutional quality based on a broad set of institutional indicators. This broad measure of institutional quality differs from the available studies that mainly focused on single aspects of institutional quality, that is, either corruption, governance, or political risk.
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Victor Owusu-Nantwi and Christopher Erickson
The purpose of this paper is to investigate the impact of foreign direct investment (FDI) on economic growth in countries in South America. Additionally, the study explores the…
Abstract
Purpose
The purpose of this paper is to investigate the impact of foreign direct investment (FDI) on economic growth in countries in South America. Additionally, the study explores the causal linkage between FDI and growth in the region.
Design/methodology/approach
The study employs Pedroni’s cointegration test to examine the long-run relationship between FDI and economic growth in South America. Further, the study employs the vector error correction model (VECM) to examine the long-run relationship, and the causal nexus between FDI and economic growth in South America for the period 1980–2015.
Findings
The Pedroni cointegration test establishes a long-run relationship between FDI and economic growth in a panel of ten countries in South America. The long-run estimates of the study find a significant positive impact of FDI on economic growth in the region. The VECM results find a short-run bidirectional causality between FDI and economic growth. The error-term is negative and significant. This indicates the presence of long-run equilibrium relationship among the variables.
Practical implications
Countries in South America should adopt policies that would substantially enlarge FDI inflows to enhance their growth and development.
Originality/value
Numerous studies have examined the impact of FDI on economic growth in the context of Latin America. This study fills a gap in the existing literature by providing an empirical evidence that focuses on South America. This additional perspective could form the basis for the evaluation of the investment policies, and help policymakers to pursue FDI policies that would enhance growth and development in South America.
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Osman Sayid Hassan Musse, Ashurov Sharofiddin and Mohamud Ahmed Mohamed
This study aims to investigate the effect of total external debt stock on economic growth of the East African Community (EAC) bloc.
Abstract
Purpose
This study aims to investigate the effect of total external debt stock on economic growth of the East African Community (EAC) bloc.
Design/methodology/approach
The study applies balanced panel data for seven of the eight EAC member states, spanning the period from 2013 to 2022, and uses panel data models, i.e. pooled ordinary least squares, random and fixed effects models.
Findings
The findings reveal a significant positive correlation between total external debt stock and economic growth, supporting the economic theory that reasonable levels of borrowing can stimulate economic growth, particularly when funds are channeled into productive activities. However, the relationship between foreign direct investment and economic growth lacks statistical significance, indicating challenges in attracting sufficient investment for substantial growth within the EAC bloc. Trade openness shows a negative and statistically insignificant correlation with economic growth. Additionally, the study finds a positive and significant correlation between the unemployment rate and economic growth, while the inflation rate demonstrates a positive but statistically insignificant relationship with economic growth.
Practical implications
The study recommends improvements in debt management practices, enhancements in the business environment, infrastructure investments, a reassessment of trade policies and initiatives to stimulate job creation and SME development. More importantly, governments should focus on expanding the tax base in ways that stimulate growth, thereby reducing reliance on external debt.
Originality/value
This study is unique as it revisits the effect of external debt stock on economic growth following Somalia’s recent membership in EAC bloc.