SECTION B (70 MARKS)Answer ANY TWO (2) questions.
Question 2 (35 marks)
In recent years, especially since 1994, the government of Chana has been making strenuous efforts through institutional and legal frameworks, and above all promotional campaigns, to encourage overseas foreign direct investment (1DT) inflows. The urgency of the government’s FDI agenda led to a reassessement of the 1985 investment code, culminating in the 1994 Investment Act, which set up the Ghana Investment Promotion Centre as an aggressive investment promotion body. A study aims at using broader data and longer time frame coupled with relatively rigorous and robust methodology to examine the effect of the determinants of FDI in the small and developing country such as Ghana. The time sera data covering the period 1970-2002 were used. The choice of variables in the econometric model is largely informed by both theoretical and empirical literature. The table below summarized the results.
Time series results
Variables
Coefficient
Standard Enror
t-statistics
Probability
Constant
-0.527
0.639
-0.824
0.412
Exchange rate
-0.139
0.067
-2.069
0.045
Economic Openness
0.009
0.009
0.999
0.319
Exchange rate Volatility
-0.114
0.005
-2.261
0.041
GDP prr capita
-0.014
0.018
-0.813
0.418
FDI lag
0.363
0.086
4.241
0.009
Political Instability
0.235
0.108
2191
0.049
R2
0.871
Adjusted R2
0.839
Durbin-Watson Stat
1.977
Schwarz Criterion
-0.303
F-statistic
14.854
Probability (F-statistic)
0.001
Adapted from the error correction modelling of FDI function of KyereboahColeman (2008)
(a) Describe the process of building a theoretical framework that will lead to (and justify) the inclusion of the variables considered in the above model.
(b) Discuss in detail the empirical results, while providing an interpretation of the significance of the determinants of FDL.
(c) In light of the above results, how would you assess the promotion campaigns of the government of Ghana.
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