American Journal of Applied Sciences

Bounds Testing Approach to Cointegration: An Examination of Foreign Direct Investment Trade and Growth Relationships

Oteng Abayie Eric Fosu and Frimpong Joseph Magnus

DOI : 10.3844/ajassp.2006.2079.2085

American Journal of Applied Sciences

Volume 3, Issue 11

Pages 2079-2085


This study examines the long-run impact of foreign direct investment and trade on economic growth in Ghana. Using an augmented aggregate production function (APF) growth model, we apply the bounds testing (ARDL) approach to cointegration which is more appropriate for estimation in small sample studies. The data span for the study is from 1970 to 2002. We found cointegration relations between growth and its determinants in the APF model. The results indicated the impact of FDI on growth to be negative which is consistent with other past studies. Trade however was found to have significant positive impact on growth.


© 2006 Oteng Abayie Eric Fosu and Frimpong Joseph Magnus. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.