The causal relationship between GDP growth, Foreign Direct Investment, and inflation in Ghana from 1970 to 2021: a co-integrated study

The study used a time series model to assess the relationship between three macroeconomic variables in Ghana, namely economic growth (GDP), Foreign Direct Investment (FDI), and inflation (INFL). Data covering the period of 1970-2021 was sourced from the World Development Indicators of the World Bank. The Phillips-Perron Test was run to test for stationarity, and our results showed that the dependent variable (GDP) was non-stationary, thus violating the Time Series Model Assumption. Hence, we found the first difference of the variable, and the results showed that the first difference of our variable was stationary. The Augmented Dickey-Fuller Test also revealed results similar to the Phillips-Perron Test. The ADF Test used in the study showed that the first difference in GDP is stationary. The VAR Granger Causality Test also examined the causal relationship among GDP, FDI, and INFL. The empirical results showed that FDI granger-causes GDP while INFL does not granger-cause GDP in Ghana. The results also showed that all the dependent variables can granger-cause GDP. This suggests that FDI and INFL are good predictors of GDP. The study further investigated the long-run relationship between the variables by testing for cointegration. The results from the Johansen Cointegration Test revealed no cointegration among the variables, which also indicates no long-run relationship between the variables. The Max-Eigenvalue Test also validates this result because all the values of the Max-Eigen Statistics are less than the critical values at the 0.05 level.