Nso -Ambala, Randolph; Ana o, Ebeneze Bug i
A icle
A ec o au o eg ession (VAR) analysis o co up ion,
economic g ow h, and o eign di ec in es men in Ghana
Cogen Economics & Finance
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Sugges ed Ci a ion: Nso -Ambala, Randolph; Ana o, Ebeneze Bug i (2022) : A ec o au o eg ession
(VAR) analysis o co up ion, economic g ow h, and o eign di ec in es men in Ghana, Cogen
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A ec o au o eg ession (VAR) analysis o
co up ion, economic g ow h, and o eign di ec
in es men in Ghana
Randolph Nso -Ambala & Ebeneze Bug i Ana o
To ci e his a icle: Randolph Nso -Ambala & Ebeneze Bug i Ana o (2022) A ec o
au o eg ession (VAR) analysis o co up ion, economic g ow h, and o eign di ec in es men in
Ghana, Cogen Economics & Finance, 10:1, 2146631, DOI: 10.1080/23322039.2022.2146631
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Published online: 16 No 2022.
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GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE
A ec o au o eg ession (VAR) analysis o
co up ion, economic g ow h, and o eign di ec
in es men in Ghana
Randolph Nso -Ambala
1
* and Ebeneze Bug i Ana o
1
Abs ac : The pape in es iga ed he dynamic and causal ela ionship among co up-
ion, o eign di ec in es men , and economic g ow h simul aneously, a la gely o e -
looked a ea in empi ical s udies, using a da ase om Ghana. I is among he ew s udies
ha explo e he con luence o hese a iables and he e o e con ibu es o unde s and-
ing he con ex ual eali ies o he impac o FDI in low, an o en-p io i ised policy choice,
on widely used measu es o social cohe ence and wel a e. The s udy employed a ec o
au o eg essi e (VAR) es ima ion app oach o empi ically explo e he ela ionships among
co up ion, o eign di ec in es men , and economic g ow h. The indings sugges ha
he e is a e e se causali y among co up ion, o eign di ec in es men , and economic
g ow h. This indica es ha hese a iables a e complemen a y a he han con adic o y.
These indings imply ha cen al go e nmen and policymake s should no pu sue any o
hese a iables as a policy goal, bu a he ea hem as complemen s when modelling o
o mula ing economic policies. This means ha policies aimed a p omo ing o eign
di ec in es men will no jeopa dize o comp omise he con ol o co up ion and
economic g ow h and ice e sa.
Subjec s: Mac oeconomics; In e na ional T ade; incl; In e na ional T ade (incl. ade
ag eemen s & a i s); De elopmen Economics
Keywo ds: Co up ion; o eign di ec in es men ; economic g ow h; ec o au o eg ession
1. In oduc ion
While he quali y o FDI in lows, co up ion and economic g ow h ha e been ou ed as c i ical
o he achie emen o he Sus ainable De elopmen Goals (SDG), i emains unclea how he
simul aneous in e ac ion o hese a iables should impac policy decisions. This pape exam-
ines he ela ionship(s) be ween co up ion (o i s con ol he eo ), economic g ow h and
o eign di ec in es men (FDI he ea e ) in a bid o explo e he impac o FDI in low on
co up ion (o i s con ol) in de eloping coun ies using a da ase om Ghana. I jux aposes
he cu en heo e ical disposi ion ha FDI in low educes co up ion, wi h he hypo hesis
ha FDI in low can con ibu e o eg egious and highly skewed en c ea ion in he hos
coun y (Leal e al., 2021; Zhu, 2012) by exploi ing high-en y-ba ie ma ke s, pushing an ic-
ompe i i e s a egies ha cu ail he oppo uni ies o po en and ai indus y compe i ion
and hence esul ing in mo e co up ion (K i a-Schneide e al., 2022). Ades and Di Tella (1999)
sugges ha high en s exace ba e co up ion wi h FDI in lows because i imp o es he
abso p ion capaci y o i ms o in e nalise he cos o co up ion while, a he same ime,
inc easing bu eauc a s’ incen i es o engage in he quid p o quo exchange o hei “con ol
igh s” o b ibes.
Nso -Ambala & Bug i Ana o, Cogen Economics & Finance (2022), 10: 2146631
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Page 1 o 18
Recei ed 20 Ap il 2022
Accep ed 08 No embe 2022
*Co esponding au ho : Randolph
Nso -Ambala, Depa men o
Accoun ing and Finance, Ghana
Ins i u e o Managemen and Public
Adminis a ion, P.O.BOX AH50,
Achimo a, Acc a, Ghana
E-mail: [email p o ec ed]
Re iewing edi o :
Ch is ian Nsiah, School o Business,
Baldwin Wallace Uni e si y, Be ea,
OH, USA
Addi ional in o ma ion is a ailable a
he end o he a icle
© 2022 The Au ho (s). This open access a icle is dis ibu ed unde a C ea i e Commons
A ibu ion (CC-BY) 4.0 license.
Ou app oach o a ipa i e and simul aneous simula ion o economic g ow h, FDI, and co up-
ion, using VAR, is innocuous and has an empi ical basis. The gene al p esump ion, wi hin empi ical
s udies, is ha each o he a iables enume a ed abo e impac s o is impac ed by a leas one o
he o he (Zhu, 2012). Besides, policy conside a ions abou one a iable o en ha e embedded
conside a ions o a leas one o he o he a iables (A agón & Rud, 2013; Li e al., 2021).
Seemingly, he empi ical consensus is ha high le els o co up ion (Wijewee a e al., 2010) and/
o low le els o FDI in lows impac (s) economic g ow h nega i ely (Ades & Di Tella, 1999; Hanousek
e al., 2021). On he lip side, low le els o economic g ow h can inc ease co up ion and educe
FDI in lows (B azys e al., 2017). Al hough om a heo e ical pe spec i e co up ion can ei he ac
as a “g abbing hand” (also e e ed o as “sand in he wheel”) o a “helping hand” (also e e ed o
as “g ease in he wheel”) o FDI in low (Onody e al., 2022), he e is anecdo al e idence ha high
co up ion wi hin he public se ice educes FDI in low. Howe e , he empi ical e idence o he
impac o FDI in low on co up ion is con olu ed.
FDI signi ies economic in eg a ion, and gene ally, economic in eg a ion is heo e ically p esumed o
educe co up ion h ough a ious mechanisms. One a gumen is ha economic in eg a ion enhances
ma ke compe i ion and also he di usion o good go e nance. The p ac ical eali ies ha e con es ed his
heo e ical disposi ion. FDI in lows om la ge o ganisa ions such as Wal-Ma ha e been con i med o
lead o he b ibing o public o icials in eme ging economies such as Mexico, B azil, China, and India. The
New Yo k Times
1
con i ms ha “Wal-Ma de Mexico was an agg essi e and c ea i e co up e , o e ing
la ge payo s o ge wha he law o he wise p ohibi ed.” T anspa ency In e na ional has also con i med
ha FDI in lows o de eloping economies usually in ol e b ibes (T anspa ency In e na ional 2006).
Recen ly, B azys e al. (2017) ha e a gued ha since he in e ac ion be ween FDI in lows and indigenous
capi al is complex, s udies abou FDI ac i i y mus conside he speci ic cha ac e is ics o bo h FDI and
local en i onmen s. They base hei asse ion on he seemingly g owing e idence ha he FDI ou comes
di e be ween poo , de eloping, and de eloped economies.
Based on p elimina y anecdo al e idence Zhu (2012) and Li e al. (2021) sugges ha he impac o FDI
on co up ion needs u he explo a ion, as he exis ing li e a u e o e simpli ies he consequences o FDI
ac i i y on co up ion in hos coun ies. He bed ocks his a gumen on he di e en ia ing cha ac e is ics o
FDI (compa ed o o he o ms o capi al in low). His iew is ha FDI in ol es ans e ing physical asse s,
human esou ces, and echnology while demanding deep engagemen and long- e m commi men
om pa en companies. This could c ea e he incen i es and oppo uni ies o exe po en in luences on
hos coun ies. Bun e e al. (2018) a e pa o a g owing lis o schola s ha con es , in empi ical s udies
abou FDI ou comes, he ele ance o sub-na ionally geo- e e enced in es men , ou come, and co a i-
a e da a and quasi-expe imen al me hods o causal in e ence (A agón & Rud, 2013; A agóon & Rud,
2016; Fa champs e al., 2017; Knu sen e al., 2017; Zhu, 2017). These au ho s sugges ha since he
e ec s o FDI a y ac oss coun y and p ojec cha ac e is ics, gene alising i s impac is complex,
complica ed by he lack o coun y-speci ic (o pe haps p e e ence om agg ega ed egional and/o
mul i-coun y da a) o e en mo e g anula si e-speci ic da a ha esul s in imp ecise es ima es.
Ghana exempli ies many eme ging A ican coun ies ha ha e engaged in a ious delibe a e and
o e policies o a ac FDI in lows and a e dealing wi h he emana ing in-coun y ensions he e-
om. In ecen imes, he e ha e been o e ensions and con a y iews abou he long- e m
po ency o such delibe a e policies, such as massi e ax wai e s and ax holidays and o he
concessiona y measu es, usually denied o indigenous businesses. This deba e abou he alue
ele ance o such FDI in lows is an ongoing deba e wi hou consensus. The e o e, his s udy’s
indings con ibu e o his deba e h ough an empi ical analysis o he impac o FDI in lows on
a a iable o in e na ional conce n wi hin eme ging economies, co up ion. Suppose he widely held
iew abou he ad e se e ec s o co up ion on na ional economies and he globalised wo ld is
accu a e as has been widely documen ed (e.g., Li e al., 2021; Mau o, 1997; Rose-Acke man, 1975).
In ha case, he g owing dissen wi hin some eme ging economies abou he impac o FDI in low
on co up ion mus be empi ically in es iga ed. To he au ho s’ bes knowledge, he li e a u e abou
his ela ionship is scan , wi h only one pape di ec ly explo ing his ela ionship wi h da a om
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selec ed p o inces in China (Zhu, 2017). O he s udies, albei ew, ha e examined he impac o
mul ina ional co po a ions (MNCs) on co up ion (Kwok & Tadesse, 2006; Li e al., 2021). S ill, he
indings o hese s udies do no comp ehensi ely add ess he di ec impac o FDI in lows because
(a) no all in es men s by MNCs esul om an in low o o eign capi al and (b) he e a e o he
ca ego isa ions o FDI in lows ha a e no ela ed o MNC in es men s, as is he case in Ghana.
Besides, a subs an ial po ion o s udies abou he impac o MNCs on co up ion ha e used agg ega ed
da a ac oss many egional blocs and economies (Kwok & Tadesse, 2006; Leal e al., 2021), elying on an
o en un es ed and uncon i med hypo hesis o subs an i e s uc u al, cul u al, and sys ema ic homo-
genei y wi hin economic and geog aphical blocs (Nso -Ambala & Co ie, 2021). Recen e idence dispels
his assump ion o con i ed homogenei y be ween A ican coun ies, con i ming he need o s udies
abou cul u al and beha iou al phenomena (such as co up ion) o bea ele an con ex ual conside a-
ions (Nso -Ambala & Co ie, 2021). E en i we accep he a gumen o subs an ial homogenei y ac oss
A ican economies (o egional blocs he ein), i will be dubious o con es he wide a ia ion in cul u al,
social, and beha iou al a ibu es. Based on his and g an ed ha ac s o co up ion can be cul u al,
social, beha iou al, and sys ema ic (S a hopoulou e al., 2021), an empi ical basis exis s o un a el
s udies bed- ocked on agg ega ed da ase s in o coun y-speci ic s udies. Zande (2021) con i ms ha
co up ion has “complex coun y-speci ic e ec s” ega ding adop ing a ying policies.
Mo eo e , ecen da a on FDI lows and co up ion has imp o ed, making new s udies ele an .
The e o e, he s udy seeks o con i m i and how FDI in lows impac co up ion by answe ing he ques ion:
Wha is he ela ionship be ween FDI in low, Co up ion, and Economic G ow h in Ghana?
This s udy answe s he nume ous calls, such as by O usanya e al. (2012) and Leal e al. (2021), o
igo ous s udies abou he impac o FDI in low on co up ion in A ican coun ies. The es o he
pape is o ganised as ollows. The ollowing sec ion ou lines he ele an li e a u e. A e ha , he
me hodology is discussed, ollowed by an empi ical analysis, a discussion, and a conclusion.
2. Li e a u e e iew
Tiwa i and Mu ascu (2011) and Blonigen (2005) a e among a ple ho a o s udies ha con i m ha o
de eloping na ions (Johnson, 2006), FDI in lows exe a posi i e impac and hence enhance economic
g ow h. Wijewee a e al. (2010) a ibu e his o posi i e ex e nali ies h ough echnological spillo e s
and/o di usion, and ade openness ha o en accompany FDI in lows. They cau ion ha his “ aken- o
-g an ed” ou come can be impac ed by he hos coun y’s cha ac e is ics, such as he quan um o skilled
labou (Leal e al., 2021; De Mello, 1999). Thei s udy also con i ms ha co up ion has a nega i e impac
on economic g ow h. Balasub amanyam e al. (1996) had ea lie p o ided e idence ha enhances
economic g ow h in hos coun ies ha adop expo p omo ing policies ela i e o impo subs i u ion
policies. Choe (2003) asse s, howe e , ha e en hough FDI in low G ange -causes economic g ow h,
and ice e sa, he e ec s a e mo e appa en om g ow h o FDI han om FDI o g ow h. Choe (2003)
elies on Lim’s (1983) asse ion ha a apidly g owing economy is a ac i e o FDI because i o e s mo e
p o i p ospec s, and on Felds ein and Bacche a (1991) a gumen ha g ow h engende s highe a e o
capi al o ma ion, hence an a ac ion o FDI. Mau o (1995) analyses a da ase consis ing o indices o
co up ion and con i ms ha co up ion lowe s in es men and he e o e ad e sely impac s economic
g ow h. Aid e al. (2008) ea co up ion as an endogenous a iable in a h eshold model o es ima e he
impac o co up ion on g ow h. They con i m ha gene ally co up ion nega i ely impac s economic
g ow h, a e ing ha co up ion educes he unds a ailable o p oduc in es men s and capi al o ma-
ion necessa y o economic g ow h. Conside ing ha one o he d i e s o co up ion is po e y and low
wel a e, i is no a - e ched o app ecia e ha g owing economies educe he a ac i eness o co up-
ion (Aid e al., 2008).
Co up ion is pe nicious, wi h e idence sugges ing ha inc eases in co up ion educe g ow h
and agg a a e income inequali y’s pe e sion (Gyimah-B empong, 2002; Li e al., 2021; Ugu ,
2014). Al hough co up ion has been in e na ionally ca ego ised as an eg egious an i-social
Nso -Ambala & Bug i Ana o, Cogen Economics & Finance (2022), 10: 2146631
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ac i i y, i will seem ha his a gumen is p emised on e hics and mo ali y a ibu es han i is
based on consensual empi ical analysis (K i a-Schneide e al., 2022; Richmond & Alpin, 2013).
Un il ecen ly, he consensus has been ha globalisa ion, wi h i s a endan ade openness and
ee mobili y o capi al ( o eign capi al in lows), especially in o eme ging economies, mi iga es
public sec o co up ion (B azys e al., 2017; K i a-Schneide e al., 2022). While a ious hypo heses
ha e been p opounded in suppo o his analogy, B azys e al. (2017) sugges ha he empi ical
suppo o his asse ion has no been comp ehensi ely es ed. Mos o hese hypo heses, admi -
edly, a e based on sound heo e ical modelling. Fo example, he compe i ion hypo hesis p o-
poses ha capi al mobili y h ough FDI p omo es ma ke compe i ion and educes abno mal
p o i s and economic en s. The educ ion o he a enues o economic en educes he mo i a ion
o businesses wi hin a “ ade opened” indus y o engage in co up ion as he size o he p ize
om such an ac ion is se e ely limi ed. Ades and Di Tella (1999), Sandhol z and G ay (2003), and
T eisman (2007), and K i a-Schneide e al., (20202) suppo his hypo hesis. Howe e , his hypo h-
esis adop s a na ow iew o co up ion and does no model he a ional p e e ence o o ganisa-
ional leade s o sho - e m gains o e longe - e m su i al (O usanya e al., 2012).
The desi e o sho - e m gains can heigh en he mo i a ion o co up ion in compe i i e spaces. Fo
example, ecen ly, he e is e idence o MNCs le e aging egula o y cap u e o o ce compe i o s ou o
business o ou o he ma ke (Dunning, 1992). B azys e al. (2017) a gue ha FDI in lows may ins ead
inc ease economic en a he han educe i . This occu s when FDI in lows en e ma ke s wi h high en y
ba ie s ha ac as de e en s o indigenous businesses. Ca es (1996) and Dunning (1992) sugges ha
a signi ican a ac ion o FDI in o de eloping coun ies is high en y ba ie s. Because o en y ba ie s
and consequen lack o compe i ion, po en ial en s in hese ma ke s a e high, inc easing he mo i a ion
o engage in co up ac s o main ain he s a us quo. Robe son and Wa son (2004) ind ha a apid
inc ease o dec ease in FDI leads o a high le el o pe cei ed co up ion. Le e aging a lis su ey
expe imen in Vie nam, Malesky e al. (2015) also con i m ha o eign businesses a e mo e likely han
local i ms o pay b ibes in es ic ed sec o s ha yield highe en s.
E en when en y ba ie s a e minimal, FDI in lows can c owd ou indigenous business, inc ease ma ke
concen a ion and en , especially in de eloping coun ies whe e indigenous businesses a e usually
small-sized, lack adequa e capi al, app op ia e echnology, o specialis pe sonnel. The e is e idence
ha FDI in lows and he p esence o MNCs can inc ease ma ke concen a ion and esul in impe ec
compe i ion in de eloping coun ies, hence high en s and consequen ly a highe mo i a ion o
co up ion.
2
Bloms öm (1986), Lall (1979), Li and Resnick (2003), and New a me (1979) also con i m
ha MNCs o en ake delibe a e ac ions o pu sue monopolis ic o oligopolis ic posi ions in hos coun ies.
Besides, mos FDI in lows in eme ging economies a e a ge ed a na u al esou ce exploi a ion. Luu e al.
(2022), Ades and Di Tella (1999), and Rose-Acke man (1999) con i m ha en s acc uing om na u al
esou ces exploi a ion o a lack o compe i ion os e co up ion. High en s imp o e i ms’ abili y o
in e nalise he cos o co up ion and inc ease public o icials’ incen i e o demand b ibes. In his
ins ance, public o icials, who exe some le el o con ol o e FDIs, a e mainly mo i a ed by he ac
ha high en s inc ease he alue o hei con ol igh s, and he e o e he a ional consequence o an up-
weigh ed willingness o exchange hei con ol igh s o b ibes (Ades & Di Tella, 1999). Conside ing ha
FDI in lows usually esul in e ical, ho izon al, o wa d, backwa d, and ancilla y linkages wi h indigenous
en i ies, he suscep ibili y o high en o en -seeking beha iou (Fulle , 2013; Ja o cik, 2004) widens he
bene i s o en s o include a wide ange indigenous agen s and hence consequen ly, co up ac i i ies
may inc ease due o FDI in low.
A second a gumen , p oposed by schola s such as Ge ing and Thacke (2005), Kwok and Tadesse
(2006), and Sandhol z and G ay (2003), is ha he emana ing economic in eg a ion om globalisa ion
ha allows ee capi al mobili y leads o he ans e o “noble capi alis no ms” such as economic
neolibe alism, he ule o law, democ a ic go e nance, and p ope y igh s p o ec ion, all o which
supposedly help educe co up ion (B azys e al., 2017).
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Kwok and Tadesse (2006) use he amewo k o ins i u ional heo y o p opose h ee a enues h ough
which FDI in lows can impac i s hos ins i u ions: egula o y p essu e e ec , demons a ion e ec , and
p o essionaliza ion e ec . In discussing he egula o y e ec s, Kwok and Tadesse (2006) a gue ha FDIs
need o ex e nal legi imacy h ough adop ing a hos coun y's co up business p ac ice is o en a
ension wi h in e nal legi imacy om he pa en company and in e na ional business communi y. They
asse ha i he MNC has enough ba gaining powe , hey can op o in e nal and in e na ional
legi imacy o e hos coun y's legi imacy. Thei a gumen is lawed on many on s, including hei
admi ance ha “ he U.S. Fo eign Co up P ac ices Ac , enac ed in 1977, was p omp ed by a se ies o
scandals in ol ing ques ionable paymen s by U.S. i ms o o e seas go e nmen o icial.” While his
sugges ion is plausible, i emains no ma i e because o hei admi ance o he pe asi e co up ac s
by MNCs. Kwok and Tadesse (2006) also a gue ha he e may also be a spillo e o demons a ion e ec
on co up ion (Oli e , 1997). Dealings wi h MNCs can expose co up public o icials o how business
decisions and alloca ions a e made wi hin he MNCs (Eden e al., 1997). Local o icials and indigenous
business can hen mimic such p ac ices o enhance he coun y’s in e na ional epu a ion and a ac
mo e business. Impliedly, local businesses and public o icials may imbibe “noble” p ac ices o MNCs
g adually. The p o essional e ec asse s ha local p o essionals will adap hei ways o enhance hei
chances o being ec ui ed by FDIs.
While hese a gumen s a e plausible, hey igno e he empi ical e idence ha MNCs as “open
sys ems” adap he business p ac ice, including en y s a egies o i di e en ma ke s and
na ional cha ac e is ics. E en Kwok and Tadesse (2006), while a guing ha FDI in lows can be
agen s o co up ion mi iga ion, accep ha , mo e o en han no , ins i u ional se ing shapes he
beha iou o MNCs o gain legi imacy. MNCs ac i ely adjus hei en y mode and ma ke s a egy
o local en i onmen s (Henisz, 2000; Li e al., 2021; Rod iguez e al., 2005). B azys e al. (2017)
highligh s how US companies ope a ing in China, a he han di use e hical business p ac ices,
adop he common Chinese business p ac ice o b ibe y o secu e business deals. Indeed,
T anspa ency In e na ional (2006); Hellman e al. (2000), (2002), and Sø eide (2006) p o ide
e idence ha mos o en MNCs ha e an equal endency and ma ked endency o engage in
co up ac s, especially in eme ging economies and LDCs.
Thi dly, FDIs, especially in lows in o eme ging coun ies, o en ha e he backing o he powe ul
go e nmen s o hei home coun y and, in addi ion, may le e age hei ba gaining powe and
ma ke size o a ou able ou comes (such as policy and ins i u ional changes) a he han engage
in co up ac s (Kwok & Tadesse, 2006; Malesky, 2004; Wang, 2015). Recen e idence has chal-
lenged his asse ion, con i ming ha a subs an ial numbe o MNC consciously exploi hei powe
o o e come impe ec ions in a m’s-leng h ma ke s (Ca es, 1996; Dunning, 1992).
The enume a ed analysis will seem ha he aken- o -g an ed belie ha FDI in lows mi iga e
co up ion mus be e-examined. The e is compelling e idence, in ecen imes, ha he adap i e
business p ac ices o MNCs could encou age co up ac s by MNCs in poo and eme ging coun ies.
B azys e al. (2017) a gue ha an analysis o he impac o FDI in lows on co up ions mus bea in mind
ha he dis inc i e cha ac e is ics o MNCs de e mine hei ma ke s a egies in di e en hos coun ies
and he consequences o hei conduc on co up ac i i y. Balasub amanyam e al. (1996) and Lall
(1979) con i m ha MNCs adop di e en s a egies be ween de eloped and de eloping coun ies.
3. Me hodology
3.1. Da a sou ces and a iables desc ip ion
The a iables’ de ini ion and da a sou ces a e lis ed in Table 1. The s udy uses da a spanning om 1960 o
2019. The da a se ended in 2019 because some o he a iables used in he s udy did no ha e
obse a ions beyond 2019. The o eign di ec in es men and economic g ow h a iables we e sou ced
om he Wo ld De elopmen indica o s da abase, while he es ima e o co up ion was ob ained om
he Wo ld Go e nance Indica o s as shown in he able.
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3.2. Es ima ion echnique
The causal links among co up ion, o eign di ec in es men , and economic g ow h will be examined
using Vec o Au o eg ession (VAR) app oach. The s a is ical so wa e used o he analysis is E iews 10.
The VAR app oach is used in his pape because i ackles endogenei y issues, which a e a majo hu dle in
ime se ies da a analysis when i comes o econome ic modelling. The impulse esponse and decom-
posi ion o he o ecas e o a iance o he a iables can also be gene a ed using he VAR app oach. The
VAR echnique p o ides a mo e lexible amewo k in which all a iables in he sys em o equa ions a e
conside ed endogenous, making i sui able o he s udy.
Hol z-Eakin e al. (1988) pionee ed he VAR me hodology, which is now widely u ilized in
economic and inancial esea ch all o e he wo ld (Lo e & A iss, 2014; Lo e & Zicchino, 2006).
This s udy adds o he body o knowledge by examining he endogenous ela ionship among
co up ion, o eign di ec in es men , and economic g ow h in Ghana using he VAR es ima ing
echnique. The ollowing is he gene al model o VAR:
Y ¼∑p
k¼1α Y kþu (3:1)
whe e Y is a ec o con aining K endogenous a iables, ¼1 . . . T ime pe iods while Y
is
speci ied as
Y ¼
CORR
FDI
LNGDPPC
2
43
5(3:2)
Table 1 p esen s he a iables de ini ion and sou ces.
Y k s ands o he lagged es ima es o he endogenous a iables and U is a K�I ec o o
andom e o s, and i is speci ied as
U ¼U1 ;U2 ;. . . . . .:UN
� �~
iid 0;δð Þ (3:3)
α is allowed o be dependen c oss-sec ional. In cases whe e he e exis exogenous a iables,
equa ion (3.1) will become
Y ¼∑p
k¼1α Y kþDijR þU (3:4)
whe e Dij a e K�M ma ices o each lag j¼1;...::p, and R
is an M�1 ec o o exogenous
co a ia es simila o all coun ies i.
Table 1. Da a sou ce and a iable desc ip ion
Va iable No a ion Desc ip ion Da a sou ce
Fo eign di ec in es men FDI Fo eign di ec in es men
(% o GDP)
WGI
Economic G ow h LNGDPPC Na u al log o GDP pe
capi a (cu en US$)
WDI
Co up ion CORR Con ol o Co up ion:
Es ima e
WGI
No e: WDI = Wo ld De elopmen Indica o s: WGI = Wo ld Go e nance Indica o s
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In he same way, VAR can also be speci ied in a educed o m acco ding o (Lo e & Zicchino,
2006) as ollows:
Y ¼∑p
k¼1α Y kþτ2R þλiþγ þe (3:5)
I exogenous a iables ðRi ) a e included, i makes Eq. (3.5) di e en om Lo e and Zicchino
(2006) speci ica ion. Whe e Y k is a h ee- a iables ec o CORR;FDI;LNGDPPC½ �. R ep esen he
exogenous a iables i hey exis . Also, λi is ixed e ec which is coun y speci ic and i is an
embodimen o he ime-in a ian ac o s ha a e no obse able, γ is ime dummies which akes
in o conside a ion wo ld economic shocks and e is he dis u bance e m.
3.3. Empi ical model speci ica ion
F om equa ions (3.4) and (3.5), his sec ion p esen s he empi ical equa ions o co up ion, FDI,
and economic g ow h. The VAR amewo k is made up o h ee empi ical equa ions, which a e
desc ibed below. Co up ion, FDI, and economic g ow h a e all modeled using own lags and
exogenous a iable lags, wi h ime-speci ic e ec s and coun y-speci ic ixed e ec s aken in o
accoun . The models a e speci ied below as ollows:
CORR ¼@1þ∑p
j¼1δ1jCORR jþ∑p
j¼1δ2jFDI jþ∑p
j¼1δ3jLNGDPPC jþλiþγ þε (3:6)
FDI ¼@2þ∑p
j¼1δ1jFDI jþ∑p
j¼1δ2jCORR jþ∑p
j¼1δ3jLNGDPPC jþλiþγ þε (3:7)
LNGDPPC ¼@3þ∑p
j¼1δ1jGDPPC jþ∑p
j¼1δ2jCORR jþ∑p
j¼1δ3jFDI jþλiþγ þε (3:8)
CORR is co up ion es ima e o Ghana a any ime ; FDI is o eign di ec in es men a ime ;
LNGDPPC is economic g ow h (GDP pe capi a) a ime ; CORR j is he lag o co up ion es ima e;
FDI j is he lag o o eign di ec in es men ; LNGDPPC j is he lag o economic g ow h measu ed
by he na u al log o GDP pe capi a. The s udy logged he GDP pe capi a o no malise i wi h he
o he a iables because i s igu es a e so la ge. FDI which is a o eign di ec in es men as
a pe cen age o GDP and co up ion es ima e was no logged.
A e compu ing he VAR coe icien s, he o ecas e o a iance decomposi ions (FEVD) and
impulse esponse unc ions (IRFs) a e p oduced using he gene alized Cholesky decomposi ion
me hod. The impulse esponse unc ions enable us o ha e an unde s anding o how o e ime, he
endogenous a iables espond o a shock in ano he a iable in he sys em, while he decomposi-
ion o he o ecas -e o a iance indica es each shock con ibu ion o he sou ce o a ia ion o
each endogenous a iable a any gi en o ecas pe iod.
4. Resul s and discussion
4.1. Desc ip i e s a is ics
The a iables used in his s udy desc ip i e s a is ics a e p esen ed in Table 2. We use he median as
a measu e o cen al endency in ou discussions since he mean is suscep ible o ou lie s. The esul s
show ha he median o Ghana’s co up ion es ima e is −0.255. Con ol o Co up ion encapsula es
popula pe cep ions o he amoun o which public powe is used o p i a e gain, encompassing pe y
and g and co up ion, as well as s a e akeo e by eli es and p i a e in e es s. The co up ion es ima e is
he coun y’s sco e on he agg ega e indica o which is exp essed in s anda d no mal dis ibu ion uni s
anging om −2.5 o 2.5 wi h −2.5 showing he highes co up ion es ima e and 2.5 he lowes co up ion
es ima e. The median o eign di ec in es men ne in low as a pe cen age o GDP in Ghana is 1.496%,
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Page 7 o 18
allowing o known in e p e a ion o impulse- esponse unc ions and e o a iance decomposi ions. The
eigen alues plo (see, Figu e 2), as well as he esul s in Table 10, shows ha he es ima ions we e s able.
As a esul , a leas one eigen alue lies ou side he uni ci cle.
5. Conclusion and policy implica ions
Despi e he ac ha he e has been a lo o empi ical s udies on co up ion, o eign di ec in es men ,
and economic g ow h in ecen yea s, he in e dependence among co up ion, o eign di ec in es men ,
and economic g ow h has been la gely igno ed in he li e a u e. I is o his eason ha his s udy
examines he causal ela ionship among co up ion, o eign di ec in es men , and economic g ow h
om he Ghanaian pe spec i e. Co up ion, o eign di ec in es men , and economic g ow h all play
impo an oles in mos A ican economies’ de elopmen agendas and mac oeconomic s abili y, neces-
si a ing he s udy.
The indings sugges ha he e is a bi-causal ela ionship be ween o eign di ec in es men and
economic g ow h, implying ha he a iables mu ually ein o ce i on each o he . This implies ha hese
a iables a e complemen s a he han con adic each o he . Inc eased economic g ow h p omo es
o eign di ec in es men , acco ding o he esul s. The ecommenda ion o he s udy is ha he cen al
go e nmen o Ghana and o he policymake s can enhance o eign di ec in es men by es ablishing and
implemen ing policies ha p omo e economic g ow h and educe co up ion. Also, cen al go e nmen
and policymake s should no conside hese a iables independen ly when modelling o o mula ing
economic policies, bu a he conside hem as complemen s. This means ha pu suing economic
g ow h policies will nei he jeopa dize no comp omise he goals o educing co up ion and p omo ing
o eign di ec in es men .
This s udy is no wi hou limi a ions. I is limi ed in scope in e ms o wide applicabili y. Since i is
limi ed only o Ghana, he esul s canno be gene alised. The s udy ecommends as u u e di ec ion o
esea ch, o o he esea che s o expand he scope o he s udy o include mo e coun ies o he whole o
A ica.
LIST OF ACRONYMS
ADF The Augmen ed Dickey Fulle
AIC Akaike in o ma ion c i e ion
CORR Con ol o Co up ion Es ima e
FDI Fo eign di ec in es men as a pe cen age o G oss Domes ic P oduc
FEVD o ecas e o a iance decomposi ion
FPE Final p edic ion e o
GDP G oss Domes ic P oduc
GDPPC G oss Domes ic P oduc Pe Capi a
HQ Hannan-Quinn in o ma ion c i e ion
IRF Impulse Response Func ions
LNGDPPC Na u al log o GDP pe capi a (cu en US$)
MNC Mul ina ional Companies
PP Phillips–Pe on es
SC Schwa z in o ma ion c i e ion
SDG Sus ainable De elopmen Goals
VAR Vec o Au o eg ession
WDI Wo ld De elopmen Indica o s
WGI Wo ld Go e nance Indica o s
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Funding
The au ho s ecei ed no di ec unding o his esea ch.
Au ho de ails
Randolph Nso -Ambala
1
E-mail: [email p o ec ed]
ORCID ID: h p://o cid.o g/0000-0002-0771-3172
Ebeneze Bug i Ana o
1
1
Depa men o Accoun ing and Finance, Ghana Ins i u e
o Managemen and Public Adminis a ion, Acc a,
Ghana.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he
au ho (s).
Ci a ion in o ma ion
Ci e his a icle as: A ec o au o eg ession (VAR) analysis
o co up ion, economic g ow h, and o eign di ec
in es men in Ghana, Randolph Nso -Ambala & Ebeneze
Bug i Ana o, Cogen Economics & Finance (2022), 10:
2146631.
No es
1. Da id Ba s ow and Alejand a Xanic on Be ag, “The
B ibe y Aisle: How Wal-Ma Used Payo s o Ge I s
Way in Mexico,” New Yo k Times, 17 Decembe 2012.
2. See o example, Bloms öm (1986), Balasub amanyam
e al. (1996), Lall (1979), and New a me (1979);
Willmo e (1989)
Da a a ailabili y s a emen
The da a ha suppo he indings o his s udy a e
a ailable wi hin he Wo ld Go e nance Indica o s and
Wo ld De elopmen Indica o s a h ps://da abank.wo ld
bank.o g/sou ce/wo ldwide-go e nance-indica o s; and
h ps://da abank.wo ldbank.o g/sou ce/wo ld-
de elopmen -indica o s; a ailable in he public domain.
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