Relationship between foreign direct investment, economic growth and financial development in Cabo Verde

1. Advance Research Methodology
PRESENTATION TITLE:
RESEARCH PAPER
GROUP MEMBERS
TEHMINA KOUSAR
MEMOONA MAQSOOD

2. The Relationship between
FDI, Economic Growth and
Financial Development
IN CABO VERDE

3. Objective
This paper examines the relationship between foreign direct investment (FDI),
economic growth and financial development in Cabo Verde for the period
1987-2014.
Variables
There are two types of variables
GDP Dependent variable
FDI Independent variable

4. Overview of Economy:
• Economy of Cabo Verde is concentrated in services, which represents a
significant proportion of country GDP.
• From 1975 to around 1993, GDP per capita grew annually at a rate of
between 3% and 4% achieved primilary.
• From 1994 to 2014 Cabo Verde has an average annual GDP growth rate of
some 5.56%.
• In 2012 tourism a dominant part about 70% of GDP.
• Agriculture accounted for less than 10% of GDP.
• Economy of Cabo Verde in 2014 grew by 1.8%, driven by the recovery of
FDI.

5. Literature Review
YEARS AUTHORS RESEARCH QUESTIONS FINDINGS
1992 Blomstrom, M., Lipsey, R. E., &
Zejan, M.
What explains developing country
growth?
found that inward FDI is a source of
economic growth only for a country
already at the certain level of
development.
1998 Borensztein, De Gregorio, & Lee, How does foreign direct investment affect
economic growth?
Human capital is determinant for growth
its integration into market increase
economic growth
2003
2004
2010
Hermes and Lensink
Alfaro, Chanda, Kalemli-Ozcan, and Sayek
Azman-Saini, Law, and Ahmad
Foreign direct investment, financial
development and economic growth
FDI has a positive effect on the
economic growth in countries that
have a developed financial market.
2016 Faisal, Muhamad, and Tursoy . Impact of Economic Growth, Foreign
Direct Investment and Financial
Development on Stock Prices in China
unidirectional short-run Granger causality
from stock prices to economic growth and
from economic growth to FDI.

6. Model Specification
The generalized model used in this paper based on New Endogenous theory is
built on augment Production function
Y =𝑓(𝐹𝐷𝐼, 𝐷𝐶𝑃𝑆, 𝑀2, 𝐼𝑁𝐹)
Economic growth (GDP) is dependent variable as the
FDI is independent variable
Domestic credit in private sector (DCPS) , Money Supply(M2) &
Inflation(INF) are measured from GDP as percentage

7. Data Source
The annual Times Series cover a period of 27 years (1987-2014). The data has been
obtained from
• World development indicators (WDI)
• United Nations Conference on Trade and Development (UNCTAD)
Methodology
Methodology involves the use of
• Bound test approach to Cointegration(ARDL)
• As well as the ECM-Granger causality analysis.
Perform these analysis through EVIEWS 9

8. Empirical results
• FDI & M2 have significant relationship with economic growth in long run
at 5% & 10% significant level
• The empirical results obtained for the long-run indicated that increasing FDI
and M2 increase economic growth in the country.
• the results indicated that DCPS has a negative relationship with economic
growth.

9. Conclusion
• This paper concluded that foreign direct investment (FDI) have positive
effect not only in the Short run but also in Long run
• That conclude FDI stimulates economic growth in Cabo Verde. And also
find that Economic Growth and DCPS are important determinants of FDI in
the country.
Limitations
The small sample size that finding could be very important for the adoptation
of appropriate policy to attract more foreign direct investment to the country

10. Thank You