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1*
Impact of Openness, Foreign Direct Investment, Gross Capital
Formation on Economic Growth in Kenya

Nedd+ Soi
1
Irene ,os-ei
1
) ,ibet .uigut
2
and Jo/n ,ibet
*

1. Sc/ool of .usiness and Economics) 0oi 1niversit+) "& .o2 *3- *1 Eldoret) ,en+a
2. Sc/ool of .usiness and 0anagement) 1niversit+ of Eldoret) "& .o2 112% - *1) Eldoret) ,en+a
*. Iowa State 1niversit+) 4ollege of 5griculture and 6ife Sciences 1*$ 4urtiss 7all) 5mes) I5 %11-1%
8 E-mail of t/e corresponding aut/or9 nedd+soi:gmail.com

Abstract
;/e general ob<ective of t/is stud+ was to assess t/e impact of impact of openness) foreign direct investment)
and gross capital formation on economic growt/ in ,en+a wit/ t/e +ears under consideration being 13= to 21.
;/ere are man+ components of international trade t/at effect economic growt/) but t/is paper e2amined t/e
effect impact of openness) foreign direct investment) gross capital formation on ,en+an economic growt/.
>orld .an- data for t/ese variables were anal+?ed in order to ac/ieve t/e desired ob<ectives. 5 multiple linear
regression model) .arro growt/ model) was used to estimate t/e e2isting t/e relations/ip between variables t/en
ordinar+ least s@uare met/od was applied. Arom t/e findings) trade openness affect t/e ,en+an economic growt/
positivel+ !B
1
C *.=2) pD.%#) w/ile foreign direct investment and gross capital formation /ad no significant
effect on ED" growt/ rate. ;/us) trade openness is ma<or determinant of economic growt/ particularl+ in
developing countries. ;/is stud+ recommended t/e polic+ ma-ers and t/e government to emp/asi?e trade
openness being t/e robust determinants of economic growt/.
Keywords International ;rade) Economic Erowt/) ;rade &penness) Aoreign Direct Investment) Eross 4apital
Aormation

!ac"gro#nd of the $t#dy
0an+ researc/ers believe t/at participation in t/e international econom+ was t/e primar+ source of growt/ in
man+ East 5sian countries t/at /ave e2perienced fast economic development during t/e past % +ears !>orld
.an- 133* as cited in 5ndersen and .abula) 2$#. 5ndersen and .abulal !2$# argues t/at t/ere is li-el+ to be
a positive relations/ip between international trade and economic growt/. Igberaese !2(# points out t/at
wit/out growt/) development is impossible.
;/eoreticall+) t/e lin-age between foreign direct investment !ADI#) trade openness) capital formation) and
economic growt/ tends to be positive !5d/i-ar+) 211#. ;/e aut/or in /is stud+ found t/at t/e volume of ADI
and level of capital formation are /ave a significant positive effect on c/anges economic growt/ !measured as
real ED"#. ;/e degree of trade openness unleas/es negative but diminis/ing influence on ED" growt/ rates. t/e
empirical literature on t/e lin-age between ADI) trade openness) capital formation) and economic growt/ does
not provide a consensus wit/ its t/eoretical relations/ip as man+ aut/ors document positive relations/ip between
t/em w/ile ot/ers do not trace it) or at best) report ver+ wee- relations/ip. ;/ese wide differences basicall+
result from aut/orsF perspectives) sample selection) met/odologies and anal+tical tools applied in t/eir stud+
!4/a-rabarti 21as cited 5d/i-ar+) 211#. 0oreover) economic growt/ rate in ,en+a /as been increasing and
decreasing so often to warrant attention of w/+ t/ere /as been unstable economic growt/ in ,en+a) in addition)
t/e countr+ specific c/aracteristics wit/ respect to t/e economical) tec/nological) infrastructural and institutional
developments indeed matter a lot to anal+?e empirical relations/ip) t/e interest in t/is paper is to investigate t/e
role pla+ed b+ trade openness) foreign direct investment) gross capital formation on economic growt/.
international trade /as becomes t/e need of 6ess Developed 4ountries !6D4s#) w/o /ave gained as well as
suffered from international trade in t/e growt/ of t/eir economies.

Openness on Economic Growth
;/e relations/ip between openness and economic growt/ /as long been a sub<ect of muc/ interest and
controvers+ in international trade literature. >it/ regard to a t/eoretical relations/ip between openness and
growt/ most of t/e studies provide support for t/e proposition t/at openness effects growt/ positivel+ !Eries)
and Gedlin) 212#. Gesearc/ers /ave s/own a positive relations/ip between openness and economic growt/
!Gomer) 133*#) Erossman and 7elpman) 1331 and .arro and Sala-i-0artin) 133%#. In /is stud+ ,altani) 6oa+?a
!2%# opined out t/at openness promotes t/e efficient allocation of resources t/roug/ comparative advantage)
allows t/e dissemination of -nowledge and tec/nological progress) and encourages competition in domestic and
international mar-ets. &n t/e contrar+ Godri- and GodrHgue? !21# argue t/at t/e effect of openness on growt/
is doubtful. In developing countries onl+ t/e long-run openness-led growt/ /+pot/esis /olds) w/ile growt/
seems to slow down openness in t/e long run !;. Eries and Gedlin) 212#. Godri- !1332# reports t/at economic
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openness ma+ bring macroeconomic instabilit+ b+ increasing inflation) depreciating e2c/ange rates and inviting
balance of pa+ment crisis. Godri- argument was supported b+ 6evine I Genelt !1332# findings t/at /at a /ig/
degree of trade openness ma+ increase inflation and lower t/e real e2c/ange rates w/ic/ ma+ create negative
impact on domestic investment. ;/us) a liberali?ed trade regime ma+ lead to a greater e2c/ange rate depreciation
w/ic/ ma+ reduce aggregate suppl+ of inputs b+ increasing prices of t/e imported inputs used in t/e production.
5s a result) t/em volume of domestic output tends to be decreased !5d/i-ar+) 211#
H
01
: Openness has not Significant Effect on Economic Growth

Foreign Direct Investment on Economic Growth
Aoreign Direct Investment is defined as a cross-border investment in w/ic/ a resident in one econom+ !t/e direct
investor# ac@uires a lasting interest in an enterprise in anot/er !t/e direct investment enterprise#. .+ convention)
a direct investment is establis/ed w/en t/e direct investor /as ac@uired 1 percent or more of t/e ordinar+ s/ares
or voting power of an enterprise abroad. ADIs involve t/e creation of a new establis/ment or investment
!Ereenfield investments#) <oint ventures) or t/e ac@uisition of an e2isting enterprise abroad !cross-border mergers
and ac@uisitions# &E4D) 21#.
;/e ma<orit+ of developing countries reported a rapid increase in t/e inflow of foreign direct investment !ADI#
during t/e late 13$s and t/e 133s.5long wit/ t/e process of globali?ation and merging of national economies)
t/ese trends continued in t/e following decades wit/ intensified cross-border investments triggering long debates
among economists on t/e costs and benefits of ADI inflows !D<urovic) 212#.
;/e contribution of ADI to economic growt/ is en/anced b+ its interaction wit/ t/e level of /uman capital in t/e
/ost countr+. 6evine and Genelt !1332# s/ows a robust relations/ip between economic growt/) ADI and /uman
capital. ADI ma+ support t/e e2pansion of domestic firms b+ complementarit+ in production or b+ increasing
productivit+ t/roug/ t/e spillover of advanced tec/nolog+. a one-dollar increase in t/e net inflow of ADI is
associated wit/ an increase in total investment in t/e /ost econom+ of more t/an one dollar) but do not appear to
be ver+ robust. ;/us) it appears t/at t/e main c/annel t/roug/ w/ic/ ADI contributes to economic growt/ is b+
stimulating tec/nological progress) rat/er t/an b+ increasing total capital accumulation in t/e /ost econom+
!.orens?teina) De Eregoriob and 6eec) 133$#. Inward ADIs are attracted to developing nations wit/ /ig/er
availabilit+ of educated labour) /ig/er government spending and more efficient @ualit+ of governance !D<urovic)
212#.
Dur/am !2(#) for e2ample) failed to establis/ a positive relations/ip between ADI and growt/) but instead
suggests t/at t/e effects of ADI are contingent on t/e Jabsorptive capabilit+K of /ost countries
H
02
: foreign direct investment has not Significant Effect on Economic Growth

Gross Capital Formation on Economic Growth
5ccording to 5d/i-ar+ !211# capital accumulation /elps increase investment) investment creates emplo+ment
t/roug/ e2panding production bases) additional emplo+ment generates /ig/er savings w/ic/ provide confidence
in underta-ing larger investment) and t/is c/ain effect ultimatel+ influences economic returns positivel+.
6evine and Genalt !1332# revealed t/at capital formation influences t/e rate of economic growt/ in countr+.
Similarl+) ,endric- !133*# pointed out t/at t/e formation of capital alone does not lead to economic prosperit+)
rat/er t/e efficienc+ in allocating capital from less productive to more productive sectors influences economic
growt/. .lomstorm et al. !133=# also note a one wa+ causal relations/ip between fi2ed investment and economic
growt/. ;/e+ conclude t/at c/anges in capital formation rates do not /ave an+ significant influence on future
growt/ rates.
H
03
: Gross Capital Formation has not Significant Effect on Economic Growth

%heoretical Framewor" and &odel $pecification
%he &odels of Economic Growth
In t/e models of 6ucas and Gomer w/ic/ did not follow t/e neoclassical approac/ towards tec/nological c/ange
!6ucas) Gobert) 133*# argued t/at in favor of t/e influence of new tec/nological developments on t/e tec/nical
platforms) and furt/er on t/e economic growt/. New tec/nical innovations are areas w/ic/ re@uire investments
in areas wit/ /ig/er returns t/an usual. ;/is e2plains w/+ developed countries can sustain growt/ and w/+
developing countries cannot !Gomer 13$=#.
5ccording to D<urovic !212# tec/nolog+ and competence are universall+ recogni?ed as factors wit/ positive
influence on t/e economic growt/) t/us) t/e argument b+ .arro and Sala-i-0artin) 0an-iw et al. and Gomer
added -nowledge to t/e standard inputs) as a crucial factor influencing productivit+. Aor instance t/e+
ac-nowledged growt/ as being conditioned b+ t/e national econom+Fs level of /uman capital !'an den .erg)
7endri- !21#.
Gicardo in /is stud+ in 1$17) notes t/at trade facilitates products output wit/ a comparative advantage in a
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countr+ resulting to a /ig/er level of national wealt/. Gecent empirical studies are less convincing relating to t/e
causal relations/ip between e2ports and economic growt/) because t/e main interest focuses on w/ic/ met/ods
are used for economic growt/ t/roug/ trade e2pansion !5damopoulos et al 2=#
In t/e process) Aoreign direct investments !ADIs#) are recogni?ed as a particularl+ significant ve/icle of
international tec/nolog+ transfer !Aerreira) 6uisa and 'an/oudt) "atric-)2(#.;/e+ bring capital) tec/nolog+
transfer and transfer of s-ills and -nowledge to t/e /ost econom+) /ence affecting all t/ree factors of t/e
endogenous growt/ models. ;/ese transfers are more important for t/e /ost countr+ development) t/an t/e
capital addition) since e2ports and emplo+ment are positivel+ affected and t/e level of /uman capital is increased.
;/is furt/er serves as a platform for attracting /ig/ value added foreign investments in t/e countr+.
>it/ respect to t/e lin- between trade openness and economic growt/) t/e endogenous growt/ t/eor+ !Gomer
13$=) 6ucas 13$$ as cited in 5d/i-ar+) 211 # state t/at a more open trade regime allows a countr+ to reorient
factors of production in sectors t/at /ave comparative advantages. 5s factor endowments are better utili?ed due
to trade openness) t/e endogenous t/eor+ also underlines t/at a /ig/er e@uilibrium growt/ rate can be ac/ieved
in t/e long-run t/roug/ increasing speciali?ation and lowering cost of inputs !Gomer 13$3#. In addition)
Erossman I 7elpman !1331#) and .arro I Sala-I-0artin !133%# opined t/at in a countr+ w/ere t/ere is /ig/er
degree of openness t/ere is a greater abilit+ to absorb tec/nological developments generated in t/e leading
nations) and t/is absorption capabilit+ leads t/em to grow more rapidl+ t/an a countr+ wit/ a lower degree of
openness. 7owever) Edwards !133$# asserts t/at t/e e@uilibrium rate of growt/ in t/e poorer countries does not
solel+ depend on openness rat/er on its initial stoc- of -nowledge and t/e cost of imitations. Edwards !133$#
also argues t/at if t/e imitation cost of innovation in t/e poorer countries becomes lower t/an t/e cost of
innovation in tec/nologicall+ advanced economies) t/e poorer countries will grow faster t/an t/e advanced one)
and t/ere will be a tendenc+ towards convergence.
Gegarding t/e lin- between gross capital formation and economic growt/. .ot/ t/e classical and neo-classical
growt/ model postulates t/at capital is crucial for economic growt/.t/e two models argues t/at if t/ere is no
capital) t/ere is no investment and no growt/. ;/e rationale to t/is argument is t/at capital accumulation /elps
e2pand productive capacit+ of different economic sectors b+ increasing number of firms. >/en a number of
firms engage into production or business activities) internal resources of a countr+ are better utili?ed t/roug/
increasing competition and efficienc+. 5s a result) t/e productivit+ of factor endowments is increased and a low
production cost can be ac/ieved t/roug/ greater economies of scale as well as standardi?ation of products
!5d/i-ar+) 211#. ;/e aut/or adds t/at t/e proponents of endogenous growt/ t/eories argue t/at ADI can pla+ a
substantial role in building capital formation b+ increasing funds and suppl+ing of needed tec/nolog+ and s-ills)
w/ic/) in general) promote economic growt/

'esearch &ethod
;/e stud+ is e2planator+ design) it is a causal relations/ip. It is based on descriptive and inferential statistical
anal+sis based on @uantitative data collected from secondar+ sources. Data is gat/ered from >orld .an- >orld
.an- from +ear 13= to +ear 21 and polic+ reports prepared b+ &E4D. 5 positivism p/ilosop/+ is c/osen as
an applied researc/ p/ilosop/+ reflected in t/e deductive stud+ and t/e scientific approac/.

'esearch &odel
;/is paper e2amined t/e impact of trade openness) foreign direct investment and gross capital formation on
economic growt/ in ,en+a using a model consistent wit/ .arro !133) 133%#. ;/is model /as been used in
earlier studies b+ Edwards !133$# &badan !2$# and &badan and Eli?abet/ !21# t/oug/ wit/ some
modifications. .arro growt/ model is e2pressed as follows9
0rowt
t
= o + [
t
{Finoncc] + y
t
{CI] + e
t
. (1)
>/ereL
0rowt Erowt/ rate of gross domestic product
Finoncc Denotes a set of independent variables
CI Denotes conditional variables
e
t
Error term
&badan and Eli?abet/ !21# adopted t/is model and presented it in t/e form9
0P0R
t
= [
0
+[
1
0pcn
t
+ [
2
EXRI
t
+ [
3
FI
t
+ [
4
INI
t
+ [
5
Post
t
+ p
t
2
>/ere9
0P0R denotes Erowt/ rate of gross domestic product) 0pcn ;/e degree of trade openness) EXRI
E2c/ange rate) FI Aoreign direct investment) INI M Domestic investment) Post M "olitical
Stabilit+ and p

M Error term
;/is stud+ modified a .arro growt/ model and was t/us e2pressed in t/e form9
0P0R
t
= [
0
+[
1
0pcn
t
+ [
2
FI
t
+[
3
0CF
t
+ p
t
S
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>/ere9
0P0R Denotes Erowt/ rate of gross domestic product) 0pcn ;/e degree of trade openness) FI
Aoreign direct investment) 0CF Eross 4apital Aormation
t denotes t/e time period t/at is t C 1) 2)N..;
O
t
denotes t/e w/ite noise error) B

is t/e constant term w/ile t/e ot/er BFs are t/e coefficients of t/e independent
variables.
&eas#rement of (ariables)
%able * (ariable, %heir $ymbols and %heir &eas#rements
(ariables $ymbols &eas#rement
&penness ED" !imports P e2ports#QED"
gross capital formation E4A Secondar+ sc/ool enrolment
foreign direct investment ADI Geal ADI values

Empirical Evidence
Descriptive $tatistics
%able + Descriptive $tatistics
(ariable Obs &ean $td) Dev) &in &a,
ED"EG % 1.27$ (.%=3 -1.%3$ 17.323
&penness (3 .%%$ .2*2 .2== 1.2$3
ADI ** %.7= 1.13 -1.$* =.32
E4A %1 1.=3 1.% 1.2 =.21
>/ere ED"EG denotes ED" growt/ rate) ) ADI denotes foreign direct investments) E4A denotes gross capital
formation) and &bs is t/e number of observations.

%able - .ormality %ests
4/i S@uare "rob R 4/i S@uare
.reusc/-"agan Q 4oo-->eisberg test .1% .=37$
6agrange 0ultiplier !60# .%12 .(7(*
.reusc/-Eodfre+ 60 test 3.%=% .$(

Arom t/e 2) t/e standard deviations are less t/an t/e means) reflecting a small coefficient of variation. ;/e range
of variation between ma2imum and minimum is also reasonable. .reusc/-"agan Q 4oo-->eisberg test for
7eteros-edasticit+ /ad a 4/i s@uare of .1% wit/ a " value of .=37$ impl+ing t/e re<ection of t/e alternative
/+pot/esis of 7eteros-edasticit+. ;/is means t/at variance of t/e error term is constant. 7eteros-edasticit+
!5G47# using t/e 60 test for autoregressive conditional 7eteros-edasticit+ !5G47# reported a 4/i S@uare of
.%12 wit/ a " value of .(7(* impl+ing t/e acceptance of t/e null /+pot/esis of no 5uto-Gegressive
4onditional 7eteros-edasticit+. .reusc/-Eodfre+ 60 test for autocorrelation reports a 4/i S@uare of 3.%=% wit/
a " value of .$( impl+ing t/e acceptance of t/e null /+pot/esis of t/e first order serial autocorrelation. Since
t/e first order serial autocorrelation is present in t/e data) we use t/e robust standard errors w/ic/ account for t/e
presence of autocorrelation. ;/us) t/e normalit+ of t/e distribution is ensured in t/e stud+.
%able / %est for $tationarity
6evel Airst difference
'ariables 6ag Intercept Intercept P ;rend Intercept Intercept P ;rend
ED"EG -=.3= 888 -7.*1*888 -1.=3(888 -1.%*3 888
1 -(.32888 -%.2(( 888 -$.==2888 -$.%(* 888
&"ENNESS -2.** -2.2* -=.71888 -=.721 888
1 -2.2($ -2.1=3 -%.21=888 -%.2=788
ADI -2.3= -2.**7 -2.$3%88 -2.31
1 -2.**$ -2.721 -*.133 88 -*.1$ 888
E4A 2.1%2 .2%= -%.(2=888 -%.$72888
1 1.(** -.2== -*.=%*88 -(.%$88
!888#) !88# and !8# denotes 1S) %S and 1S significance level respectivel+.
>/ere ED"EG denotes ED" growt/ rate) ADI denotes foreign direct investments and E4A denotes gross capital
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formation.
Ainall+ we conducted t/e unit root test for all t/e variables using t/e 5ugmented Dic-e+ Auller !5DA# test s/ows
t/at ED" growt/ rate) openesss and ADI are stationar+ in levels since 5t first differencing) t/e calculated 5DA
and "" tests statistics clearl+ re<ect t/e null /+pot/esis of unit root bot/ at t/e 1 per cent and % per cent
significance levels w/en compared wit/ t/eir corresponding critical values. 4learl+) t/e 5DA and "" tests
decisivel+ confirm stationarit+ of eac/ variable at first differencing under bot/ constant and constant plus trend
level) and depict t/e same order of integration.
%able 0 %est of &#lticollinearity)
openness Aoreign direct investment Eross capital formation
openness 1
Aoreign direct investment .173 1
Eross capital formation -.=3% .==( 1

;o test for multicollinearit+) t/is stud+ uses t/e correlation matri2 of t/e e2planator+ variables and t/e variance
inflation factor. Arom t/e correlation matri2 results) it is evident t/at &penness) foreign direct investment and
gross capital formation /ad correlation of less t/an .$ amongst t/emselves impl+ing t/at t/ere is no severe
multicollinearit+
Estimation
%able 1 'egression 'es#lts
(ariable Coefficient 'ob#st $td) Err) t 2 304 Conf) 5ower 6 7pper Interval
&penness *.=2 1.=3$ 1.$ .(( -.((2 =.%=7
ADI -7.= 2.1* -.*= .72% -%.1= *.=(
E4A 1.$ 1.77 1.2 .*13 -1.$% %.((
4onstant 1.31 .$%= 1.27 .21% -.=77 2.$%$
G-s@uared .($=%
Goot 0SE 1.3%=3
5N&'5 A !7) 2(# 1*.=%
"rob R A

;able = above presents t/e &6S regression result w/ere t/e A statistic is 1*.=% wit/ a " value of . w/ic/ is
a measure of goodness of fit impl+ t/at trade openness) foreign direct investment and gross capital formation
can significantl+ predicts ED" growt/ rate. ;/e G s@uared is .($=% and a root mean standard error of 1.3%=3
impl+ t/at ($.=% percent of t/e variations in t/e ED" growt/ rate is e2plained b+ t/e <oint contribution of rade
openness) foreign direct investment and gross capital formation.

8ypothesis %esting
7+pot/esis 1 states t/at trade openness /as no significant effect on economic growt/. Gesults from table %
indicated t/at trade openness recorded a coefficient of *.=2) wit/ p val!e C .((D.%) t/is implies t/at
/+pot/esis was re<ected. ;rade openness /as /ig/ effect on ED" growt/ rate in ,en+a.
7+pot/esis 2 stipulates t/at foreign direct investment /as no significant effect on economic growt/. foreign
direct investment beta coefficient was -7.= wit/ p val!e of .72%R.%) suggesting t/at /+pot/esis 2 is accepted)
t/is impl+ t/at) foreign direct investment /ad no effect on ED" growt/ rate suggesting t/at increase or decrease
of ADI will /ave no impact on ,en+aFs ED" growt/ rate.
7+pot/esis * states t/at gross capital formation /as no significant effect on economic growt/. Arom table %)
gross capital formation beta coefficient was 1.$ wit/ p val!e C .*13R.% /ence) /+pot/esis * accepted
inferring t/at gross capital formation /ad no effect on ED" growt/ rate in ,en+a.

Disc#ssion of Findings
Arom t/e stud+ findings it is evident t/at trade openness is /ig/ determinant of countr+ ED" growt/ rate !B C
*.=2#) wit/ one increase in openness) ED" growt/ rate increases wit/ * units. ;/is stud+ findins support t/e
findings of ot/er researc/ers !Eries) and Gedlin) 212) Gomer) 133*) Erossman and 7elpman) 1331 and .arro
and Sala-i-0artin) 133%#. &penness promotes t/e efficient allocation of resources t/roug/ comparative
advantage) allows t/e dissemination of -nowledge and tec/nological progress) and encourages competition in
domestic and international mar-ets !,altani) 6oa+?a) 2%#. 7owever) in developing countries onl+ t/e long-run
openness-led growt/ /+pot/esis /olds) w/ile growt/ seems to slow down openness in t/e long run.
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Aoreign direct investment and gross capital formation /ad no impact on ED" growt/ rate. t/e findings t/at ADI
/ad no impact /ad no contribution on ED" grort/ rate contradict 6evine and Genelt !1332#) .orens?teina) De
Eregoriob and 6eec !133$# and D<urovic) !212# findings t/at ADI /ad robust contribution on countr+Fs ED"
growt/ rate. 7owever) t/e findings coincide wit/ t/at of Dur/am !2(#) w/o failed to establis/ a positive
relations/ip between ADI and growt/) but instead suggests t/at t/e effects of ADI are contingent on t/e
Jabsorptive capabilit+K of /ost countries. In addition) findings t/at gross capital formation /ad no relations/ip
contrast 5d/i-ar+ !211#) 6evine and Genalt !1332# and .lomstorm et al. !133=# findings) t/e aut/ors argue t/at
capital contribution contribute positivel+ to t/e ED" growt/ rate.

Concl#sion 'emar"s
;/e volume of ADI and level of capital formation reveal no effects on c/anges in real ED". ;/is result
disapproves our t/eoretical lin-age between t/em) and favors international finance and neoclassical growt/
t/eories. ;/us) t/e t/eories mig/t not be in developing court li-e ,en+a. In contrast) trade openness s/ows
significant positive effect on t/e rates of economic growt/. ;/is result approves our t/eoretical positive
relations/ip /+pot/esis between t/em. In ,en+a) t/e positive association between t/e trade openness and
economic growt/ rates per/aps due efficient allocation of resources t/roug/ comparative advantage) allowing
t/e dissemination of -nowledge and tec/nological progress) and encouraging competition in domestic and
international mar-ets and positive trade balance position. ;/e impulse response function reveals a mild positive
influence of t/e response variables on t/e ED" growt/ rates of ,en+a. Ainall+) ADI and t/e level of capital
formation are less importance in c/anging ED" growt/ rates. ;/e polic+ implications of t/is stud+ t/at t/e trade
openness being t/e robust determinants of economic growt/ s/ould be encouraged) it is e2pected t/at t/e
government of ,en+a s/ould provide more emp/asis on trade openness to increase its economic growt/. Side b+
side) t/e government s/ould formulate e2port led fiscal and monetar+ policies to increase its e2ports as well as
rates of ED" growt/.

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