Table Of ContentAdvanced Studies in Theoretical and Applied Econometrics
Volume 43
ManagingEditors:
J.Marquez,TheFederalReserveBoard,Washington,D.C.,U.S.A
A.Spanos,VirginiaPolytechnicInstituteandStateUniversity,Blacksburg,VA,
U.S.A
EditorialBoard:
F.G.Adams,UniversityofPennsylvania,Philadelphia,U.S.A
P.Balestra,UniversityofGeneva,Switzerland
M.G.Dagenais,UniversityofMontreal,Canada
D.Kendrick,UniversityofTexas,Austin,U.S.A
J.H.P.Paelinck,NetherlandsEconomicInstitute,Rotterdam,TheNetherlands
R.S.Pindyck,SloaneSchoolofManagement,M.I.T.,U.S.A
W.Welfe,UniversityofLodz,Poland
The titles published in this series are listed at the end of this volume.
.
Ivohasina Fizara Razafimahefa Shigeyuki Hamori
International
Competitiveness in Africa
Policy Implications in the Sub-Saharan Region
With 81 Figures and 30 Tables
Dr.IvohasinaFizaraRazafimahefa
DirectorofEconomicAffairsPresidency
oftheRepublicofMadagascar
BP955
Antananarivo101
Madagascar
[email protected]
Prof.ShigeyukiHamori
KobeUniversity
2-1,Rokkodai
Nada-Ku
Kobe657-8501
Japan
[email protected]
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ISBN 978-3-540-68920-1 Springer Berlin Heidelberg New York
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To my late father and my mother,
To Hitoshi, Makoto and Naoko
Acknowledgements
We have benefited greatly from the support of many people in writing this
volume. Special thanks are due to Martina Bihn for excellent editorial
guidance. We also would like to thank our family members Rafalimanantsoa
Aimée, Ando, Zo, Jadzia, Manoela, Thierry, Mamy, Miora, Anja, Hitoshi,
Makoto and Naoko. Without their warm-hearted support, we could not
have finished writing this volume. We are also very grateful to Jaime
Marquez, Kazuhiro Igawa, and Masayuki Hara for their many helpful
comments and suggestions. Our research is in part supported by a grant-in-aid
from the Japan Society for the Promotion of Science.
Antananarivo, Madagascar Ivohasina Fizara Razafimahefa
Kobe, Japan Shigeyuki Hamori
Table of Contents
1 Introduction............................................................................................1
2 Trade and Economic Growth..................................................................5
2.1 Introduction.....................................................................................5
2.2. Literature Review...........................................................................5
2.2.1 Pro’s.....................................................................................5
2.2.2 Con’s....................................................................................8
2.3 Data...............................................................................................10
2.4 Empirical Techniques...................................................................11
2.5 Empirical Results..........................................................................13
2.6 Conclusion....................................................................................15
References............................................................................................15
3 FDI and Economic Growth...................................................................17
3.1 Introduction...................................................................................17
3.2 Literature Review.........................................................................17
3.2.1 Pro’s...................................................................................17
3.2.2 Con’s..................................................................................19
3.3 Data...............................................................................................20
3.4 Empirical Analysis........................................................................21
3.4.1 Variance Decomposition...................................................21
3.4.2 Causality Tests...................................................................24
3.5 Conclusion....................................................................................24
References............................................................................................25
4 Trade Competitiveness: Exchange Rate and Inflation..........................27
4.1 Introduction...................................................................................27
4.2 Literature Review.........................................................................28
4.2.1 Pro’s...................................................................................28
4.2.2 Con’s..................................................................................30
4.3 Empirical Techniques...................................................................33
4.3.1 Granger Causality Tests.....................................................33
4.3.2 LA-VAR Causality Tests...................................................35
4.3.3 Cross Correlation Function Approach...............................36
X Table of Contents
4.4 Data...............................................................................................39
4.5 Empirical Results..........................................................................40
4.6 Conclusion....................................................................................47
References............................................................................................48
5 Trade Competitiveness: Exchange Rate, Productivity
and Export Price...................................................................................51
5.1 Introduction..................................................................................51
5.2 Empirical Techniques: “Bounds” Cointegration Tests.................52
5.3 Data...............................................................................................53
5.4 Empirical Results..........................................................................53
5.4.1 Exchange Rate and Export Price.......................................53
5.4.2 Productivity and Export Price............................................59
5.5 Conclusion....................................................................................60
References............................................................................................60
6 FDI Competitiveness............................................................................61
6.1 Introduction..................................................................................61
6.2 Literature Review.........................................................................62
6.3 Empirical Analysis........................................................................65
6.4 Conclusion....................................................................................68
References............................................................................................69
7 Productivity Determinants....................................................................71
7.1 Introduction..................................................................................71
7.2 Literature Review.........................................................................71
7.3 Data...............................................................................................73
7.4 Empirical Analysis........................................................................74
7.5 Conclusion....................................................................................77
References............................................................................................77
8 Sustainability of Trade Accounts..........................................................79
8.1 Introduction..................................................................................79
8.2 Basic Model .................................................................................81
8.3 Data...............................................................................................81
8.4 Empirical Analysis........................................................................97
8.4.1 Panel Unit Root Tests........................................................97
8.4.2 Panel Cointegration Tests................................................101
8.5 Conclusion..................................................................................103
References..........................................................................................103
Table of Contents XI
9 Trade Balance and the Terms of Trade...............................................105
9.1 Introduction.................................................................................105
9.2 Basic Model................................................................................106
9.3 Data.............................................................................................107
9.4 Empirical Analysis......................................................................126
9.4.1 Panel Unit Root Tests......................................................126
9.4.2 Panel Cointegration Tests................................................128
9.4.3 Panel Cointegration Estimation.......................................131
9.5 Conclusion..................................................................................132
References..........................................................................................133
10 Purchasing Power Parity.....................................................................135
10.1 Introduction................................................................................135
10.2 Basic Model ..............................................................................137
10.3 Data............................................................................................138
10.4 Empirical Analysis.....................................................................152
10.4.1 Panel Unit Root Tests.....................................................152
10.4.2 Panel Cointegration Tests...............................................155
10.4.3 Panel Cointegration Estimation......................................157
10.5 Conclusion.................................................................................158
References..........................................................................................159
11 Concluding Remarks..........................................................................161
Index........................................................................................................165
About the Authors....................................................................................167
1 Introduction
The effects of international trade and foreign direct investment (FDI) on
developing economies have always been controversial. From about the
1980s, however, the countries adopting open policies have tended to out-
perform those adopting closed policies. The former, essentially the econo-
mies of Asia and some countries of Latin America, have grown faster than
the latter, the economies of sub-Saharan Africa. With the unstoppable
spread of globalization and the supremacy of “open” policies over
“closed” ones, the debate between “participating” and “not participating”
in the world economy has been superseded by discussions on the best pol-
icy measures for expanding participation and enhancing the accrued wel-
fare gains. The countries of sub-Saharan Africa have no choice but to take
part in international trade and investment. Policies to strengthen interna-
tional competitiveness are almost unanimously considered crucial means
towards those ends.
A key way of making a country more competitive is to strengthen its
international competitiveness in trade and investment. Competitiveness in
international trade is defined, in the present analysis, as the ability of a
country to produce and sell goods in the international market at a lower
price than competitor countries. Competitiveness in international invest-
ment, on the other hand, is understood as the ability of a country to attract
large inflows of foreign investment. Given that competitors also strive to
increase their abilities to sell goods and attract, the study takes a dynamic
approach, as opposed to a static approach, to comparative advantage.
This book examines two policies frequently used to enhance interna-
tional competitiveness: the exchange rate policy and productivity policy.
We explore the effectiveness of these policies in raising international com-
petitiveness as assessed through two channels, namely, trade competitive-
ness and FDI competitiveness.
The book is structured as follows. Chapters 2 and 3 empirically ana-
lyze the trade-FDI and growth relationship in the countries of sub-
Saharan Africa. The development of the new growth theory has led to a
wide recognition of the potential power of international trade and FDI in
enhancing growth. The analysis in Chap. 2 focuses on the relationship
between international trade and economic growth. The analysis in Chap. 3
