The Impact of Inflation, Exchange Rate, Trade and Foreign Direct Investment on Economic Growth Of The Gambia: Evidence From ARDL Approach

Salim Minteh; Amadou Gisseh; Ebrima Khan

doi:10.47134/jmsd.v2i3.658

Authors

Salim Minteh universitas Islam International Indonesia
Amadou Gisseh Universitas Islam Internasional Indonesia
Ebrima Khan Universitas Islam Internasional Indonesia

DOI:

https://doi.org/10.47134/jmsd.v2i3.658

Keywords:

FDI, Trade, Inflation, Exchange Rate, Economic Growth

Abstract

The study investigates the relationship between Foreign Direct Investment (FDI), trade flows, inflation rates, and exchange rates in relation to economic growth in The Gambia during the period from 1970 to 2023. The investigation aims to examine both long-term and short-term macroeconomic interrelations between these variables to determine their effects on GDP. The research employs the Auto Regressive Distributed Lag (ARDL) methodology to demonstrate a sustainable long-term relationship between trade, inflation, FDI, and exchange rates with GDP. The statistical analysis reveals a dual effect: inflation and trade lead to GDP increases, while FDI and exchange rates result in GDP decreases. The investigation finds no significant causal relationships between the variables to predict future trends based on past observations. The study faces limitations due to reliance on limited data sources and its focus mainly on The Gambia, making generalization to other contexts challenging. The Gambia presents an economic system that requires official policies to support trade activities and control inflation while addressing the negative effects of FDI on domestic business investments. This research study provides significant economic insights into The Gambia and its important macroeconomic relationships.

References

Adu-Gyamfi, G., Nketiah, E., Obuobi, B., & Adjei, M. (2020). Trade Openness, Inflation and GDP Growth: Panel Data Evidence from Nine (9) West Africa Countries. Open Journal of Business and Management, 08(01), 314–328. https://doi.org/10.4236/ojbm.2020.81019

Amoah, E., Nyarko, E., & Asare, K. (2015). FDI, INFLATION, EXCHANGE RATE AND GROWTH IN GHANA: EVIDENCE FROM CAUSALITY AND COINTEGRATED ANALYSIS. European Scientific Journal, ESJ, 11.

Barguellil, A., Ben-Salha, O., & Zmami, M. (2018). Exchange Rate Volatility and Economic Growth. Journal of Economic Integration, 33(2), 1302–1336. https://doi.org/10.11130/jei.2018.33.2.1302

Barro, R. (1995). Inflation and Economic Growth. https://doi.org/10.3386/w5326

Boburmirzo, K., & Boburjon, T. (2022). Exchange Rate Influence on Foreign Direct Investment: Empirical Evidence From Cis Countries. International Journal Of Management And Economics Fundamental, 02(04), 19–28. https://doi.org/10.37547/ijmef/volume02issue04-04

Brueckner, M., & Lederman, D. (2015). Trade Openness and Economic Growth: Panel Data Evidence from Sub‐Saharan Africa. Economica, 82(s1), 1302–1323. https://doi.org/10.1111/ecca.12160

Correa, E. (2023). Effect of Unemployment, Inflation and Foreign Direct Investment on Economic Growth in Sub-Saharan Africa. Journal of Developing Economies, 8(2), 297–315. https://doi.org/10.20473/jde.v8i2.47283

Gibba, A., & Molnar, J. (2013). A study on exports as a determinant of economic. Some Studies of Economics Changes, ISBN 978-80-89691-27-2, 237–244.

Hwang, J., & Wu, M. (2011). Inflation and Economic Growth in China: An Empirical Analysis. China & World Economy, 19(5), 67–84. https://doi.org/10.1111/j.1749-124X.2011.01259.x

Iamsiraroj, S., & Doucouliagos, H. (2015). Does Growth Attract FDI? Economics, 9(1). https://doi.org/10.5018/economics-ejournal.ja.2015-19

Iqbal, N., Ahmad, N., Haider, Z., & Anwar, S. (2013). Impact of Foreign Direct Investment (FDI) on GDP: A Case Study from Pakistan. International Letters of Social and Humanistic Sciences, 16, 73–80. https://doi.org/10.18052/www.scipress.com/ILSHS.16.73

Jayachandran, G. (2013). Impact of Exchange Rate on Trade and GDP for India: A Study of Last Four Decade. International Journal of Marketing, Financial Services & Management Research, 2(9), 154–170.

Keho, Y. (2017). The impact of trade openness on economic growth: The case of Cote d’Ivoire. Cogent Economics & Finance, 5(1), 1332820. https://doi.org/10.1080/23322039.2017.1332820

Khan, R. E. A., Sattar, R., & Rehman, H. (2015). Effectiveness of Exchange Rate in Pakistan: Causality Analysis. ERN: International Finance (Topic).

Kong, Q., Peng, D., Ni, Y., Jiang, X., & Wang, Z. (2021). Trade openness and economic growth quality of China: Empirical analysis using ARDL model. Finance Research Letters, 38, 101488. https://doi.org/10.1016/j.frl.2020.101488

Koulakiotis, A., Lyroudi, K., & Papasyriopoulos, N. (2012). Inflation, GDP and Causality for European Countries. International Advances in Economic Research, 18(1), 53–62. https://doi.org/10.1007/s11294-011-9340-1

Kumar, S., Kumar, A., Shaikh, G. M., Ali, K., & Azhar, M. (2023). The Long Run Impact of Exchange Rate and Inflation on GDP: A Panel Data Approach Consistent with Data from Brazil, Russia, India, China, And South Africa (BRICS). Journal of Economic Impact, 5(3), 317–326. https://doi.org/10.52223/econimpact.2023.5318

Lee, C.-W. P. A. M. (2010). A causal relationship between trade, foreign direct investment and economic growth for India. International Research Journal of Finance and Economics, 42(200), 74–88.

Long, M., Relationship, R. U. N., & Dynamic, U. A. (n.d.). MODELLING LONG RUN RELATIONSHIP.

Lowe, A. B. (2019). The Impact of Exchange Rate on Inflation: A Case Study of The Gambia(1978-2016). European Scientific Journal ESJ, 15(10), 261–277. https://doi.org/10.19044/esj.2019.v15n10p261

Majumder, T., & Roy, S. S. (2023). FDI and Growth: A Re-look at Evidence on Developing Economies. Arthaniti: Journal of Economic Theory and Practice. https://doi.org/10.1177/09767479231163654

Mam Kumba Gaye, & Dr. Matarr Njie. (2023). Impact of Foreign Direct Investment on Economic Growth in the Gambia: Evidence from Time Series Analysis. The International Journal of Business & Management. https://doi.org/10.24940/theijbm/2023/v11/i4/BM2304-020

Mansoor, A., & Bibi, T. (2018). Dynamic Relationship Between Inflation, Exchange Rate, FDI and GDP: Evidence from Pakistan. Acta Universitatis Danubius. Œconomica, 15(2), 431–444.

Masih, M. (2021). Testing the long-run relationship between exchange rate, oil price, FDI and GDP: an ARDL approach.

Mendy, S. (2019). On the Inflation Growth Nexus: Evidence From Time Series Methods in the Gambia. Master’s Thesis.

Ming-Tang, L. (2020). Keynes’s Theory and Inflation. Keynes’s Theory and Inflation, 10.

Mostafa, M. M. (2020). Impacts of Inflation and Exchange Rate on Foreign Direct Investment in Bangladesh. International Journal of Science and Business, 4750, 53–69. https://doi.org/10.5281/zenodo.4108244

Mostafa, Md. G., & Wadud, Md. A. (2024). Impacts of Remittance and FDI on Economic Growth in South Asian Countries: A Panel Data Analysis. International Journal of Science and Business, 40(1), 92–106. https://doi.org/10.58970/IJSB.2446

Mwiya, T., Simaundu, B. M., Nyau, M., & Phiri, J. (2024). Assessing the Effects of Exchange Rate Volatility on Zambia’s Economic Growth: Evidence from ARDL and NARDL Models. Economies, 12(9), 224. https://doi.org/10.3390/economies12090224

Nguyen, D. T. H., Sun, S., & Anwar, S. (2017). A long-run and short-run analysis of the macroeconomic interrelationships in Vietnam. Economic Analysis and Policy, 54, 15–25. https://doi.org/10.1016/j.eap.2017.01.006

Nguyen, V. M. H., Ho, T. H., Nguyen, L. H., & Pham, A. T. H. (2023). The Impact of Trade Openness on Economic Stability in Asian Countries. Sustainability, 15(15), 11736. https://doi.org/10.3390/su151511736

Nisamudheen, T. (2013). Role of FDI in Indian Economy. 3, 1–10.

Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: application and interpretation. Journal of Statistical and Econometric Methods, 5, 1–3.

Nwikina, C. G., & Ekere, E. U. (2024). Impact of Exchange Rate on Economic Growth: Evidence from Nigeria. Global Journal of Arts, Humanities and Social Sciences, 12(3), 36–50. https://doi.org/10.37745/gjahss.2013/vol12n33650

Olasehinde, I. O., & Ajayi, C. F. (2022). Foreign Direct Investment and Nigerian Economic Growth. Journal of Applied And Theoretical Social Sciences, 4(3), 313–327. https://doi.org/10.37241/jatss.2022.69

Owusu-Manu, D.-G., Edwards, D. J., Mohammed, A., Thwala, W. D., & Birch, T. (2019). Short run causal relationship between foreign direct investment (FDI) and infrastructure development. Journal of Engineering, Design and Technology, 17(6), 1202–1221. https://doi.org/10.1108/JEDT-04-2019-0100

ÖZEN ATABEY, A., & KARAKUŞ, M. (2022). Türkiye’ye Yönelik Enflasyon, Dış Ticaret ve Ekonomik Büyüme İlişkisinin Ampirik Analizi. Cumhuriyet Üniversitesi İktisadi ve İdari Bilimler Dergisi, 23(3), 747–759. https://doi.org/10.37880/cumuiibf.1096489

Rodrik, D. (2008). The Real Exchange Rate and Economic Growth. Brookings Papers on Economic Activity, 2008(2), 365–412. https://doi.org/10.1353/eca.0.0020

Sharma, S., & Karol, S. (2020). The Impact of Inward and Outward Flow of Foreign Direct Investment (FDI) on Economic Growth in India: An Econometric Analysis.

Sowe, A., Mohsin, M. I. A., Economics, M. M.-I. J. of I., & 2023, U. (2023). Analysing the Roots of Inflation in the Gambia: An Islamic Approach To Resolving the Issue. Ijiefer.Kuis.Edu.My, 6(2), 110–120.

Tarawalie, A. B., Sissoho, M., Conte, M., & Ahortor, C. R. (2012). Exchange rate, inflation and macroeconomic performance in the West African Monetary Zone (WAMZ). WAMI Occasional Paper, 32(2), 32–51.

Ugomma, C. A., & Chijioke, S. C. (2024). Assessing the Impact of Inflation and Exchange Rate on Nigerian Gross Domestic Product (1981-2022). Asian Journal of Probability and Statistics, 26(5), 30–41. https://doi.org/10.9734/ajpas/2024/v26i5616

Yu, J., & Meng, S. (2023). How Does Trade Openness Affect Output Growth? A Perspective from the Input Diversity. Sustainability, 15(11), 9039. https://doi.org/10.3390/su15119039

Yuliawan, R., Murdiawati, M., Faqih, M., Haris, R. A., & Sulistyawati, A. (2024). The Impact of Monetary Policy, Inflation Rates, and Foreign Direct Investment on Economic Growth in Developing Countries. Join: Journal of Social Science, 1(4), 373–380. https://doi.org/10.59613/gjq7cm27