Unbiased Technique in Identifying Appropriate Variables for FDI Inflows Model: A Role of Economic Growth in SADC

Abstract

This paper recommends an unbiased technique in choosing appropriate variables for FDI inflows in SADC member states by using a modified TYDL causality test. The results have proven 100% accuracy with this technique by identifying economic growth, domestic investment, government size, import openness, balance of payment and dummy for SADC integration as significant factors that influence FDI inflows in SADC. In addition, all the diagnostic tests are conducted to ensure that this approach is not biased. Furthermore, economic growth, domestic investment, government size, import openness and dummy for SADC integration have positive significant effect on FDI inflows in SADC while balance of payment has a negative significant effect on FDI inflows in SADC. This paper recommends that researchers should understand difference in countries and regions as they consider variables in their modelling. The negligence of this differences result to policies contradictions and hence lend to policy makers adopting a discretionary policy. This type of policy in a long-run may distorts the intended goals and thereby making the economy of the country(s) potentially worst off in the long-run.