An Empirical Analysis of the Impact of Selected Macroeconomic Variables on Capital Formation in Libya (1970–2010)

Authors: Khaled Ramadan Elbeydi

Abstract:

This study is carried out to provide an insight into the analysis of the impact of selected macro-economic variables on gross fixed capital formation in Libya using annual data over the period (1970-2010). The importance of this study comes from the ability to show the relative important factors that impact the Libyan gross fixed capital formation. This understanding would give indications to decision makers on which policy they must focus to stimulate the economy. An Autoregressive Distributed Lag (ARDL) modeling process is employed to investigate the impact of the Gross Domestic Product, Monetary Base and Trade Openness on Gross Fixed Capital Formation in Libya. The results of this study reveal that there is an equilibrium relationship between capital formation and its determinants. The results also indicate that GDP and trade openness largely explain the pattern of capital formation in Libya. The findings and recommendations provide vital information relevant for policy formulation and implementation aimed to improve capital formation in Libya.

Keywords: ARDL, Bounds test, capital formation, Cointegration, Libya.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1090817

References:

[1] A. A. Abbott, C. Darnell, and L. Evans "The Influence of Exchange Rate Variability on UK Exports” Applied Economic Letters (8) 2000.
[2] A. S. Bakare, "A Theoretical Analysis of Capital Formation and Growth in Nigeria” Far East Journal of Psychology and Business Vol. 3 No 1.2011.
[3] B. Ouattara, "Modelling the Long Run Determinants of Private Investment in Senegal, ” Centre for Research in Economic Development and International Trade, University of Nottingham, CREDIT Research Paper No. 04/05, 2004.
[4] E. Anoruo, S. Kumar and B. DiPietro, "A Cointegration Analysis of Investment Output Ratio in Bangladesh,” Online at http://mpra.ub.uni- muenchen.de/19338/ MPRA Paper No. 19338, 2007.
[5] A.I. Malawi, "The Effects of Gross Fixed Capital Formation and Money Supply on Economic Activity (A Time Series Analysis),” Tishreen University Journal for Science Studies and Scientific Research- Economic and Legal Sciences Series Vol. (28) No (3), 2006.
[6] I. W. Shiimi and G. Kadhikwa, "Savings and Investment in Namibia,” Bon Occasional Paper NO.2.V, 1999.
[7] J. Greene and D. Villanueva, "Private Investment in Developing Countries,” IMF Staff Papers, 38(1), 1991, pp. 33- 58.
[8] J. M. Frimpong and G. Marbuah, "The Determinants of Private Sector Investment in Ghana: An ARDL Approach,” European Journal of Social Sciences – Volume 15, Number 2, 2010.
[9] M. H. Pesaran, and B. Pesaran, "Working with Microfit 4.0: interactive econometric analysis,” United Kingdom: Oxford University Press, 1997.
[10] M.H. Pesaran, Y. Shin and R.J. Smith, "Bounds Testing Approaches to the Analysis of Level relationships,” Journal of Applied Econometrics 16, 2001, 289–326.
[11] R. .A. Mehanna, "The Temporal Causality between Investment and Growth in Developing Economies,” Journal of Business and Economics Research Volume 1, Number 3 85, 2003.
[12] R.F. Engle and C.W. Granger, "Cointegration and Error Correction: Representation, Estimation and Testing,” Econometrica, Vo1.55, 1987 pp. 251-276.
[13] R.M. Sundrum, "Development Economics: A framework for Analysis and Policy,” John Wiley and Sons, 1993.
[14] International Monetary Fund, 2007, country report No. 148/07