Working Paper Series: Special Edition of 2016 to 2018 Interns

5.5 Structural Breaks The relatively low cointegrating relationship raised suspicion that warranted further investigation. It is suspected that exogenous shocks over the study period may be attributable to reality observed from the VECM results. As such, the Chow structural test was run to determine if a number of structural changes are responsible for the low cointegrating relationships. The test involves estimating two equations, a restricted versus an unrestricted equation. A dummy variable captures structural changes that took place over the period. After running both versions of the model, the paper applied the Likelihood Ratio test to determine the significance of the results. The Likelihood Ratio follows = ( − )( | | − | |) ~ 2 ( ) . 6 Where T is the number of observations, m the number of parameters times the number of lags plus the intercept and the number of dummies. is the determinant of the residual covariance matrix, r and ur are restricted and unrestricted equation respectively. The LR ratio is distributed Chi- square with q is the degrees of freedom, calculated by the number of dummies times the number of equations. Results from the tests show that the 2008/09 global financial crisis had an impact on the economic openness relationship with economic growth. The implication of this finding is in alignment ‘ apriori ’ that structural changes have reduced the relationship between these variables over the years. Therefore, member governments of the ECCU would have to ensure they bolster other economic sectors to ensure economic performance less affected by external events. 6.0 Conclusion The research employed a panel VECM and panel Granger Causality analysis to investigate the causal link between economic openness as measured by FDI, trade openness and used tourism arrivals as a fitting measure of economic openness for the ECCU territories. The objectives of this study were important to the ECCU because of the recent growth performance by member states and the need for greater competitiveness in the region. Further, although the ECCU economies are open there have been no studies assessing the impact of economic openness on economic performance. Thus, this paper investigated what role economic openness has played in economic growth in the ECCU economies over the years 1995 to 2013.

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