Working Paper Series: Special Edition of 2016 to 2018 Interns

Foreign Direct Investment inflows (FDI) are anticipated to be positively correlated with growth as the flows tend to be heavily concentrated in the tourism industry, thus creating jobs and generating foreign exchange. US GDP is also expected to have a positive sign since the ECCU economy is closely tied to that of US through trade and financial linkages. Therefore, growth in the US economy has positive spill-over effects in the ECCU countries while a downturn in the US economy has the opposite effect. The natural disaster dummy variables (ND1 and ND2)are expected to yield a negative sign as natural disasters result in extensive damage to countries, thus generating negative economic growth in the short run.

5.0 Results and Analysis 5.1 Panel Least Squares Results

The signs of the coefficients for all of the variables conform to the a priori expectations in both models (Table 3). Therefore, the results revealed positive signs for the population growth, FDI and USGDP variables, while government consumption and the natural disaster dummy variables in both models yielded negative signs.

Table 3: Random Effects Estimation Results

Variable

Model 1 -0.224 (0.806) -0.998 (0.000) 0.241 (0.039) 0.094 (0.039) 0.81 (0.000) -0.792 (0.248)

Model 2 -0.248 (0.788) -0.971 (0.000) 0.228 (0.061) 0.099 (0.033) 0.844 (0.000)

C

D(GC)

POP

FDI

USGDP

ND1

-2.762 (0.003)

ND2

0.381 0.369

0.411 0.399

R 2

Adjusted R 2

164