Working Paper Series: Special Edition of 2016 to 2018 Interns

is able to affect total capital formation, subsequently increasing the total production capacity and increasing external competitiveness. While there are many studies that postulate a positive relationship between FDI and economic growth, this does not always hold as proven empirically by some research. For instance, Olatunji and Shahid (2015) employed the Engle Granger cointegration test in the case of Nigeria. The results did not show any long-run relationship between FDI and economic growth. In addition, the authors suggested the need to enhance the business environment with the provision of necessary infrastructure to build the FDI intake capacity of the country. Research examining the impact of FDI on economic growth conducted by Carkovic and Levine (2002) found that FDI does not exert an independent, reliable and positive impact on economic growth. The authors noted many studies may have been subject to statistical issues, for example failure to control for country specific-effects, endogeneity and simultaneity bias, and as such produced inadequate results. Studies that considered FDI in the Caribbean include that of Taylor et at. (2012) who examined FDI in oil producing economies with a particular interest in Trinidad and Tobago. Their work concluded that countries with high degrees of trade openness tends to attract more FDI. In addition, they noted that the degree of trade openness along with other explanatory variables were positively related to FDI inflows. Campbell (2012) employed the Engle-Granger two-step procedure to look at the impact of FDI inflows on economic growth in Barbados and concluded a positive relation between the variables. Barnard & Bullen (2016) examined the FDI policy framework of the ECCU where they concluded a positive relation between FDI and economic growth. 2.2 Trade Openness The endogenous growth theory’s view on trade openness is that more open economies allow for the opportunity to bolster their factors of production in the productive sectors which allows for greater potential for growth. Moreover, the more efficient use of factors of production results in greater productivity that is pertinent for economic growth to take place (Thacker et al. 2012). Furthermore, it is postulated that trade openness enables a country to be better absorb technological developments of the relatively more advanced trading partners. Mahran & Al Meshall (2014) argued that in the case of developing countries, trade is able to enhance domestic

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