variables are measures of macroeconomic uncertainty and security risk of investing in the
Economic growth is specified as a positive function of labour resources, openness
to trade, gross domestic investment and FDI. Exchange rate overvaluation is expected to
have negative effect on growth. The channel of impact is not direct. But it is believed
that an overvalued exchange rate will discourage export and lead to a deterioration of the
balance of trade which directly reduces the GDP through the national income identity.
Data and Estimation technique
The interplay between macroeconomic variables such as economic growth, inflation rate
Single equation methods, such as the OLS,
relationships requires an estimation technique that is solved simultaneously in order to
capture the feedback effects. To this end, the behavioural relationships of the model were
estimated using Weighted Two Stage Least Squares (WTSLS) estimation technique.
Apart from eliminating the simultaneity bias, these methods of estimation produce results
that correct for the possible heterogeneity that may arise from the use of cross section in
General Method of Moments (GMM) - is also used to estimate the relationships.
Annual data running from 1980 to 2002 has been used for the analysis. All the
secondary data for the analysis were sourced from the World Bank Database for Africa
instability was constructed from information provided by Goldstone et al (2000)’s State