Panel Data: The Effects of Some World Development Indicator (WDI) on GDP Per Capita of Selected African Union (AU) Countries (1981-2011)

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Author(s) M. I Ekum | D. A Farinde | F. J Ayoola
Pages 900-907
Volume 2
Issue 12
Date December, 2013
Keywords Econometrics, Cross section, Time series, Panel data, fixed effect, random effect.
Abstract

In this paper, we employ Fixed Effect of Panel Data Model to formulate a Panal Data Linear Regression model of Gross Domestic Product Per Capita of 20 African Union (AU) Countries using five World Development Indicators (WDI) as explanatory variables. Data were collected from 1981 to 2011. The five WDI are OER-Official Exchange Rate (LCU Per US$, Period Average), BM-Broad Money (% of GDP), INF-Inflation, GDP deflator (Annual %), TNR-Total Natural Resources Rents (% of GDP) and FDI-Foreign Direct Investment, Net Inflows (% of GDP).At the end of the analysis it was discovered that the OER, BM, INF, TNR and FDI all have significant relationship with GDP per Capita (RGDP). The estimated GDP per capita of the selected AU countries when the effect of OER, BM, INF, TNR and FDI are zero is $193.29. 1.00 unit increase in OER-Official Exchange Rate (LCU Per US$, Period Average) will lead to a significant reduction in GDP per capita by $0.23 (0.23USD); if BM-Broad Money (% of GDP) increases by 1.00% then GDP per capita will increase by $24.50; if INF-Inflation, GDP deflator (Annual %) increases by 1.00% then GDP per capita will decrease by $1.11; if TNR-Total Natural Resources Rents (% of GDP) increases by 1.00% then GDP per capita will increase by $3.65 and if FDI-Foreign Direct Investment, Net Inflows (% of GDP) increases by 1.00% then GDP per capita will increase by $57.05. It is seen that 97.2% of the total variation in GDP per capita of the selected AU countries can be explained by the variations in these five WDI used in this paper while the remaining 2.8% could be explained by other variables other than the five WDI used in this model. The result also shows significant cross-sectional effects i.e countries effects. We therefore recommend that for African countries to be among the best economies in the world, they have to increase their gross domestic product per capital (RGDP) by increasing their foreign direct investment (FDI), total natural resources (TNR) and broad money (BM) while on the other hand, they have to reduce their official exchange rate (local currency to US dollar) and inflation rate (INF).

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