Hi everyone,
In short, I am writing a paper on how the CFA Franc regime (Fixed to euros) has been affecting the Togolese economy since its devaluation in 1994.
I am thinking about running a regression based on an endogenous growth model with GDP (annual %) as the dependent variable and 4 other independent variables, respectively:
- Gross capital formation (annual %)
- Labor force participation rate (% of total 15 - 64 years)
- Exportation of goods and services (annual %)
- FDI, net inflows (as % of GDP)
I know that the model is very endogenous and that I am very likely to encounter causality issues. However is this a good model considering the topic, and is having FDI as % of GDP ruining the model, knowing that I have the other variables in annual % growth?
Many thanks!
Nabil Toure If you are doing basic econometric model, then go for the Dynamic OLS. I will handle all the endogeneity and serial correlation problem. Another model can be suitable is simultaneous equation estimation. Here you need to define other equations with other exogenous variables. Depending upon identification, you can apply any suitable models. If your data in time series format, use lag values of the explanatory variables. It is also helpful in reducing endogeneity.
The AfDB has done some work on the CFA zone, kindly check their working paper series.
Yadawananda Neog I have though about going for the dynamic OLS based on the Solow Growth Model. Thanks to Steve Kayizzi-Mugerwa suggestion I have seen a paper by the AfDB where they use the Solow Model (Pop growth, capital investment and determinants of technology (regional euro-currency unions).
As I am looking into the specific case of Togo, it does make it a little bit overwhelming to find a model that examines the effects of the regional euro-currency integration on Togo's economic growth. Or knowing where to start.
Get down the fundamentals. Look at CFA as proxy for institutional strands. Draw in physics. Construct the space. Suddenly you have a dynamical system that sprawls the region and is linked to France. Deal with that system. That is tougher than running regression but brings you to reality. Economics is more beautiful when pulled closer to physics.
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