The Effects of Compound Macroeconomic Variables on Economic Growth, Evidence From North African Countries, Using Pardl and the Pvar Approaches

• Published in: Montenegrin journal of economics 2023-07, Vol.19 (3), p.161-178
• Main Author: Sallam, Mohamed A. M.
• Format: Article
• Language: English
• Subjects: Causality; Digitization; Economic development; Economic growth; Economic stabilization; GDP; Gross Domestic Product; Hypotheses; Independent study; Investigations; Literature reviews; Macroeconomics; National debt; Variables
• ISSN: 1800-5845; 1800-6698
• DOI: 10.14254/1800-5845/2023.19-3.13

The empirical economic literature has relied on traditional factors such as capital and labor in explaining the causes of economic growth. However, recently, the studies used new economic concepts based on a wide number of factors expressed in compound indicators (such as index of; digitization, competitiveness, innovation, Economic Complexity, and Macroeconomic instability) to investigate their impacts on economic growth. So, the main objective of this study is to examine the effect of Economic Complexity, Economic Freedom, and Macroeconomic Instability on Economic Growth in the North African region between 1999-2019. The study used the first generation of panel unit root test (IPS, ADF, PP) To identify the individual root in Cross-Section Independence. The unit root result shows that variables GDPg and ECI are stationary at level (0) while variables EFI and MII are stationary at level (1). This study employed the PARDL and the PVAR approaches to investigate the linkages between the studied variables. Then, to clarify the direction of the relationship between the variables, we employ the Dumitrescu-Hurlin approach of causality test appropriate for panel data. The fin-dings reveal a significant long-run cointegration relationship among ECI, EFI, MII, and GDPg at the 5% significance level. Furthermore, the PVAR estimation approaches confirm that; the economic freedom index, macroeconomic instability index, and economic complexity index are significantly and positively associated with GDP growth. The empirical results also proved a critical causality from macroeconomic instability to GDP growth and passing across Economic Complexity and Economic Freedom. In this context, to boost economic growth in North African countries, economic policymakers must work on; Reducing economic instability, increasing levels of economic Complexity, and supporting economic Freedom.