Resilience of Developing Economies to External Shocks: Empirical Evidence from CEMAC Countries

Abstract

This study explores the effects of the 1994 CFA currency depreciation, the 2008 Global Financial Crisis (GFC), and instances of political coups on the relationships between FDI inflow, economic growth, and governance in the Central African Economic and Monetary Community (CEMAC) countries. By examining the impact of these events on FDI, growth, and governance, this paper provides important details of CEMAC economies in response to external shocks and internal political disruptions. We employ a panel VAR analysis with data from 1990 to 2019 to explore the dynamic relationships among these variables. The results show that growth and governance are not determining factors for attracting FDI in the CEMAC sub-region. Governance, on the other hand, stands as a determining factor for growth. Our findings also suggest that the 1994 CFA currency depreciation, 2008 GFC, and coups had no significantly impact on FDI inflows, growth, and governance in CEMAC countries. Although the effects of these events may expose the vulnerability of these countries to external shocks, influencing the dynamics of FDI, economic growth, and governance, their impact did not seem to be evident. However, political instability, evidenced by coups, emerges as a crucial factor shaping the interactions between FDI, economic growth, and governance in the region. Our analysis was conducted using the EViews software package.