A Bivariate Causality Analysis on the Impact of Foreign Direct Investment Inflows on the Economic Growth of The Gambia

This study explores the relationship between Foreign Direct Investment (FDI) and Economic Growth (GDP) in The Gambia using OLS, Johansen’s Cointegration, VECM approach on time series data from 1963 to 2023 period. Through a bivariate regression analysis, the findings reveal a significant and positive association between FDI inflows and economic growth. The estimated model shows that FDI has a substantial impact on GDP, explaining approximately 30.6 percent of the variation in economic performance. Despite the moderate explanatory power, the statistically significant coefficient underscores FDI's potential as a catalyst for growth. The Granger Causality results analysis indicates a non-directional causal relationship for GDP and FDI. These findings imply that while FDI is important, a broader policy mix is required to sustain and enhance growth in The Gambia. JEL classification numbers: F21, F43, O11, O55, C32. Keywords: Foreign Direct Investment, Economic Growth, Bivariate Analysis, Granger causality.