Study on the Causality Nexus between Macroeconomic Variables Using Vector Error Correction Modeling

The reason behind the execution of this research is to investigate the dynamic co-integration association of economic growth with its selected four determinants which include foreign direct investment (FDI), consumer price index (CPI), net export (NE) and personal remittances (PR) in Thailand, a developing economy. The paper examines empirically the association of economic growth with its determinants by employing Johansen Co-Integration Test, Granger Causality Test and Variance Decomposition between time-period of 1980-2013. Empirical results reveal the presence of co-integration among the considered variables whereby it is noticed that the economic growth of Thailand is influenced by personal remittances and net exports. The Granger Causality Test supports unidirectional causality from LNE to LGDP (LNE→LGDP) and from LCPI to LNE (LCPI→LNE). Furthermore the study evidence feedback causality among LPR and LGDP. The variance decomposition results recommend that unsettling influences starting from LGDP incur most prominent variability of 69 percent followed by 31 percent of the variation explained by the remaining four variables