Determinants of Balance of Payments in Sierra Leone: An ARDL Model Approach
DOI:
https://doi.org/10.47604/ijlp.3561Keywords:
Balance of Payments, Exchange Rate, Foreign Direct Investment (FDI), Autoregressive Distributed Lag (ARDL), Interest Rate, Macroeconomics, Sierra LeoneAbstract
Purpose: Using yearly data from 1980 to 2020, this study investigates the macroeconomic factors influencing Sierra Leone's balance of payments (BoP). The purpose is to determine the main macroeconomic determinants affecting Sierra Leone's external sector performance in order to address the paucity of empirical data on BoP dynamics in post-conflict nations.
Methodology: Both short- and long-term relationships between BoP and its determinants—real GDP, foreign direct investment (FDI), real interest rate, official effective exchange rate (OEEXR), and the external balance on goods and services (EBGS)—are estimated using the Autoregressive Distributed Lag (ARDL) bounds-testing approach.
Findings: The results show that while FDI has a negative impact on the BoP because of its link to import-intensive businesses and profit repatriation, real interest rates and exchange rate fluctuations have a considerable short- and long-term impact on the BoP.
Unique Contribution to Theory, Practice and Policy: While EBGS is statistically insignificant, real GDP exhibits a favorable long-term effect. In order to guarantee a sustainable external balance, the study recommends preserving currency rate stability, encouraging export diversification, and creating FDI policies that improve domestic ties and lessen reliance on imports.
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Copyright (c) 2025 Dr. Abu Kai Kamara, Dr. Dante Alie Bendu, Mohamed Sajor Jalloh, Abdulrahman N’Jai
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