The Casual Relationship Between Macroeconomic Variables and Economic Growth: Evidence from Algeria Economy

Theoretically, less developed countries that are short of domestic resources can further their economic expansion by utilizing foreign capital under conditions of perfect capital mobility, these inflows would also help equalize rate of return on capital across countries and narrow the development gap (Gupta & Islam, 1983). in the context of Algeria, is this inflow helps the domestic resources further expansion at economic growth.This paper focuses on the study by using time-series data over the period of 1970-2009 in Algeria. In this study, I used economic growth as dependent variables and export, import, FDI domestic investment were independent variable. This study analyzed the relationship between these variables using unit root test, Vector Autoregressive (VAR) and Impulse Response Function (IRF). The evidence indicates that export has positive influences on economic growth. The VAR and Impulse Response Function (IRF) show that the increases in export will have significant effect on economic growth and there are no strong relationships between FDI, import, Domestic investment and economic growth. The economic growth is influenced by its own past value. In the presence of studies, change in FDI has no positive effect on growth, so the proper monitoring of the foreign funded projects in order to avoid the misutilization of the foreign capital resources is needed. For maintaining and increasing economic growth rate, Algeria need to stabilize the macroeconomic environment, improve human capital, facilitate financial development and gradually liberalize financial sector.