I.

TO INVESTIGATE THE IMPACT OF FINANCIAL INSTITUTIONS

ON THE ECONOMIC GROWTH OF CAMEROON,

We will used a model of the form;

GDP= (DS, DC, DIR). (1) Economic Form
GDP=b0+b1DS+b2DC+b3DIR . (2)Mathematic Form
GDP==b0+b1DS+b2DC+b3DIR + U.. (3) Econometric Form
Applying the logarithmic principle we have,
LogGDP=b0+b1logDS+b2logDC+b3logDIR+ U
GDP = Gross Domestic Product of Cameroon
DS= Domestic savings mobolised by financial institutions
DC= Domestic credits offered by financial institutions
DIR= Deposit interest rate offered by financial institutions
b0= Constant term
b1, b2 and b3 are the parameters.
U= The stochastic or error term,
Apriori Expectation
- B1> 0 showing there exist positive relationship between domestic savings
mobilized by financial institutions and GDP in Cameroon. This is because an
increase in domestic savings mobilized by financial institutions will lead to
an increase in the GDP that is economic growth of Cameroon since they
have a positive relationship with GDP.
- B1> 0 showing there exist positive relationship between domestic credit
offered by financial institutions and GDP in Cameroon. This is because an
increase in domestic credit offered by financial institutions will lead to an
increase in the GDP that is economic growth of Cameroon since they have a
positive relationship with GDP.

- B3<0 showing there exist a negative relationship between Deposit interest

rate offered by financial institutions and GDP in Cameroon. This is because
an increase in Deposit interest rate offered by financial institutions will lead
to a fall in borrowing hence a fall in their loaning activities which lead a fall
in investment and economic growth.
- BO>0 showing there exist other variables not included in our model but
which have a positive impact on GDP in Cameroon.
II.

TO INVESTIGATE THE IMPACT OF EXTERNAL DEBTS ON THE

ECONOMIC GROWTH OF CAMEROON
The linearization of our model gives us the elasticity of the independent
variables to the dependent variables that is the percentage change

in

economic growth as a result a percentage change in external debt,

population, agricultural output and real interest rate. The elasticitys are
measured by the parameters of external debts, population, agriculture and
real interest rate. In specifying our model for the study we shall use the
following model:
GDP = f(Edt, , Ir, Agrix, Pop,)
In econometric from it can be written as:
GDP = a0 + a, Edta2dst + a3Irt A4Agrixt + a5PoPt + +t
In log form it is written as:
Log Q = a1logEdtt + a2logAgrixt +a3logIr a4Logpopt + t where,
Edt

External debt

Ir

Interest rate

Agrix =

Agriculture

Pop

Population

The error term

a00,(a1, a2, a3, a4,) >0 and a0, a1, a2, a3, a4, are the coefficients of the constant terms,

external debt, real interest rate, agriculture and population respectively.

III.

INVESTIGATING THE DETERMINANTS OF FOREIGN DIRECT

INVESTMENT INFLOW IN CAMEROON,

model was developed and is stated as shown below.

FDI=f(DC,GFKF,OPEN)
FDI = A0 + A1DC + A2 GFKF + A3 OPEN + + U
Where:
FDI =foreign direct investment
DC = domestic credit
GFKF = Gross Fixed capital formation
OPEN= trade openness
u= stochastic term
And A0, A1, A2, A3, are the Coefficients of the variables used
Apriori:,A1, A2, A3, > 0
A1, > 0 implying that an increase in domestic credit will lead to an increase in
foreign direct investment since there will finances for such investment will be
available to the investors.
A2, > 0 implying that an increase in gross fixed capital formation will lead to an
increase in foreign direct investment since there will be good infrastructure for
such as roads which encourages investment.

A3, > 0 implying that an increase in openness will lead to an increase in foreign
direct investment since there will be good market for such as roads which
encourages investment.
The Direct Investment Theory.
This theory put forth by Alan Rugman. The theory carries with it decisions making
and control by foreign firms as contrasted to the portfolio investment theory which
ties to spread at the risk of investment by investing more than one country at a
time. This is concern with international capital investment movement.
The Old Electric Theory of Foreign Investment
The theory (OLI) was developed by John Dunning, Professor Emeritus at the
University of Reading (UK) and Rutgers University (US). The theorys direct
investment, that is O+L+I focus on different questions.
Two- GAP Model
This model expands out of the adaptation of HarrodDomar model of growth
hypothesis to the open economy by planners, is interested in exports, imports and
savings and investment. This two gap model comprises of the foreign exchange
gap and the domestic saving gap
THE PRODUCT LIFE CYCLE THEORY (PLC)
The PLC theory was developed by Vernon (1966) to explain FDI from USA
Multinational Enterprises (MNEs) and its influence in trade flows. This theory is
made up of four stages; innovation ,growth ,maturity and decline
IV.

TO EXAMINE THE IMPACT OF AGRICULTURE ON THE

GROWTH OF CAMEROONS ECONOMY

an econometric model is used where GDP is treated as the dependent variable and
production of palm oil, cocoa, rubber and banana are treated as the explanatory
variables. It will be measured using quantitative techniques.
GDP = f (agricultural products)
GDP = b0 + b1PALM + b2 COC + b3RUB + b4BANA +
Linearizing, we have:
LogGDP = bo+ b1LogPALM + b2LogCOC + b3LogRUB + b4LogBANA +
Where:
logGDP = log of Gross Domestic Product
LogPALM= log of palm oil production
logCoc = log of cocoa production
LogBANA = log of Banana production
LogRUB = log of rubber production
= stochastic error term
bo = constant term, and
b1 , b2, b3 , b4, are the coefficients of the respective explanatory variables
the a priori are b1>0, b2>0, b3>0 and b4>0
Growth Theories
The Marxian theory of economic development

Marxs (1841) theory of capitalist developed and collapse stressed the role of
technological progress and entrepreneur in the growth process. Technological
progress, employment and wages depend on the level of technology and the level
of consumer spending
The Alois Schumpeterian theory of Economic Growth
According to Schumpeter (1934), development is a spontaneous and discontinuous
change in the life of an economy due to the internal activities of the economy. He
stresses the role of the entrepreneurs and innovation in the development process
The Harrod-Domar Model of Economic Growth
The Harrod-Domar economic growth model (HD) measures the rate of
growth of output or income (y) over time (t) which made aggregate supply equal to
aggregate demand or expenditure (Ys) i. e AD = AS
W WRostows stages of Economic growth
According to Rostow (1956), for growth to be realised in a country, the country
must have passed through five stages
Stage one which he defined as the traditional society in which development is
based on Pre-Newtonian science and technology with Pre-Newtonian attitudes
towards the physical world
The second stage is the Pre-condition for takeoff, also called the traditional era
characterised with the preconditions for growth
The third stage is considered as a great watershed in the life of the society.
According to Rostow, this stage is an industrial revolution which is subjected to

radical changes in the methods of production, having their consequences over a

relatively short period of time.
The fourth stage, drive to maturity is defined as a period when society has
effectively applied the range of modern technology to the bulk of its resources. It is
also a period of long sustained economic growth, extending over four decades
The last stage of high mass consumption is obtained through pursuit of national
policy to enhance power and influence beyond the national frontiers, the decision
to create new commercial centres and leading sectors like cheap automobile and
innumerable electrically operated household devices
Agricultural Theories
Esther Boserups theory of Agriculture
Boserup (1965) suggested that in the pre-industrial society, an increase in
population instead stipulated a change in agricultural techniques so that more food
could be produced. According to her, population growth enables agricultural
development to occur since food is a necessity in life; hence she says necessity is
the mother of invention
The Theory of Agricultural land use Pattern by Johann Hein rich Von Thunen
(1850)
John Heinrich Von Thunen (24 June 22 September 1850) was a prominent
nineteenth century economist. He developed the theory of agricultural land use
pattern and its analytical approach. Von Thunen developed the basics of the theory
of marginal productivity in a mathematically rigorous way, summarizing it in the
formula in which;

R=Y (P-C)-YFM
Where;
R= land rent, Y= yield per unit of land, C = production expenses per unit of
commodity, F= freight rate, and M= distance to market.
The Fei and Ranis Theory
In an article entitled A theory of economic development (1961), Fei and Ranis
analyzed the transitional process through which an under developed economy
hopes to pass through to move from a state of stagnation to one of self sustained
growth
V.

THE

IMPACT

OF EXTERNAL DEBTS

ON

POVERTY IN

CAMEROON
From the theoretical literature presented above it is not very clear as to the exact
nature and transmission mechanism through which external debt affects poverty.
However, there seem to exist a direct and indirect linkage between debt and growth
and between growth and poverty. Hence in order to investigate the impact of
external debt on poverty we used a model of the form;
POVt= A0 + A1INFt + A2XDEBTt +A3UNEMPt + A4GDPt +A5FADt +A6XDEBTSt
+ A7GEXPt +Vt.
A priori

(3.1)

A1>0, A2<0, A3>0, A4<0, A5>0, A6>0, A7>0.

Where POV is poverty base on head count ratio, INF is the inflation rate of the
country, XDEBT is the external debt, UNEMP is the unemployment rate, GDP is
the real growth domestic product, FAD is foreign aid, XDEBTS is the external debt
servicing, GEXP is government expenditure on health and education and V is the
stochastic error term

The Individual Theory of Poverty

This theory argues that the poor individuals are responsible for their own plight
since an individuals location in a societys hierarchy of income and wealth is
presumed to be determined, above all by his or her abilities, motivations and
aptitudes. Although, it is difficult to deny the fact that individuals attributes cannot
determine ones position in society, but we can also realized that ones position in
most societies operates within limits defined by forces beyond individual control.
The Theory of Personal Income Distribution and Poverty Alleviation
This theory also called the marginal productivity theory of poverty alleviation
provides the microeconomic foundation of income inequality and an organizing
framework to determine the channel by which macroeconomic variables are
transmitted into changes in poverty rates. This theory focuses it attention in the
labour market and the determinants of labour incomes based on the demand and
supply of labour under competitive firm.
The Trickling-Down Theory of Poverty.
The proponents of the trickling-down theory of poverty argue that there exists
some transmission mechanisms between macroeconomic variables and the level of
poverty in an economy. This theory is of the view that increases in government
expenditure on socio-economic development such as provision of physical
infrastructures, storage and marketing facilities, educational training, health care
service, and subsidies to the production of some essential commodities help to shift
the IS-curve to the right.
The Two Gap Model

Two-Gap Model (2GM) expands out of the adaptation of Harrod- Domar growth
model to the open economy by planners. This two-gap comprises of the foreign
exchange gap and the domestic savings gap. Hollis and others concur that domestic
savings and foreign exchange gaps are separate and have independent constraints
towards achieving growth in the LDCs.
The Theory of deficit Financing
The theory of deficit financing was developed by W.W. Rostow who made
emphasis on the structural changes needed to create the conditions necessary for
economic growth to occur. He made it clear that the industrialise countries have
reached the stage of high mass consumption and to arrive at this stage nations need
to go through a series of stages of growth, the most important of which is the takeoff into the self sustain growth. For this take-off stage to be attained sufficient
amount of resources are required.
The Theory of Overhang debt Hypothesis
The debt overhang theory or Hypothesis shows the link between the total
amount of external debt and economic performance of an economy and hence
increasing the poverty situation in the country. According to it, accumulated debt
stock reduces economic performance through what the proponents called debt
overhang effect including tax disincentive especially on investment and
macroeconomic instability. This hypothesis makes it clear that with very high level
of external debt, the government has no incentive to carry out macroeconomic
reforms and good policies as such the prevalence of poverty.