Foreign direct investment, economic growth and structural transformation: The case of West African Economies and Monetary Union Countries

Sandjong Tomi, Diderot Guy D'Estaing (2015): Foreign direct investment, economic growth and structural transformation: The case of West African Economies and Monetary Union Countries.

Abstract

This article examines the long run relationship and the causality between the growth of GDP per capita and FDI in WAEMU countries. Thereafter, it measures the impact of FDI on Total Factor of Productivity (TFP) in the short and long run, for different values of the depreciation of capital stock. Using observation between 1970 and 2012, the econometric analysis provides three key results. First, there is a strong evidence of long run relationship between the growth of GDP per capita and the ratio of FDI inflows. Second, there is bidirectional causality between these two variables. Third, there is a positive and significant effect of FDI on TFP in the long run, conditional on low level of depreciation of capital stock. Therefore, for policy implications, WAEMU countries should intensify their investment in education and health in order to boost the quality of human capital stock and sufficient absorptive capacity necessary to acquire technological transfer from FDI. They should also strengthen their openness, to attract FDI inflows, and invest in infrastructure to better control the depreciation of physical capital stock.

• Item Type: MPRA Paper
• Language: English
• Keywords: FDI, Economic growth, structural transformations, WAEMU
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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