Major Determinants of Foreign Direct Investment in the West African Economic and Monetary Region


Department of Economics, University of Lagos, Lagos, Nigeria


The main concern of this paper is to answer the question of the determinants of FDI inflows to West African Economic and Monetary Union (WAEMU). The literature on FDI recognizes not only the existence of gaps between domestic savings and investment in most developing countries but also that FDI constitutes a cure capable to bring the latest technology and management know-how into these countries. The aim of this paper is to find the macroeconomic determinants of FDI in WAEMU (constituted of 8 countries namely: Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo). To this end, an econometric model based on panel cointegration analysis for the period 1980-2010 was estimated. The results show that countries with high potential market size (GDP per capita), large trade openness and with more business friendly environment (low political risk) attract more FDI. The findings further show that: (i) infrastructure development is one of the most important determinants that attract FDI to the region; alongside the human capital, financial development, macroeconomic stability, exchange rate and political stability; (ii) not all the variables affect FDI the same way in the WAEMU region; (iii) there is a positive relationship between FDI and economic growth which implies that FDI stimulates economic growth; (iv) this study finds a positive relationship between FDI and macroeconomic stability (inflation) in WAEMU; (v) financial development needs to be improved to enable more gain from FDI. This suggests that the impact of FDI can be enhanced through financial development under a good environment that has to be provided in WAEMU.


Adofu, I. (2010). Accelerating Economic Growth in Nigeria: The Role of FDI. Research Journal of Economic Theory, 2(1), 11–15.
Agarwal, J. P. (1980). Determinants of Foreign Direct Investment: A Survey. Review of World Economics, 116, 739–773.
Akinleye, S. O., & Fakiyesi, O. A. (2011). Effect of Stock Market Development on Economic Growth in Nigeria: An ECM Approach. Business and Management Journal, 1(1),9–22.
Albulescu, C. T., Briciu, L., & Loana, S. (2010). Determinants of FDI in CEECS: The Role of Financial Stability, ASAU II. Economic Sciences, 3, 3–32.
Alesina, A., & Dani, R. (1994). Distribute Politics and Economic Growth. Quarterly Journal of Economics, 109(2), 465–490.
Alsan, M., Bloom, D. E., & Canning, D. (2006). The Effect of Population Health on FDI Inflows to Low- and Middle-Income Countries. World Development, 34(4), 613–630.
Anyanwu, J. C. (1998). An Econometric Investigation of Determinants of FDI in Nigeria. In Investment in the Growth Process: Proceedings of the Nigerian Economic Society Conference 1998 (219–40). Ibadan, Nigeria.
Asiedu, E. (2004). Policy Reform and Foreign Direct Investment to Africa: Absolute Progress but Relative Decline. Development Policy Review, 22(1), 41–48.
Asiedu, E. (2006). FDI in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. The World Economy, 29(1), 63–77.
Baeka, I. M., & Okawa, T. (2001). Foreign Exchange Rates and Japanese FDI in Asia. Journal of Economics and Business, 53, 69–84.
Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign Direct Investment and Growth in EP and IS Countries. The Economic Journal, 434, 92–105.
Basu, A., & Srinivisan, K. (2002). Foreign Direct Investment in Africa: Some Case Studies. IMF Working Paper, Retrieved from
Bellak, C., Leibrecht, M., & Stehrer, R. (2010). The Role of Public Policy in Closing Foreign Direct Investment Gaps: an Empirical Analysis. Empirica, 37(1), 19–46.
Bende-Nabende, A. J., Ford, S. S., & Slater, J. (2002). FDI in East Asia: Trends and Determinants. Asia Pacific Journal of Economics and Business, 6(1), 4–25.
Blomstrom, K., & Globerman, S. (2001). The Determinants of Host Country Spillovers from FDI: A Review and Synthesis of the Literature. In: Pain, N. (Ed.). Inward Investment, Techno-logical Change and Growth: The Impact of MNCs on the U.K. Economy. London: Palgrave Press.
Borensztein, E. J., De Gregorio, E. J., & Lee, J. W. (1998). How Does FDI Affect Economic Growth? Journal of International Economics, 45, 115–135.
Brainard, S. L. (1993). A Simple Theory of Multinational Corporations and Trade with Trade-Off between Proximity and Concentration. NBER Working Paper, Retrieved from
Brooks, D. H., Fan, E. X., & Sumulong, L. R.  (2004). FDI: Recent Trends and the Policy Context, In: Brooks, D. H. & Hill, H. (Eds.), Managing FDI in a Globalizing Economy (1-27). London: Palgrave.
Busse, M. K. J., & Nunnenkamp, P. (2007). FDI and Capital Account Liberalisation, European Journal of Political Economy, 27(2), 397–415.
Campos, N., & Kinoshita, Y. (2002). FDI as Technology Transferred: Some Panel Evidence from the Transition Economies. The Manchester School, 70(3), 398–419.
Campos, N. F., & Kinoshita, Y. (2008). FDI and Structural Reforms: Evidence from Eastern Europe and Latin America. IMF Working Paper, Retrieved from
Chakrabarti, A. (2001). The Determinants of Foreign Direct Investment: Sensitivity Analysis of Cross-Country Regressions. Kyklos, 54, 89–113.
Coase, R. (1937). The Nature of the Firm. Economica, 4(16), 386–405.
Dauda, R. O. S. (2008). Trend, Behavioural Patterns and Growth Implications of Foreign Private Capital Flows in Nigeria. The IUP Journal of Financial Economics, 10(3), 29–40.
Dauti, B. (2008). Determinants of FDI inflow in South East European Countries-Panel Estimation. Retrieved from
Dees, S. (1998). Foreign Direct Investment in China: Determinants and Effects. Economics of Planning, 31, 175–194.
Dunning, J. H. (1980). Toward an Eclectic Theory of International Production: Some Empirical Tests. Journal of International Business Studies, Retrieved from
Dunning, J. H. (1993). Multinational Enterprises and the Global Economy. Harlow, Essex: Addison Wesley.
Dupasquier, C., & Osakwe, P. N. (2006). FDI in Africa: Performance, Challenges, and Responsibilities. Journal of Asian Economics, 17, 241–260.
Easterly, W. (2003). Can Foreign Aid Buy Growth? Journal of Economic Perspectives, 17, 23–48.
Ekpo, A. H. (1995). Foreign Direct Investment in Nigeria: Evidence from Time Series Data. CBN Economic and Financial Review, 35(1), 59–78.
Fernandez-Arias, E., & Hausmann, R. (2000). Is FDI a Safer Form of Financing? Inter-American Development Bank. Working Paper, Retrieved from
Findlay, R. (1978). Relative Backwardness, FDI, and the Transfer of Technology: A Simple Dynamic Model. Quarterly Journal of Economics, 62, 1–16.
Froot, K. A. (1991). Japanese Foreign Direct Investment. NBER Working Paper, Retrieved from
Hailu, Z. A. (2010). Demand Side Factors Affecting the Inflow of FDI to African Countries: Does Capital Market Matter? International Journal of Business and Management, 5(5), 104–116.
Hayami, Y. (2001). Development Economics: From Poverty Alleviation to the Wealth of Nations (2nd Ed.).New York: Oxford University Press.
Hermes, N., & Lensink, R. (2003). Foreign Direct Investment, Financial Development and Economic Growth. Journal of Development Studies, 40(1), 142–163.
Herve, D. B. G. (2016). Financial Integration, Foreign Direct Investment and Growth: Panel Data Analysis for West African Economic Monetary Union Countries (WAEMU). Applied Economics and Finance, 3(4), 48–56.
Hymer, S. H. (1976). The International Operations of National Firms: Study of FDI (Doctoral Dissertation, MIT University, Cambridge). Retrieved from
International Monetary Fund. (2009). The Global Financial Crisis: Impact on WAEMU Member Countries and Policy Options. Retrieved from
Jaspersen, F., Aylward, A., & Knox, A. (2000). The Effects of Risk on Private Investment: Africa Compared with other Developing Areas. In: Collier, P. & Pattillo, C. (Eds.). Investment and Risk in Africa. New York: St. Martin’s Press.
Jeon, B. N., & Rhee, S. S. (2008). The Determinants of Korea's FDI from the USA, 1980-2001: An Empirical Investigation of Firm Level Data. Contemporary Economic Policy, 26(1), 118–131.
Jones, G. (1996). The Evolution of International Business. London: Routledge.
Kao, C. (1999). Spurious Regression and Residual-based Tests for Cointegration in Panel Data. Journal of Econometrics, 90, 1–44.
Khair-uz, Z., Hashim, S., & Awan, Z. (2006). Economic Determinants of FDI in Pakistan. Gomal University Journal of Research, 22, 49–57.
Khan, M. A., & Khan, S. A. (2011). Foreign Direct Investment and Economic Growth in Pakistan: A Sectoral Analysis. PIDE Working Papers, 67, 7–28.
Kinda, T. (2010). Investment Climate and FDI in Developing Countries: Firm Level Evidence. World Development, 38(4), 498–513.
Kindleberger, C. P. (1969). American Business Abroad. The International Executive, 11, 11–12.
Knickerbocker, C. P. (1973). Oligopolistic Reaction and Multinational Enterprise. Boston: Harvard University Press.
Lemi, A., & Asefa, S. (2003). Foreign Direct Investment and Uncertainty: Empirical Evidence from Africa. Africa Finance Journal, 5, 36–67.
Loree, D. W., & Guisinger, S. E. (1995). Policy and Non-Policy Determinants of U. S. Equity FDI. Journal of International Business Studies, 26(2), 281–299.
Loungani, P., & Razin, A. (2001). How Beneficial is FDI for Developing Countries? Finance and Development, 38, 6–10.
Maddala, G. S., & Wu, S. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61, 631–652.
Markusen, R. J. (1984). Multinationals, Multi-Plant Economies and the Gains from Trade, Journal of International Economics, 16, 205–226.
Markusen, J. R., & Maskus, K. E. (2002). Discriminating among Alternative Theories of the Multinational Enterprise. Review of International Economics, 10, 694–707.
Miyamoto, K. (2008). Human Capital Formation and Foreign Direct Investment in LDCs. Development Centre on Financing Development, 2(7), 577–593.
Mohamed, S. E., & Sidiropoulos, M. G. (2010). Another Look at the Determinants of FDI in MENA Countries: An Empirical Investigation. Journal of Economic Development, 35(2), 75–96.
Morisset, J. (2000). Foreign Direct Investment in Africa: Policies Matter. Transnational Corporations, 9(2), 107–25.
Mottaleb, K. A., & Kalirajan, M. (2010). Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis. Margin: The Journal of Applied Economic Research, 4(4), 369-204.
Moosa, I. (2002). Foreign Direct Investment: Theory, Evidence and Practice. New York: Palgrave.
Musila, J. W., & Sigue, S. P. (2006). Accelerating FDI Flow to Africa: from Policy Statements to Successful Strategies. Managerial Finance, 32(7), 577–593.
Nagou, M. (2016). Macroeconomic Determinants of Foreign Direct Investment in WAEMU Countries: The Place of Electronic Communication. Modern Economy, 7, 1601–1609.
Nasser, O. M., & Gomez, X.G. (2009). Do Well-Functioning Financial Systems Affect the FDI Flows to Latin America? International Research Journal of Finance and Economics, 29, 60–75.
Nonnenberg, M. B., & de Mendonça M. J. C. (2004). The Determinants of Direct Foreign Investment in Developing Countries. IPEA Working Paper,  Retrieved from
Noorbakhsh, F., Paloni, A., & Youssef, A. (2001). Human Capital and FDI Inflows to LDCs: New Empirical Evidence. World Development, 29(9), 1593–1610.
Nurkse, R. (1955). Problems of Capital Formation in Underdeveloped Countries (4th Ed.). Oxford: Basil Blackwell.
Nwokoma, N. I. (2004).Stock Market Performance and Macroeconomic Indicator Nexus in Nigeria, An Empirical Investigation. 9th Annual Conference on Econometric Modelling for Africa by the African Econometrics Society, Cape Town: University of Cape Town.
Organisation for Economic Cooperation and Developmen. (2007). International Investment Perspectives: Freedom of Investment in a Changing World. Retrieved from
Omran, M., & Bolbol, A. (2003). FDI, Financial Development, and Economic Growth: Evidence from the Arab Countries. Review of Middle East Economics and Finance, 1, 231–249.
Razin, A., Sadka, E., & Coury, T. (2002). Trade Openness and Investment Instability. Journal of International Economics, 61(2003), 285-306.
Reiter, S. L., & Steensma, K. H. (2010). Human Development and FDI in Developing Countries: The Influence of FDI Policy and Corruption. World Development, 38(12), 1678–1691.
Saibu, O. M., Fakanbi, K. E., & Agboola, O. W. (2011). Political Dispensation and Macroeconomic Performance in Nigeria (1970-2009). MPRA Working Paper, Retrieved from
Sekkat, K., & Veganzones-Varoudakis, M. A. (2007). Openness, Investment Climate, and FDI in Developing Countries. Review of Development Economics, 11(4), 607–620.
Singh, H., & Jun, K. W. (1995). Some New Evidence on Determinants of FDI in Developing Countries. World Bank, Policy Research Working Paper, Retrieved from
Todaro, M. P., & Smith, S. C. (2012). Economic Development. Pearson Education Limited (Electronic Version on a CD ROM).
Trevino, L. J., Daniels, J. D., Arbelaez, H., & Upadhyaya, K. P. (2002). Market reform and FDI in Latin America: Evidence from an ECM. International Trade Journal, 16(4), 367–392.
Tsikata, G. K., Asante, Y., & Gyasi, E. M. (2000). Determinants of Foreign Direct Investment in Ghana. London: Overseas Development Institute.
United Nations Commission for Trade and Development. (1998). Handbook on Foreign Investment by Small and Medium-sized Enterprises (N.Y. and Geneva: United Nations). Retrieved from
---------- (2009). World Investment Report 2009: Transnational Corporations, Agricultural Production and Development.Retrieved from
Vernon, R. (1966). International Investment and International Trade in the Product Cycle. Quarterly Journal of Economics, 80(2), 190–207.
Wall, S., & Rees, B. (2004). International Business (2nd Ed.). Harlow: Prentice Hall.
World Bank. (2010). World Development Indicators: Online Database. Retrieved from