Foreign Direct Investment, Financial Development and Growth Convergence in ECOWAS

Ogbuagu, Matthew; Iwegbu, Onyebuchi; Saibu, Olufemi Muibi

doi:10.22059/ier.2021.83452

Foreign Direct Investment, Financial Development and Growth Convergence in ECOWAS

Authors

Matthew Ogbuagu ¹

Onyebuchi Iwegbu ²

Olufemi Muibi Saibu ²

¹ Department of Economics, Faculty of Social Sciences, Federal University Oye-Ekiti, Ekiti, Nigeria

² Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka-Yaba, Lagos, Nigeria

10.22059/ier.2021.83452

Abstract

This study examines the tendency of low-income economies in ECOWAS to converge with their high-income neighbors. It extends the frontier of knowledge by ascertaining how quickly financial development (FD) and foreign direct investment (FDI) would stimulate growth, causing low-income ECOWAS member states to catch up. Also, the required threshold for FD and FDI required to facilitate convergence were computed. To achieve the above, fifteen ECOWAS member states were examined within the period 1990 to 2017 using panel data obtained from the World Development Indicators (WDI) 2018 database. The Fully Modified Ordinary Least Square (FMOLS) technique of analysis was utilized and the study found an absence of conditional convergence among ECOWAS member countries. More so, the FD-FDI threshold level required to aid conditional convergence is 22.8% and 3.77% respectively. Therefore to ensure convergence, the study recommends that low-income member states must thrive to attract FDI and seamless credit to the private sector.

Keywords

Conditional Convergence

Financial Development

Foreign Direct Investment

Fully Modified OLS (FMOLS)

Growth Rate

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