The impacts of foreign direct investment and globalisation on economic growth in West Africa: examining the role of political governance

Abstract

Purpose

This paper measures the impacts of foreign direct investment (FDI), globalisation and political governance on economic growth in West Africa. The empirical analysis also includes the interaction effect of political governance and FDI on the growth of the sub-region, over the period of 1996–2016.

Design/methodology/approach

The study employs the autoregressive distributed lag technique on data obtained from the World Bank and the KOF institute.

Findings

The study findings suggest a positive relationship between globalisation and political governance on economic growth. Even though there have been inconclusive results on the FDI–growth nexus, the authors found that FDI stimulates the growth of the sub-region, while political governance enhances the positive impact of FDI on economic growth. The other factors of growth included are labour, capital and government size, whose effects on growth are, respectively, negative, negative and positive.

Practical implications

The governments of the West African countries promote policies that attract FDI into the sub-region, so that economic performances may be enhanced. In addition, the governments of the West African sub-region should work to reap the benefits of globalisation, by promoting the competitiveness of their local economies in order to keep pace with the global markets. Finally, the political-governance infrastructures should be overhauled; the culture of accountability and transparency should be promoted, while all efforts should be made to improve stability in the political environment in order to increase investors' confidence in the West African economy.

Originality/value

This study is the first to single out the impacts of political governance, as categorised by the World Bank, through both direct and interactive measures. This is necessary in view of the assertion that political governance largely accounts for improved economic performance in an economy. The use of the Pesaran (2007) technique of unit root is also a deviation from existing studies. This is in view of the fact that it tests variable unit root in the presence of cross-sectional dependence; thus, controlling for contemporaneous correlation which was not considered in the first-generation tests.

Citation

Shittu, W.O., Yusuf, H.A., El Moctar El Houssein, A. and Hassan, S. (2020), "The impacts of foreign direct investment and globalisation on economic growth in West Africa: examining the role of political governance", Journal of Economic Studies, Vol. 47 No. 7, pp. 1733-1755. https://doi.org/10.1108/JES-09-2019-0446