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Institutions-FDI Nexus in ECOWAS Countries

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  • K. Bello Ajide
  • Ibrahim Dolapo Raheem

Abstract

Of the foreign capital flows that are required for stimulating the process of economic growth, foreign direct investment (FDI) has been the most elected candidate that is often sought. This explains why so much effort has been geared towards its attraction thus paving the way for enquiry into its determinants. Arguably, apart from the conventional FDI-drivers, the importance of institutions has been grossly undermined. On this basis, the study sets out to unravel the causal linkage between institutions and FDI with a special focus on ECOWAS countries. The results showed the existence of prevalent weak governance structure among the ECOWAS countries. Further, on component-by-component basis, this result was robust to the decomposition of the governance indicator into the six sub-indices, namely: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. We split the sample size into low (poor institutions) and high regimes (better institutions) and found that countries with better institutions were able to attract FDI more than countries with poorer institutional infrastructure. Thus, instituting sustainable governance structure will offer a leeway towards attraction of more FDI into the sub-region.

Suggested Citation

  • K. Bello Ajide & Ibrahim Dolapo Raheem, 2016. "Institutions-FDI Nexus in ECOWAS Countries," Journal of African Business, Taylor & Francis Journals, vol. 17(3), pages 319-341, September.
    • Handle: RePEc:taf:wjabxx:v:17:y:2016:i:3:p:319-341
    DOI: 10.1080/15228916.2016.1180778
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    References listed on IDEAS

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    3. International Monetary Fund, 2004. "Risk Instability and the Pattern of Foreign Direct Investment in the Middle East and North Africa Region," IMF Working Papers 2004/139, International Monetary Fund.
    4. Ndikumana, Leonce & Verick, Sher, 2008. "The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa," IZA Discussion Papers 3296, Institute of Labor Economics (IZA).
    5. repec:bla:devpol:v:26:y:2008:i:6:p:713-726 is not listed on IDEAS
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