Impact of Foreign Direct Investment (FDI) on Economic Growth in WAEMU from 1990 to 2012

Abstract

In recent years, the effect of Foreign Direct Investment (FDI) on economic growth has been increasing, in developing countries, particularly in Africa. In their attempt to attract FDI, most African countries such as WAEMU (West African Economy Monetary Union) countries have liberalized trade and attempted to create an enabling environment. The purpose of our study is to investigate the impact of FDI on economic growth for WAEMU countries. We developed a theoretical model of investment that included an FDI variable and tested it with panel data from 1990 to 2012. The model is run for seven (7) developing countries in Africa. The estimation results show that FDI has a positive impact on economic growth. We found that FDI in WAEMU is going to facilitate the trade, FDI liberalization, economic cooperation, improve the business environment and increase the labour cost. FDI will allow WAEMU countries to attract more foreign capital for the creation of jobs and wealth. Based upon these results, the ultimate objective of our paper concludes that the Impact of FDI on economic growth is beneficial for host country’s trade and investment. The increasing of investment in WAEMU countries could generate important gains for most of African economies.