What Are The Growth Effect of Foreign Direct Investment And Trade in WAMZ

Abstract

This study contributes to the debate about the impact of FDI and trade on growth using current panel data (1980-2010) from the WAMZ nations. Using a variety of modern estimation techniques, our overall findings showed that FDI has a significant positive impact on growth in the WAMZ. This impact was robust and unambiguous in all the alternative estimations that adjusted for the problem of feedback between FDI and growth as well as between trade and growth.  However, the impact of trade on growth in the WAMZ was found to be negative- a result that tends to portray current un-favorable trade composition in the zone. In conclusion, we caution that until the current trade composition (characterized by persistent trade deficits, export of primary products, overdependence on imports, etc.) is reversed, countries in WAMZ may not be able to effectively use trade to record any significant growth in their economies.

Key words: WAMZ, FDI, Panel Data, Growth