Institutional Quality, Foreign Direct Investment and Economic Growth: Evidence from ECOWAS Member Countries

Samson Alika, Olajide S. Oladipo

Abstract


This study adopts the Autoregressive Distributed Lag (ARDL) model to analyse the short and long-run impacts of institutional quality and foreign direct investment (FDI) inflow on economic growth in ECOWAS member countries, using time series data sourced from the World Bank, UNCTAD and Freedom House for the period 1990 to 2020, the study goes a step further to ascertain whether the impact is homogeneous in the region or not. Amongst others, the results found a positive relationship between FDI inflow and growth in ECOWAS. However, this was not statistically significant in the short run. Furthermore, the institutional quality variable of political regime was found to be insignificant both in the short and long run. However, the impact of coup was negative and statistically significant at 10 per cent in the short run and long run.  It was also discovered that the impact of foreign direct investment and institutional quality on economic growth were not homogeneous across ECOWAS member countries such that while the impact was positive for some countries, it was negative for others. In the same vein, the statistical significance of the impacts varied across the economies. The recommendations are that policy makers implement FDI-attractive policies, institutionalize democracy, and create checks and balances and separations of powers to rein in the excesses of the various institutions of government.

Keywords: Institutions; Economic growth; Panel ARDL model, FDI.

JEL Code: E22, O47, F23

DOI: 10.7176/JESD/13-22-04

Publication date: November 30th 2022

 


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