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Foreign Aid, Foreign Direct Investment And Economic Growth In Ecowas Countries: Are There Diminishing Returns In The Aid-Growth Nexus?

Author

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  • Hassan O. Ozekhome

    (Department of Economics and Statistics, Faculty of Social Sciences, University of Benin, Benin City, Nigeria)

Abstract

This paper investigates the impact of foreign aid and foreign direct investment (FDI) on economic growth in the Economic Community of West African States (ECOWAS) region, and whether diminishing returns occur in the aid-growth nexus, for the period 2000-2015, employing the Generalized Method of Moments (GMM) Estimator. The empirical results reveal that trade openness; foreign direct investment, real gross domestic capital formation, human capital and lagged real GDP (a measure of previous economic growth/market size) are the principal drivers of economic growth in ECOWAS countries. Foreign aid and its squared term (a measure of diminishing returns on account of absorptive capacity constraints) are both found to have negative impact on growth. Inflation (a measure of macroeconomic environment) is also found to have a dampening impact on economic growth in ECOWAS countries. We recommend amongst others; open trade and investment-enhancing policies (domestic and foreign), sound and stable macroeconomic policies, institutional structures, as well as policy coordination and harmonization with respect to trade and investment among member countries, to fast-track rapid economic growth, particularly in the quest for increased economic integration in the sub-region.

Suggested Citation

  • Hassan O. Ozekhome, 2017. "Foreign Aid, Foreign Direct Investment And Economic Growth In Ecowas Countries: Are There Diminishing Returns In The Aid-Growth Nexus?," West African Journal of Monetary and Economic Integration, West African Monetary Institute, vol. 17(1), pages 61-84, June.
    • Handle: RePEc:wam:journl:v:17:y:2017:i:1:p:61-84
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    Citations

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    Cited by:

    1. Gameli Adika, 2022. "Sustaining Economic Growth in COMESA: Challenges and Prospects," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 301-311, January.
    2. Jiang Hongli & Prince Asare Vitenu‐Sackey, 2023. "Assessment of the effectiveness of foreign aid on the development of Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 79-92, January.
    3. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.

    More about this item

    Keywords

    Foreign Aid; Foreign Direct Investment; Economic Growth; ECOWAS; Generalized Method of Moments (GMM);
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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