Impact of Chinese Foreign Direct Investment on the growth of West African Economic and Monetary Union (WAEMU) countries

The objective of this paper is to analyze empirically the effect of Chinese FDI on economic growth of countries of the West African Economic and Monetary Union (WAEMU). The data used in this paper come from World Bank except for FDI data, which were taken from the Statistical Bulletins of China’s Outward Foreign Direct Investment, covering the period 2006 to 2018. Using the theoretical framework of the endogenous growth model, this paper performed an econometric approach of fixed-effects and random effects regressions with instrumental variables to make the estimates. The results of our estimates showed that Chinese FDI inflows have negative impact on host countries’ growth, based on the random effects regression, which is appropriate and fits well the data used. In addition, our results indicate that exports of primary goods are negatively correlated with the overall annual growth in the region. Further, infrastructure development and industrialization were found to be one of the critical factors for growth of the countries under investigation. Our findings suggest that Governments of WAEMU countries need to intensify their investment in health and education in order to boost the quality of human capital stock. More importantly, there is a need to promote the production of manufactured goods that are currently imported rather than increasing exports of primary goods. Finally, investing more in infrastructure and industrialization process is fundamental to positively impact the growth of countries in the union.