The Relationship between Trade Openness, Foreign Direct Investment and Economic Growth in West Africa: Static Panel Data Model

Abstract

This study investigates empirically the relationship between Trade openness (OPEN) and Foreign Direct Investment (FDI) on the economic growth for a panel of four (4) West African countries (Côte d’Ivoire, Ghana, Nigeria, and Senegal) during the period of 1998 to 2017. The static panel regression techniques were employed to assess the causal link of our regressors, namely, FDI, trade openness, investment and Inflation to economic growth measured by Gross Domestic Product (GDP). Levin-Lin-Chu unit-root test was conducted to find the stationarity of the panel data. The evidence from the statistical analysis suggests that aggregated trade openness, investment, and inflation do have a positive and significant impact on economic growth and is thus consistent with the literature, especially for developing countries. Based on static random effects, the addition of the foreign direct investment (FDI) did not deviate from the results, notwithstanding its negative impact on economic growth. The contribution of trade openness, investment and inflation are observed to be relatively higher than foreign direct investment.

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