Ethnic Diversity and Capital Formation in West African Countries

Abstract

This paper investigates how ethnic diversity influenced capital formation in West African countries using a cross-country dataset ranging from 1991 to 2017. Using the fully modified ordinary least square method, the results showed that one of the important factors responsible for capital formation in the region is ethnic diversity. Other factors found influencing capital formation in the region were interest rate, foreign direct investment, inflation rate and financial development. Thus, the government should ensure that the countries' resources are not controlled and beneficial to the people with the same cultural groups as it accounted for the poor state of the region's investment base.