Foreign Direct Investment Spillover and the Size of Trade Growth in West African Monetary Zone

Abstract

The aim of this study is to examine the impact of Foreign Direct Investment(FDI) spillover measured by increase in FDI inflow and decrease in FDI inflow on the size of trade growth proxy by trade (% GDP) in Gambia, Ghana, Nigeria, and Sierra Leone from 1970 to 2017. The study employed Non-linear ARDL framework. The result showed that increase in FDI inflow is necessary to cause trade growth in Sierra Leone in the long-run, and is not an effective source of capital flow in trade growth in Gambia, Ghana, and Nigeria. Also, decrease in FDI inflow generated a decline in the long-run trade size growth in Gambia, Ghana, Nigeria and positive impact on trade size growth in Sierra Leone. Thus, FDI spillover effects vary from country to country in selected West African Monetary Zone (WAMZ) country. There should be serious FDI inflow based corporate governance mechanisms that will coordinate the effective utilization and deployment of FDI inflows to core areas of economic need. FDI inflow should be meant to find those sectors that can optimally use it to enhance productivity.