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GTAP Resource #2039

"Determinants of Foreign Direct Investment and Economic Growth in the West African Monetary Zone: A System Equations Approach"
by Udoh, Elijah and Kingsley Isitua Obiora

Although the theory of diminishing returns to capital postulates that capital should be invested where its ratio to other production factors is low, evidence on the flow of Foreign Direct Investment suggests otherwise. Slightly more than 70 percent of world FDI in the past 20 years has gone to developed countries, where capital/labour ratio is much higher than in the developing countries. Although the literature on the FDI-growth nexus is burgeoning, this paper departs from earlier studies by specifically analyzing the candidate determinants of FDI in the West African Monetary Zone (WAMZ) and investigating the cause-effect relationship between FDI and growth. Using a simultaneous equation method on a panel of WAMZ countries over the period 1980 to 2002, we find no evidence of a two-way causal relationship between FDI flows and economic growth. Rather FDI tends to be attracted by high per capita income, better infrastructure and political stability. Hence, any meaningful attempts at attracting FDI must take cognizance of these determinants.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Created: Udoh, E. (5/1/2006)
Updated: Udoh, E. (5/1/2006)
Visits: 3,401
No keywords have been specified.

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