Foreign Direct Investment and Financial Development in Economic Community of West African States
Foreign Direct Investment and Financial Development in Economic Community of West African States

Summary/Abstract: This paper examines the link between foreign direct investment (FDI) and financial development with a view to ascertaining whether FDI is a substitute or complement to financial development in a sample of fifteen countries in Economic Community of West African States (ECOWAS) from 1980-2014. The study employed the two-step system Generalized method of moment. The result of the study is mixed. Specifically, the findings reveal that the development of the financial sector in the West African sub-region is actually not aiding FDI inflows, as it is evident from our analysis that financial development does not exert a significant positive effect on FDI inflows into the region. However, FDI influences the domestic financial sector development positively and significantly in the ECOWAS sub-region. This indicates that FDI has been complementing financial sector development. Generally, the study submits that foreign direct investment and financial development can act as both substitute and complement in the ECOWAS region.

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