Governance, FDI and Private Domestic Investment in West African Economic and Monetary Union (WAEMU)
YAO Kouadio Ange-Patrick Ph.D; DRAMA Bedi Guy Hervé Ph.D

The main objective of this study is to empirically examine the relationship between foreign direct investment and domestic private investment, and also to analyse the impact of alternative elements of governance on this link. Our dataset covers seven West African countries namely countries namely Burkina Faso, Benin, Cote d’Ivoire, Niger, Mali, Senegal and Togo spanning the period from 2002 to 2015. By adopting system generalized method of moments (GMMS) of Blundell and Bond (1998) for the econometric investigation, the results show that foreign direct investment crowds out domestic private investment in all countries covered by the study. Moreover, the substitution effect (crowding out effect) is greater in francophone West African countries with good governance in terms of political stability and of control of corruption. We also detect weak evidence between governance indicators and domestic private investment implying that market failure exists. The paper finally conclude by calling countries governments to better structure macroeconomic environment, reinforce technology transfer, improve the absorption (or adaptive) capabilities of local enterprises and give more meaning to the role of governance in order to secure domestic investment and boost foreign direct investment.

Full Text: PDF     DOI: 10.15640/jibe.v7n1a1