The impact of foreign direct investment on international trade in the ECOWAS Region

Abstract

The majority of the government’s transformation strategy for the Economic Community of West African States (ECOWAS) is devoted to creating and supporting business environments conducive to foreign direct investment. According to this researcher, foreign investment has a highly divisive effect on trade, either positive or negative. As a result, this study aims to seed how foreign direct investment affects international trade in the ECOWAS region. Using Pesaran et al. (2001) Autogressive Distributed Lag (ARDL) bounds testing approach to co-integration, which estimates the co-integration relationship within the framework of ordinary least square (OLS),is not sensitive to the order of integration of the series and has no sample size limitation. According to the findings, foreign direct investment significantly impacts international trade flow, export volume, and exchange rate in ECOWAS countries. In contrast, population growth, import volume, and GDP (Gross Domestic Product) hurt the trade-to-GDP ratio. ECOWAS countries should encourage more inward foreign direct investment to boost economic growth and import substitution.