Journal of World Economic Research

| Peer-Reviewed |

Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ

Received: 17 July 2016    Accepted: 09 August 2016    Published: 07 September 2016
Views:       Downloads:

Share This Article

Abstract

West African countries are caught in a structural Poverty trap due to severe underdevelopment of their productive forces, compounded by an unfavorable international environment and lack of genuine commitment on the part of affluent countries to assist them. Despite rising income among these countries, inequality and poverty incidence seems to be rising. Of course, they could be greatly assisted through effective international actions. This paper investigates the contributions of FDI and aid in accelerating the development of WAMZ member countries. The paper relies on both the Fixed Effect and Dynamic Arellano-Bond GMM Panel Data regression frameworks to show that aid contributes powerfully to both human development and economic growth while FDI, at best, has no effect on economic growth and actually slows the rate of human development in WAMZ. The higher the level of human capital in a country, the more aid contributes to growth and development. On the basis of our findings, WAMZ require aid for inclusive development but not necessarily FDI.

DOI 10.11648/j.jwer.20160505.11
Published in Journal of World Economic Research (Volume 5, Issue 5, October 2016)
Page(s) 43-58
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Inclusive Development, Aid, FDI, WAMZ, A-B Dynamic Panel Data

References
[1] Abbott Frederick, M (2000). NAFTA and the legalization of world politics: A cases study international organization 54 (3): 519-47.
[2] Achan, Christopher (2000). Why lagged dependent variable can suppress the explanatory power of other dependent variables. Working paper. Department of political science. Ann Arbor: university of Michigan.
[3] Alfaro L., A. Chanda, S. Kalemli-Ozcan, and S. Sayek. (2004), "FDI and Economic Growth: The Role of Local Financial Markets", Journal of International Economics, 64(1), 89-112.
[4] Anderson, James. (2000) Corruption in Slovakia: Result of diagnostic surveys. Working paper. Washington, D.C. World Bank.
[5] Angelopoulou, A., & Liargovas, P. (2014). Foreign Direct Investment: EU, EMU and Transition Economies. Journal of Economic Integration, 29 (3), 470-495.
[6] Arellano, M. & Bond, S (1991). Some Tests of Specification for Panel Dta: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58 (2): 277-297.
[7] Arellano, manuel and O. Bover. (1995). Another look at instrumental variable estimation of error component model. Journal of econometrics 68 (1): 29-51.
[8] Barro, R. (1990), Government spending in a simple model of endogenous growth. Journal of Political Economy, Volume 98(5), pp. 103-125.
[9] Barro, Robert J (1998) Determinants of economic growth: A cross-country empirical study. Cambridge, mass: MIT Press.
[10] Blomstrom, Maguns Ari Kokko (1996). The Impact of foreign investment on Host countries; A review of the empirical evidence. Policy research working paper 1745 Washington, D.C. World bank.
[11] Blomstrom M., and A. Kokko. (2003) "The Economics of International Investment Incentives", National Bureau of Economic Research, NBER 9489.
[12] Blomstrom, Magnus, Ari Kokko, and Steven Globerman. (2001). The determinants of host country spillovers from foreign direct investment: A review and synthesis of the literature. In inward investment, technological change, and growth: The impact of multinational corporations on the UK economy, edited by nigel pain, 34-65. New York: palgrave.
[13] Blomstrom M., R. E. Lipsey, and M. Zejan. (1996), "Is Fixed Investment the Key to Economic Growth", The Quarterly Journal of Economics, 111 (1), 269-276.
[14] Blomstrom, Maguns, Robert Lipsey, and Mario Zejan. (1996). Is fixed investment the key to economic growth? Quarterly journal of economics: 111(1): 269-76.
[15] Blomstrom, M. and Persson, H. (1983), Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from Mexican manufacturing industry. World Development, Volume 11, pp. 493-501.
[16] Blomstrom, M., Bloberman, S. and Kokko, A. (2000), The determinants of host country spillovers from foreign direct investment. CEPR Discussion Paper No. 2350.
[17] Borensztein, E., J. De Gregorio and J. W. Lee (1998), How does foreign investment affect economic growth? Journal of International Economics, Volume 45, pp. 115-135.
[18] Bos, H. C., M. Sanders, and C. Secchi. (1974), "Private Foreign Investment in Developing Countries: A Quantative Study on the Microeconomic Effects", Dardecht:
[19] Blundell, R., & Bond, S (1998). Initial Conditions and Moment Restriction in Dynamic Panel Data Models. Journal of Econometrics, 87 (1): 115-143.
[20] Campos F. N. and Y. Kinoshita. (2002), "Foreign Direct Investment as Technology Transferred: some panel data evidence from the transition economies", The Manchester School, 70 (3), 659-763.
[21] Carkovic M. and R. Levine. (2005), "Does Foreign Direct Investment Accelerate Economic Growth? in Does Foreign Direct Investment Promote Development?", ed. T. H. Moran, E. M. Graham and M. Blomstrom, Washington, DC: Institute for International Economics, 195-220.
[22] Dollar, David, and jakob sevesson. (2000). What explain the success or failure of structural a adjustment programs? Economic journal 110 (466): 894-917.
[23] Dollar, David and Jacob Svensson (2000). What explains the Success or Failures of Structural Adjustment Programmes? Economic Jurnal, 110 (466): 894-917.
[24] Ekong, C. N., & Onye, K. U. (2012). On the Feasibility of Common Currency in West Africa: Evidence from a Multivariate Structural VAR. Current Research Journal of Economic Theory.
[25] Ekong, C. N., & Onye, K. U. (2012). Economic Development in Nigeria: The Basic Needs Approach. Journal of Economics and Sustainable Development, 3, (10), 54-65.
[26] Fray, Bruno S. and Friedrich Schneider (1986). Competing models of international lending Activity. Journal of development economics 20 (2): 225-45.
[27] Fray, R. Scott, and Ali AL-Rroumi (1999. political democracy and the physical quality of life: cross national evidence. Social indicators research 47 (1): 73-97.
[28] Global competitiveness report (2015).
[29] Human development report (2014).
[30] Goldsmith, Arthur. (1995). Democracy, property rights, and economic growth. Journal of development studies 32 (2): 157-75.
[31] Haung Yasheng. (1998). Foreign direct investment in china. Singapore. Singapore: National university of Singapore press.
[32] Kosack, S., & Tobin, J (2006). Funding Self-sustaining Development: The Role of Aid, FDI and Government in Economic Success. International Organization Foundation-MIT Press, 60 (1), 205-243.
[33] Maizels, Alfred, and Machiko. K. Nissanlle (1984). Motivation for Aid to developing countries. World development 12 (9): 879-900.
[34] Moudatsou A. (2003), "Foreign Direct Investment and Economic Growth in the European Union", Journal of Economic Integration, 18 (4), 689-707.
[35] Moudatsou A., and Kyrkilis D. (201 1), "FDI and Economic Growth: Causality for the EU and ASEAN", Journal of Economic Integration, 26 (3), 554-577.
[36] Naveed, A., & and Ghalum, S. (2006). Trade Openness, FDI and Economic Growth: A Panel Study. Pakistan Economic and Social Review, 44(1), 137-154.
[37] Onye, K. U., & Iriagbije, A. O. (2016). Globalization and Nigeria’s Economic Performance. International Journal of Humanities and Social Science Research, 2 (2): 37-54.
[38] Powell, colin. (2002) making sustainable development work: governance, finance, and public-private cooperation. Remarks at state department conference, meridian international center, center wishing, D.C.
[39] Ranis, Gustav, Frances Stewart and Alejandro Ramirez (2000). Economic Growth and Human Development. World Development, 28 (2): 197-219.
[40] Rauniyar, G. & Kanbur, R. (2010). Inclusive Development: Two Papers on Conceptualization, Application, and the ADB Perspective.
[41] Razin, Assaf (2003) FDI flows and domestic investment: Overview CESifo economics studies. 49 (3): 415-28.
[42] Sachs, I. (2004). From Poverty Trap to Inclusive Development in LDCs. Economic and Political Weekly.
[43] Powel, C (2002). Marking Sustainable Development Work: Governance, Finance and Public-Private Cooperation. Remarks at State Department Conference, Meridian International Center, Washington, D.C.
[44] Rauniyar, G. & Kanbur, R. (2010). Inclusive Development: Two Papers on Conceptualization, Application, and the ADB Perspective.
[45] Sachs, I. (2004). From Poverty Trap to Inclusive Development in LDCs. Economic and Political Weekly.
[46] Trumball, Williams N., and Howard J. wall. (1994). Estimating Aid-Allocation criteria with panel data. Economics journal 104: 876-82.
[47] Saltz S. (1992), "The Negative Correlation Between Foreign Direct Investment and Economic Growth in the Third World: Theory and Evidence", Rivista Internazionale di Scienze Economiche e Commerciali, 39 (7), 617-633.
[48] Stern, N (1991). The Determinants of Growth. Economic Journal, 101 (404); 122-133.
[49] UNDP, Human development Report (2007).
[50] Wawro, Gregory (2002). Estimating panel data models in political science 10 (1): 25-48.
Author Information
  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Nigeria;West African Institute for Financial and Economic Management, WAIFEM, Lagos, Nigeria

  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Nigeria

Cite This Article
  • APA Style

    Okon Umoh, Kenneth Onye. (2016). Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ. Journal of World Economic Research, 5(5), 43-58. https://doi.org/10.11648/j.jwer.20160505.11

    Copy | Download

    ACS Style

    Okon Umoh; Kenneth Onye. Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ. J. World Econ. Res. 2016, 5(5), 43-58. doi: 10.11648/j.jwer.20160505.11

    Copy | Download

    AMA Style

    Okon Umoh, Kenneth Onye. Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ. J World Econ Res. 2016;5(5):43-58. doi: 10.11648/j.jwer.20160505.11

    Copy | Download

  • @article{10.11648/j.jwer.20160505.11,
      author = {Okon Umoh and Kenneth Onye},
      title = {Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ},
      journal = {Journal of World Economic Research},
      volume = {5},
      number = {5},
      pages = {43-58},
      doi = {10.11648/j.jwer.20160505.11},
      url = {https://doi.org/10.11648/j.jwer.20160505.11},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jwer.20160505.11},
      abstract = {West African countries are caught in a structural Poverty trap due to severe underdevelopment of their productive forces, compounded by an unfavorable international environment and lack of genuine commitment on the part of affluent countries to assist them. Despite rising income among these countries, inequality and poverty incidence seems to be rising. Of course, they could be greatly assisted through effective international actions. This paper investigates the contributions of FDI and aid in accelerating the development of WAMZ member countries. The paper relies on both the Fixed Effect and Dynamic Arellano-Bond GMM Panel Data regression frameworks to show that aid contributes powerfully to both human development and economic growth while FDI, at best, has no effect on economic growth and actually slows the rate of human development in WAMZ. The higher the level of human capital in a country, the more aid contributes to growth and development. On the basis of our findings, WAMZ require aid for inclusive development but not necessarily FDI.},
     year = {2016}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Financing Inclusive Development Through Aid and FDI: The Empirical Case of WAMZ
    AU  - Okon Umoh
    AU  - Kenneth Onye
    Y1  - 2016/09/07
    PY  - 2016
    N1  - https://doi.org/10.11648/j.jwer.20160505.11
    DO  - 10.11648/j.jwer.20160505.11
    T2  - Journal of World Economic Research
    JF  - Journal of World Economic Research
    JO  - Journal of World Economic Research
    SP  - 43
    EP  - 58
    PB  - Science Publishing Group
    SN  - 2328-7748
    UR  - https://doi.org/10.11648/j.jwer.20160505.11
    AB  - West African countries are caught in a structural Poverty trap due to severe underdevelopment of their productive forces, compounded by an unfavorable international environment and lack of genuine commitment on the part of affluent countries to assist them. Despite rising income among these countries, inequality and poverty incidence seems to be rising. Of course, they could be greatly assisted through effective international actions. This paper investigates the contributions of FDI and aid in accelerating the development of WAMZ member countries. The paper relies on both the Fixed Effect and Dynamic Arellano-Bond GMM Panel Data regression frameworks to show that aid contributes powerfully to both human development and economic growth while FDI, at best, has no effect on economic growth and actually slows the rate of human development in WAMZ. The higher the level of human capital in a country, the more aid contributes to growth and development. On the basis of our findings, WAMZ require aid for inclusive development but not necessarily FDI.
    VL  - 5
    IS  - 5
    ER  - 

    Copy | Download

  • Sections