The Assessment of Trade Openness, Foreign Direct Investment and Economic Growth in the West African Economic Monetary Union (WAEMU)

The dynamic functions of trade and foreign direct investment (FDI) inflows have been connected to the growth performance of several countries. This study looks at the influence of trade openness and foreign direct investment on economic growth in the WAEMU countries from 1994 to 2019, in order to better understand the dynamic link between FDI, trade openness, and economic growth in the WAEMU. The long-run link between the variables was validated by the Kao and Pedroni cointegration tests. The openness of commerce was measured by the Composite trade share (CTS). The influence of FDI and trade openness on economic growth in the short and long run was estimated using the panel Auto-regressive Distributed Lags (ARDL) model. At the 5% significance level, ARDL findings show that FDI will enhance GDP per capita growth by 0.26 percent in the long run, whereas trade openness will lower GDP per capita growth by 2.39 percent. FDI has a favorable impact on GDP per capita growth in Burkina Faso, Guinea Bissau, Senegal, and Togo in the near term. In Benin, Cote d’Ivoire, Mali, and Niger, however, FDI has a negative and considerable impact on growth. In the short run, trade openness has favorable and significant benefits on GDP per capita growth in Benin, Burkina Faso, and Cote d’Ivoire, but has negative and significant effects in Mali, Niger, Senegal, and Togo. As a result, increased FDI inflow and trade openness are needed to improve growth in WAEMU countries by creating a favorable business environment and export diversification.