Capital Inflow And Economic Development: A Focus On West African (Wa) Sub-Region
Anidiobu Gabriel A PhD
Department of Banking & Finance, Faculty of Management Sciences, Enugu State University of Science & Technology, Enugu, Nigeria
Okolie Paschal I P
Department of Banking & Finance, Faculty of Management Sciences, Enugu State University of Science & Technology, Enugu, Nigeria
Onyia Chinedu C PhD
Department of Banking & Finance, Faculty of Management Sciences, Enugu State University of Science & Technology, Enugu, Nigeria
Keywords: Capital inflow, economic development, West Africa, panel least square (PLS).
Abstract
This research assessed effect of capital inflow (measured by foreign debt) on economic development (measured by per capita income) in West African (WA) sub-region using annual panel data sourced from World Development Indicators (WDI) for the period 1986 to 2017. Uniqueness of the variables was determined with descriptive statistics. Data achieved stationarity via five methods: Levin, Lin & Chu t; Breitung t-stat; Im, Pesaran and Shin W-stat; ADF-Fisher Chi-square, and PP-Fisher Chi-square. Results revealed that the series became stationary after first differencing, a sign of unit root not being present. Panel least square (PLS) estimator analyzed the modified models. The models were further analyzed with fixed and random effect panel (regression) estimators. With the aid of Hausman test, the random effect (RE) estimator was accepted as a better analytical option. A 5% error tolerance level was allowed for this study. Result showed that foreign debt had a negative, but significant effect on per capita income in WA countries. This outcome implied that foreign debt did not buoy per capita income during the period under consideration. This situation might not be unconnected to several issues relating to fiscal policy implementation. In order to have sustained economic development in post-covid-19 West Africa, foreign borrowings should be tailored toward development-oriented objectives that promote large-scale production, infrastructures without compromising export-led growth. Also, government should re-strengthen state-sponsored graft agencies to curtail financial crimes, capital flight. Health tourism should be legislated against. The basic contribution of this study to knowledge was juxtaposing outcomes of the West African sub-region and the country-specific outcomes of 15 (out of the 18 West African countries)employing modified (panel) regression model to analyze the study objective.