DOES FOREIGN DIRECT INVESTMENT AND REMITTANCES INFLOWS AFFECT ECONOMIC PERFORMANCE?: NEW EVIDENCE FROM GHANA AND NIGERIA.

GHANA; NIGERIA

Extant studies have interrogated the nexus between foreign capital inflows and economic growth through different channels and posited that the association between both variables is still inconclusive, meaning that further studies are required to comprehend the relationship better. As such, this present study is motivated by the desire to examine the contending role of foreign direct investment (FDI) and remittance inflows in driving the performance of the Ghanaian and Nigerian economies. The choice of these two countries is based on empirical evidence that both nations constitute approximately 80 percent of West Africa's economy and they have been the top two recipients of foreign direct investment (FDI) and remittances inflows into the region in the last three decades. The study employed the PMG (Pooled Mean Group) estimator of the dynamic heterogeneous panel (panel ARDL) to test the relationship among the variables using time series data from 1986 to 2021. The empirical result revealed that FDI has a coefficient of 0.3159 with a probability value of 0.3112. This implies that FDI has a positive but negligible impact on the GDP growth of both countries in the long-run. A percent increase in FDI is associated with a 0.32 percent rise in GDP growth on average ceteris paribus assumption. Similarly, the result showed that remittance inflow has a positive but negligible impact on GDP growth in the long-run. Such that a percent increase in remittance inflows would cascade into a 0.39 percent increase in GDP growth on average ceteris paribus assumption. The negligible impact of FDI inflows on GDP growth could be attributed to the fact that the bulk of foreign inflows to both economies are portfolio investments (in financial securities such as bonds and equities). In addition, the negligible impact of remittances on long-term economic performance indicates that remittances are often transferred through informal channels, such as friends and family members traveling abroad, which poses a major challenge for both countries in the development process of their financial systems. Policymakers in both countries should ensure that inward foreign investment policies are liberalized for Greenfield projects that are targeted at the critical sectors of their respective economies to drive significant growth. Similarly, FDI should focus on horizontal integration to inject positive spill-over effects on the business sector of both domestic economies. The ease of doing business status should be further improved to rebuild the confidence of foreign investors while investing in both countries' economies. [ABSTRACT FROM AUTHOR]

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