Economic convergence amongst ECOWAS member countries: The role of foreign direct investment

The phenoma of per capita income convergence has a lot of welfare implications. FDI is identified as a principal candidate for technology transfer to developing countries. However, the distribution of FDI is observed to be highly skewed in favour of limited number of countries. Africa in general, and ECOWAS in particular, perfromed poorly in FDI attraction compared to other countries. ECOWAS is also characterized by huge within group gap both in terms of FDI and real GDP per capita. Using data spanning from 1970 – 2014, this study investigates the relationship between real GDP per capita and FDI for a sample of 15 ECOWAS countries. The study employs SURADF procedure to investigate on absolute convergence within each income group as well as
convergence within ECOWAS at large. It is observed that seven economies tend to converge to the group average real GDP per capita, of which only one is a low-income. On the speed of convergence, the study reveals that relatively poor economies tend to
catch up with relatively richer economies in the group at 1.10 percent, a rate considered very slow. The study further reveals that FDI plays a significant role in facilitating per capita income convergence amongst ECOWAS member states. Investigation of the role of FDI in attaining across group convergence for ECOWAS and each income group also yields results showing a sharp difference between the two income groups. Low
income countries have positive and significant relationship between FDI and convergence as opposed to the case of lower middle income. The policy implications of these findings is that ECOWAS countries need to implement policies that would aid
FDI attraction as well as ensure adequate absorptive capacity, which is an important
condition to reap the benefits of FDI.