Exchange rate volatility, ease of doing business and fdi flows in the economic community of West African States

Abstract

The study sought to investigate the effect of exchange rate movement on foreign direct investment into the Economic Organization of West Africa Sates; to find the relationship between ease of doing business and FDI flows as well as to examine the effect of foreign direct investment on exchange rate movement. The study used casual research design, quantitative approach, census sampling technique that considered the 15 countries in the jurisdiction, annual data period spanned from 2010 through 2021. panel pooled cointegration, Pearson product moment correlation were deployed to check appropriateness of the data. Through the Toda and Yamamoto augmented granger causality test, the study observed that a uni-causality exist from EXRM to FDI and from EODB to FDI. Multivariate regression test through Engle Granger Least Square random effect and panel least square fixed effect estimations were deployed. The result revealed that contrary to the harbored notion in academia, exchange rate has significant negative effect on FDI with random estimation yet insignificant for fixed effect estimation. Notwithstanding, ease of doing business has positive relationship with FDI for both estimations. Also, the study found that FDI flows inversely impact exchange rate in both random and fixed effect estimations. The findings contribute to the existing understanding on the nexus between the discussed variables. The novelty of the study is the exploration of the bi-directional relationship between FDI and EXRM which is scarce in literature on ECOWAS. The study recommends member state governments to implement pragmatic economic policies in order to check FDI flows