Tax policies, exchange rate movement, ease of doing business and FDI flows in the Economic Community of West African States (ECOWAS)

Abstract

The purpose of this study is to investigate the dynamics and the determinants of foreign direct investment (FDI) in the ECOWAS subregion within the context of tax policy, exchange rate movements and ease of doing business. Having adopted a quantitative research approach and a causal research design, the study obtained secondary data from 15 ECOWAS member countries using a census sampling technique. By using both random effect and fixed effect panel regression analysis techniques, the study found that tax policy and exchange rate movements registered negative effect on foreign direct investments whereas ease of doing business recorded a positive effect. The study concludes that high taxes and weakening domestic currency are inimical to foreign direct investment whereas creating a conducive business environment characterized by political stability, certainties in the financial ecosystem and minimized regulatory bottlenecks incentivize the establishment and expansion of businesses in the local economy. The study recommends for optimum tax policies, strong currency-targeted monetary policies and business-friendly regulatory regimes that attract foreign investors into the Ghanaian local economy.