Does monetary integration lead to an increase in FDI flows? An empirical investigation from the West African Monetary Zone (WAMZ)

This paper investigates the relationship between monetary integration, foreign direct investment (FDI) and trade in the West African Monetary Zone (WAMZ) using annual time series for the period 1980–2013. It also examines whether trade and FDI are complement or substitute. Several econometric models are applied including Ordinary Least Squares (OLS) and fully-modified OLS (FMOLS). Our empirical results revealed that FDI flows into the WAMZ is influence positively by monetary integration. The findings also suggest that while real GDP, large population size and greater distance positively influence FDI flows, weak economic freedom index negatively impact FDI flows into the zone. The results support the argument that monetary unio‎n positively affect trade. Our empirical finding support the hypothesis that FDI and trade flows are complementary. The results are in line with earlier research findings. Therefore, any policy that promotes trade such as monetary integration enhances FDI inflows as well. The findings offer perspectives and insight for a new policy in WAMZ economies in their drive to attain sustainable economic growth.