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capital is more likely to attract domestic capital than to displace it. Other studies have

collaborated these findings with different data and alternative specifications to provide

convincing evidence that FDI benefits rather than hurts poor countries (Borenzstein, et al,

1998; de Mello 1997).

However, there are obvious simultaneity problems in this type of work. In a

paper that specifically addresses simultaneity, Lipsey (2000) finds that trade openness is

the single-most important determinant of FDI inflows, and that the ratio of FDI to GDP is

the

most

consistent

positive

influence

on

subsequent

growth

rates.

While

not

for

a

moment intending to contest these interesting results, further scrutiny is demanded to

adequately quantify and isolate the effects of FDI inflows. The present study is meant to

contribute to the literature by filling this gap using data for countries from the West

African Monetary Zone (WAMZ). For most of the countries comprising the WAMZ, the

experience show that the enabling environment is still in a low level of development.

This condition begs the question: whatever may be the positive effect of FDI, could it be

reaped without the provision of the enabling conditions? Will FDI have positive or

negative effect on growth? Or, will it be neutral? Previous studies have left us with no

definite answer to these questions.

3.

The model and Empirical Analysis

In this section, the empirical model is specified, estimated and evaluated. The analysis of

the simultaneity of the relationships requires an estimation technique that is solved

simultaneously in order to capture the feedback effects. In view of these, the behavioural

relationships of the model are estimated using weighted Two Stage Least Squares

(WTSLS) estimation technique. This method of estimation produces results that correct

13

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