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To investigate whether FDI and Growth have any predictive economic content for

each other (i.e. whether any causal relationship exist between them), Granger Causality

test was conducted. The results show that the two variables do not Granger-cause each

other (see Appendix). In other words, in the short run, there is no two-way causal

relationship between FDI and economic growth in WAMZ countries. However, in the

long

run,

a

stable

relationship

exists

between

the

variables

in

consideration.

This

evidence is provided be the cointegration analysis.8

4.

Lessons for Policy The main policy implications of the findings can be summarized thus: first, the

effect of foreign direct investment on economic growth in the WAMZ countries is

negligible. This could be due to the quantity and quality of FDI attracted by these

countries. In reality, the volume of FDI flowing into the zone has been very low.

Without exaggeration over 80 percent of the FDI attracted by the zone has been in the oil

and mineral exporting sector. The WAMZ countries seem to be latecomers to the market

for FDI. Their vigorous campaigns for FDI have not yielded much fruits since FDI is

still concentrated in countries with mineral resources and crude oil with no strong linkage

effect on the host country economies. The per capita income in these countries is too low

to effectively draw FDI into sectors that will generate positive externalities for the host

countries. Second, in the case of quality, we invoke a bit of the political economy of

development. An important feature of foreign direct investment to WAMZ countries has

8 Even the cointegrating equation confirms the results from the system equations with regard to the significance of growth in the FDI equation and the insignificance of FDI in the growth equation. The cointegration results are available on request.

19

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