Financial Inflows and Economic Growth of West African Countries

This study examined the impact of foreign inflows, such as Foreign Direct Investment (FDI), Foreign Aid Grants (FAG), Foreign Debt (FD), and Remittance Received (REM), on economic growth, proxied by Real Gross Domestic Product (RGDP), in West African countries from 1990 to 2024. Using panel data regression techniques with fixed effects, the results indicated that all forms of foreign inflows had a statistically significant positive effect on RGDP, highlighting their crucial role in driving economic growth. Specifically, FDI contributed to infrastructure development and technological innovation, FAG financed key sectors like education and healthcare, and FD supported investments that boosted productive capacity. REM inflows positively impacted household consumption and human capital development. These findings align with the Neoclassical Growth Theory, which emphasizes the importance of capital accumulation and technology transfer. However, the study also considered the Dependency Theory, which cautions against over-reliance on foreign aid and remittances, as such dependence can hinder long-term development by perpetuating a cycle of vulnerability. The study’s conclusions suggest that while foreign inflows are vital for growth, they must be managed carefully to avoid the risks associated with dependency. Effective governance, sustainable debt management, and policies that leverage remittances for productive investment are necessary to ensure that these inflows contribute to long-term structural transformation. The study recommends promoting policies that enhance the productive use of FDI, aid, and remittances while ensuring that external debt remains manageable and supports growth rather than creating fiscal challenges. By doing so, West African countries can foster long-term, sustainable development and reduce their reliance on external capital sources.