Abstract
This paper examines the effect of inward FDI in West Africa on exports to EU countries. It investigates from a host country perspective, the impact of FDI on different export categories: primary, intermediate, and final goods. Contrary to previous studies where multinationals are usually engaged in downstream production in the host country, this study presents a “commodity-proximity” model where multinational presence in upstream activities in resource-abundant host countries can stimulate the export of primary and/or intermediate goods to source countries where downstream activities take place. Results from a theoretically augmented gravity model shows that the effect of FDI in host country’s export differs across export categories. Multinational presence in the ECOWAS region is associated with an increase in exports of primary goods, a decrease in exports of intermediate goods, and has no effect on final goods.
The paper suggests that in order to achieve export diversification and commodity based industrialization, ECOWAS members should align their investment promotion priorities with their industrialization policies. More FDI should be encouraged in sectors that are vital to industrialization aspirations.
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Notes
- 1.
- 2.
These are the initial stages within the production value chain, which includes of extractive activities. While downstream activities refer to the processes that involve the conversion to final goods, as well as the distribution and sale.
- 3.
BICS means Brazil, India, China and South Africa. We excluded Russia from the analysis due to lack of adequate data.
- 4.
Sectors in this case refer to primary, intermediate and final goods producing sectors of the economy.
- 5.
The EU-ACP EPA is an agreement which grants African, Caribbean and Pacific (ACP) countries duty free access to the European market. It started as a non-reciprocal preferential trade agreement but was later replaced by a reciprocal relationship in order to be in compliance with WTO regulations.
- 6.
Given the paucity of data on intermediate goods trade in Africa, the analysis in this section is limited to only 10 members of the 15-member ECOWAS and limited to some years between 2000 and 2010. The 10 members are Benin, Burkina Faso, Cote D’Ivoire, Gambia, Ghana, Mali, Niger, Nigeria, Senegal and Togo.
- 7.
The seven EU countries are UK, Spain, Netherlands, Italy, Germany, France and Belgium.
- 8.
- 9.
- 10.
Baldwin and Taglioni (2006) refer to this bias as the bronze-medal error.
- 11.
The 10 ECOWAS countries are Benin Republic, Burkina Faso, CoteD’Ivoire, Gambia, Ghana, Mali, Niger, Nigeria, Senegal and Togo while the seven EU members are Belgium, France, Germany, Italy, Netherlands, Spain and UK.
- 12.
Table 4 in Appendix shows the re-categorization from BEC 5 Stage to 3 Stage product groups.
- 13.
Find CEPII data at: http://www.cepii.fr/anglaisgraph/bdd/distances.htm
- 14.
See standard freight rates on http://worldfreightrates.com/
- 15.
In this analysis, we exclude Burkina Faso, Gambia and Niger Republic and Russia due to a high proportion of zero trade observations.
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Appendix
Appendix
Shares of economic groups in ECOWAS’ imports, 1995–2013. Source: Authors’ computations from UNCTAD Statistics Database, 2014
Correlation matrix
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Onyekwena, C., Ademuyiwa, I., Uneze, E. (2017). Trade and Foreign Direct Investment Nexus in West Africa: Does Export Category Matter?. In: Seck, D. (eds) Investment and Competitiveness in Africa. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-319-44787-2_6
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