Effect of Foreign Direct Investment on Structural Change in West African Economic and Monetary Union Countries

Effect of Foreign Direct Investment on Structural Change in West African Economic and Monetary Union Countries

Summary

Author: Mahazou Kindo. Published in The American Journal of Economics and Sociology (Early View), first published 24 November 2025.

This paper examines whether foreign direct investment (FDI) drives structural change in WAEMU (West African Economic and Monetary Union) economies. Using an ARDL framework estimated with the pooled mean group (PMG) method on panel data for eight WAEMU countries (2000–2022), the study finds that FDI has a meaningful but slow impact: in the long run it raises productive value added in industrial and manufacturing sectors, but it does not translate into significant job creation. Short-term effects of FDI on structural change are insignificant. The analysis also highlights that human capital, institutional quality, inflation management and trade openness support long-term structural change, while measured economic growth and domestic investment appear to impede it in the model. The author recommends targeted attraction of FDI into high value-added sectors and stronger policies to boost skills and domestic capabilities to capture technology transfer and employment gains.

Key Points

• Long-run effect: FDI acts as a catalyst for structural change by increasing industrial and manufacturing value added in WAEMU countries.
• Short-run effect: No statistically significant impact of FDI on structural change over the short term.
• Employment: FDI-driven sectoral value added rises without significant job creation according to the study’s findings.
• Complementary factors: Human capital, institutional quality, controlled inflation and trade openness positively and significantly support long-term structural change.
• Counterintuitive results: Economic growth and domestic investment are found to hinder structural change in the model, prompting calls to improve the quality and direction of domestic investment and policies.

Context and Relevance

Structural change—moving resources into higher-productivity sectors—is central to development debates for African economies. This article provides empirical evidence specific to WAEMU, using recent data through 2022 and a dynamic panel method (ARDL/PMG) that separates short- and long-run effects. Its findings matter to policymakers, multilateral organisations and development practitioners designing FDI attraction strategies, industrial policy and skills development programmes across francophone West Africa. The result that FDI increases sectoral value added but not employment underscores the need for policies that link investment to local job creation and capability building.

Why should I read this?

Look — if you work on West African policy, investment promotion or industrial strategy, this paper saves you time. It tells you FDI can shift production structures but it doesn’t automatically create lots of jobs. You get clear, evidence-backed pointers on where to focus: target high value-added foreign projects, level up skills and institutions, and rethink the role and quality of domestic investment. Short read, solid takeaways for decision-making.

Source

Source: https://onlinelibrary.wiley.com/doi/10.1111/ajes.70022?af=R