Foreign Capital Inflows and Per Capita Income: Evidence from ECOWAS

Abstract

This study determined the effect of foreign capital inflows on per capita income in the Economic Community of West African States (ECOWAS). The study used foreign direct investment, foreign portfolio investment, official development assistance and external debt as the proxies of foreign capital inflows, while per capita income was adopted to measure human capital development. The study utilized panel data covering the period from 2000 to 2024, sourced from the World Development Indicators of the World Bank, Penn World Table (PWT), International Financial Statistics and UNCTADstat (UN Conference on Trade and Development). The Neoclassical Growth Theory and the Law and Finance Hypothesis were adopted as the theoretical anchors of the study, while ex-post facto research design was employed. The major technique of data analysis adopted was the Panel Least Squares (PLS) regression technique. The findings of the study showed that foreign direct investment, foreign portfolio investment and official development assistance all have positive and statistically significant effects on per capita income in ECOWAS, while external debt has a positive but non-significant effect on per capita income in ECOWAS. The study concluded that foreign capital inflows contribute positively to the growth of per capita income in ECOWAS. It was recommended, among others, that ECOWAS governments should design targeted investment policies that channel foreign direct investment into productive, employment-generating sectors, strengthen legal and financial institutions to attract higher-quality capital inflows, and improve the efficiency of official development assistance and external debt management so as to sustain and accelerate improvements in per capita income across the region.