Effect of foreign direct investment on structural transformation in West African Economic and Monetary Union (WAEMU) countries

Figures & data

Figure 1. Dynamics of FDI (in percentage of GDP) in WAEMU and the rest of the world (1980–2017).

Source: Authors, using data from WDI (2019).

Figure 2. Dynamics of the major sectors of the economy (percentage of GDP) in the WAEMU (1997–2017).

Source: Authors from WDI (2019).

Table 1. Variables, definitions, and sources

Variable	Definitions	Sources
VAI	Industry (including construction), value added (% of GDP)	WDI
VAM	Manufacturing, value added (% of GDP)	WDI
VAA	Agriculture, forestry, and fishing, value added (% of GDP)	WDI
VAS	Services, value added (% of GDP)	WDI
FDI	Foreign direct investment, net inflows (% of GDP)	WDI
INV	Gross fixed capital formation (% of GDP)	WDI
EXP	Exports of goods and services (% of GDP)	WDI
IMP	Imports of goods and services (% of GDP)	WDI
LI	Employment in industry (% of total employment)	WDI
LA	Employment in agriculture (% of total employment)	WDI
LS	Employment in services (% of total employment)	WDI
DC	Domestic credit to private sector by banks as a share of GDP	WDI
POL2	Polity2: from −10 for absolute autocracy to +10 for absolute democratic	Polity IV
DF94	Devaluation of FCFA in 1994 (Dummy variable). It takes 0 before 1994 and 1 after 1994	Authors

Source: Authors.

Table 2. Descriptive statistics

	Obs	Mean	Std.Dev.	Min	Max
Industrial, agriculture and services sectors (Eight countries of WAEMU)
VAI	224	19.112	4.180	9.247	29.724
VAA	224	32.011	9.887	11.979	61.416
VAS	224	43.011	7.395	19.285	62.117
FDI	224	2.048	2.604	−2.138	19.375
INV	224	18.853	7.177	5.885	48.396
EXP	224	25.184	10.294	4.902	53.819
IMP	224	35.480	9.616	17.836	72.324
DC	224	15.224	8.116	0.410	39.293
LI	216	11.411	6.018	3.173	32.016
LA	216	58.903	17.272	28.277	89.133
LS	216	29.684	13.391	7.387	45.503
POL2	224	2.031	4.496	−8	8
DF94	224	0.857	0.350	0	1
Manufacturing sector (Six countries of WAEMU)
VAM	163	10.454	4.272	2.421	21.199

Source: Authors computation using data from WDI and Polity IV.

Table 3. Unit roots test

Variables	Level		Decision
	Chi2	Prob
LVAI	32.5588	0.0085	I(0)
LVAM	28.4053	0.0048	I(0)
LVAA	41.5825	0.0005	I(0)
LVAS	37.1784	0.0020	I(0)
FDI	55.5344	0.0000	I(0)
INV	49.2367	0.000	I(0)
LEXP	55.5287	0.0000	I(0)
LIMP	48.9902	0.0000	I(0)
LDC	34.2891	0.0050	I(0)
LLI	45.9941	0.0001	I(0)
LLA	33.4002	0.0065	I(0)
LLS	39.7779	0.0008	I(0)
POL2	34.6893	0.0044	I(0)
DF94	36.5049	0.0025	I(0)

Source: Authors computation using data from WDI and Polity IV.

Table 4. Correlation and multicollinearity tests (industry sector)

Variables	FDI	LINV	LEXP	LIMP	LDC	LLI	POL2	DF94
FDI	1.0000
LINV	0.3449	1.0000
LEXP	0.2055	−0.1698	1.0000
LIMP	0.4344	0.3657	0.6121	1.0000
LDC	0.1574	0.3695	0.4032	0.4425	1.0000
LLI	0.1529	0.3468	0.4441	0.5789	0.4847	1.0000
POL2	0.0938	0.1656	−0.0135	−0.0101	−0.0835	0.2345	1.0000
DF94	0.2034	0.1185	0.2532	0.2527	−0.1104	0.1271	0.3001	1.0000
VIF_VAI	1.38	2.40	3.07	2.99	1.93	2.03	1.30	1.38
VIF_VAM	1.42	2.38	3.67	3.55	2.32	2.12	1.44	1.36
Mean VIF_VAI = 2.06
Mean VIF_VAM = 2.28

Source: Authors computation using data from WDI and WGI. Note: VIF = Variance Inflation Factor.

Table 5. Correlation and multicollinearity tests (Agriculture sector)

Variables	FDI	LINV	LEXP	LIMP	LDC	LLA	POL2	DF94
FDI	1.0000
LINV	0.3449	1.0000
LEXP	0.2055	−0.1698	1.0000
LIMP	0.4344	0.3657	0.6121	1.0000
LDC	0.1574	0.3695	0.4032	0.4425	1.0000
LLA	−0.0755	−0.1958	0.6994	−0.5361	−0.6203	1.0000
POL2	0.0938	0.1656	−0.0135	−0.0101	−0.0835	−0.0475	1.0000
DF94	0.2034	0.1185	0.2532	0.2527	−0.1104	−0.0719	0.3001	1.0000
VIF_VAA	1.45	2.61	4.70	2.70	2.06	3.27	1.18	1.40
Mean VIF_VAA = 2.42

Source: Authors computation using data from WDI and WGI. Note: VIF = Variance Inflation Factor.

Table 6. Correlation and multicollinearity tests (Services sector)

Variables	FDI	LINV	LEXP	LIMP	LDC	LLS	POL2	DF94
FDI	1.0000
LINV	0.3449	1.0000
LEXP	0.2055	−0.1698	1.0000
LIMP	0.4344	0.3657	0.6121	1.0000
LDC	0.1574	0.3695	0.4032	0.4425	1.0000
LLS	0.0559	0.1084	0.7258	0.4330	0.6117	1.0000
POL2	0.0938	0.1656	−0.0135	−0.0101	−0.0835	0.0698	1.0000
DF94	0.2034	0.1185	0.2532	0.2527	−0.1104	0.446	0.3001	1.0000
VIF_VAS	1.41	2.61	5.64	2.88	2.13	3.61	1.20	1.42
Mean VIF_VAS = 2.61

Source: Authors computation using data from WDI and WGI. Note: VIF = Variance Inflation Factor.

Table 7. Regressions for industry and manufacturing sectors

Exogenous variables	Value added: industry sector			Value added: manufacturing sector
	OLS (1)	FE (2)	PCSE (3)	OLS (4)	RE (5)	PCSE (6)
FDI	−0.011	−0.002	0.002	−0.042	−0.042	0.001
	(0.009)	(0.011)	(0.003)	(0.029)	(0.029)	(0.006)
LINV	0.225***	0.086	0.136**	−0.006	−0.006	−0.049
	(0.069)	(0.095)	(0.053)	(0.167)	(0.167)	(0.086)
LEXP	0.368***	0.048	0.116**	0.362***	0.362***	0.209***
	(0.069)	(0.184)	(0.056)	(0.072)	(0.072)	(0.077)
LIMP	−0.659***	−0.376*	−0.361***	−0.473	−0.473	−0.361**
	(0.199)	(0.192)	(0.085)	(0.379)	(0.379)	(0.144)
LDC	0.101***	0.009	0.038	0.148	0.148	−0.008
	(0.028)	(0.041)	(0.027)	(0.128)	(0.128)	(0.057)
LLI	0.048	0.119	0.221***	0.259	−0.259	0.022
	(0.094)	(0.145)	(0.052)	(0.212)	(0.212)	(0.098)
POL2	−0.002	−0.001	−0.002	0.007	0.007	0.005
	(0.005)	(0.005)	(0.003)	(0.017)	(0.017)	(0.006)
DF94	0.099	0.117	0.041	0.259*	0.259**	0.071
	(0.076)	(0.118)	(0.042)	(0.132)	(0.132)	(0.073)
_cons	3.029***	3.459***	2.735***	2.851**	2.851**	2.995***
	(0.364)	(0.341)	(0.222)	(1.419)	(1.419)	(0.433)
Obs	214	214	214	155	155	155
Countries	8	8	8	6	6	6
Waldchi2 (8)			49.9***			22.6***
Hausman-test		81.3***			−128.6
Wooldridge-test for AR(1)	34.3***			36.5***
R2	0.4758	0.1707	0.9292	0.3494	0.6072	0.7880

Source: Authors computation using data from WDI and Polity IV. Note: ***P < 0.01; **p < 0.05; *p < 0.1; Robust standard errors in parenthesis.

Table 8. Regressions for agriculture and service sectors

Independent variables	Value added: Agriculture			Value added: Services
	OLS (1)	FE (2)	PCSE (3)	OLS (4)	RE (5)	PCSE (6)
FDI	0.023	−0.003	−0.005	0.002	0.002	0.009***
	(0.021)	(0.006)	(0.004)	(0.011)	(0.011)	(0.003)
LINV	−0.309***	−0.041	0.134***	−0.000	−0.000	−0.000
	(0.089)	(0.052)	(0.047)	(0.038)	(0.038)	(0.042)
LEXP	−0.366***	0.059	−0.023	0.125	−0.125	−0.069
	(0.121)	(0.096)	(0.042)	(0.104)	(0.104)	(0.045)
LIMP	0.405*	0.012	0.179**	−0.228**	−0.228**	−0.102
	(0.218)	(0.089)	(0.079)	(0.115)	(0.115)	(0.065)
LDC	−0.106	0.045	0.033	0.004	0.004	−0.086***
	(0.079)	(0.036)	(0.023)	(0.046)	(0.046)	(0.022)
LLA/LLS	0.173	0.170	0.669***	0.071	0.071	0.213***
	(0.304)	(0.149)	(0.087)	(0.095)	(0.095)	(0.043)
POL2	−0.015	−0.012***	−0.007*	0.004	0.004	0.005*
	(0.014)	(0.004)	(0.004)	(0.007)	(0.007)	(0.003)
DF94	−0.018	−0.058	0.024	−0.057	−0.057	−0.015
	(0.051)	(0.079)	(0.045)	(0.052)	(0.052)	(0.034)
_cons	3.579	2.588***	0.597	3.96***	3.96***	−3.81***
	(2.204)	(0.723)	(0.498)	(0.525)	(0.525)	(0.193)
Obs	214	214	214	214	214	214
Countries	8	8	8	8	8	8
Waldchi2 (8)			104.9***			39.6***
Hausman-test		227.5***			−389.6
Wooldridge test for AR(1)	64.5***			74.4***
R2	0.4133	0.1965	0.9789	0.2047	0.3755	0.9848

Source: Authors computation using data from WDI and Polity IV.

Note: *, **, and ***denote statistical significance at 10%, 5%, and 1% levels, respectively. Robust standard errors in parentheses.

WDI. (2019). World development indicators. World Bank.

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