Agricultural trade, foreign direct investment and inclusive growth in developing countries: evidence from West Africa

Abstract

This study examines how agricultural trade and Foreign Direct Investment (FDI) influence inclusive growth in developing countries, using the case of West Africa. It engages data obtained from various World Bank sources for 15 West African countries that are members of the Economic Community of West African States (ECOWAS) for the period 2000–2019. The study calculates inclusive growth using the Principal Component Analysis (PCA) and applies the Two-stage Least Squares (2SLS) to resolve the possible issue of endogeneity. The findings show, among others, that agricultural trade is significant in explaining the level of inclusive growth. It implies that a 1% increase in agricultural trade may increase inclusive growth by 0.88% (first stage) and 0.99% (second stage), respectively. In contrast, FDI is insignificant in explaining inclusive growth. Therefore, the study recommends that effective policies such as flexible trade policies to enhance the exchange of goods and services should be implemented, which is crucial given the need for more resilience in post-COVID-19 ECOWAS.