Does Foreign Portfolio Investment Drives Macroeconomic Variables of West Africa? Disaggregated Approach

Abstract

The study sought to estimate the causal and dynamic relationship between macroeconomic variables and FPI in West Africa using System GMM techniques over the period of 1990 to 2016. The annual panel data were employed to achieve the objectives of the study. The results are in different form. Using system-GMM, the results provide useful evidence that variables of interest (portfolio equity and bond) do not exert any significant influence on the macroeconomic variables implying the underperformance of FPI. On the side of the short run and long run, portfolio equity and bond are insignificant in influencing real gross domestic product implying the underperformance of FPI. In sum, there is evidence of mixed result in portfolio equity/bond relationship with unemployment and balance of payment respectively. Portfolio equity has negative and statistically insignificant while portfolio bond has positive and insignificant. The policy implication is that the non-causality between FPI and macroeconomic variables could be attributed to poor economic activities among this developing countries and less developed nature of financial market important revelation for policy implication.