Explaining Investment in the WAEMU


Explaining Investment in the WAEMU
Athanasios Vamvakidis

This paper provides an empirical analysis of investment in the West African
Economic and Monetary Union (WAEMU). The WAEMU is a region with relatively low
investment share, but shares vary significantly across countries within the
region. Cross-country and time- series comparisons for the period 1970-95 show
why some countries within this region invest more than others.

The paper finds that the explanations for the differences in domestic
investment within the WAEMU region during 1970-95 are mainly related to
economic freedom: (1) openness to free trade is one of the main explanations;
high trade shares are positively correlated with high investment shares; (2)
freedom to compete in the domestic market is also an important explanation; (3)
freedom of capital transactions with foreigners has a positive impact on
investment; (4) low dependency ratios (number of dependents per active person)
are also positively correlated with investment, and finally (5) a measure of
the real exchange rate is found to have a negative, but not always
statistically significant, correlation with investment.