Explaining Investment in the WAEMU


WP/98/99-EAWP/98/99


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.