Foreign direct investment, governance and human development in West African countries

What the paper says

Purpose This study investigates the role of governance quality in moderating the relationship between foreign direct investment (FDI) and the human development index (HDI) in West African countries. It assesses both the direct impact of FDI and the interaction effect between FDI and governance on human development outcomes. Design/methodology/approach Using panel data for 15 West African countries (1996–2022), governance is measured via the Worldwide Governance Indicators and a PCA-based composite index. The study applies Feasible Generalised Least Squares to address heteroskedasticity and serial correlation and ARDL-PMG to capture short- and long-run dynamics and the moderating role of governance on FDI–HDI. Findings The results indicate that FDI positively affects human development in West Africa, with governance also enhancing HDI. Although the FDI–governance interaction is slightly negative in the short term, it turns positive and significant in the long term, showing that stronger institutions amplify FDI's developmental impact over time. Research limitations/implications The study considers aggregate FDI only, excluding sectoral composition. Future research should examine governance thresholds, sectoral effects, and post-2022 data, highlighting that institutional quality shapes FDI's developmental impact. Practical implications Policymakers should strengthen governance dimensions, particularly control of corruption, regulatory quality and rule of law, to maximise the human development gains from FDI. Originality/value This study shows FDI alone is insufficient for human development; its impact depends on governance quality, guiding governments, investors, and partners to align investments with institutional reforms.