Abstract:

The objectives of this study are to examine the effect of foreign direct investment on economic growth without conditioning on absorptive capacity in ECOWAS sub-region and to investigate the effect and extent of absorptive capacity on foreign direct investment and economic growth on a panel data of countries in ECOWAS sub-region. The data spanned from 2006 through 2016. The empirical study employed the System Generalised Method of Moments technique of estimation. The major findings of the study revealed that foreign direct investment alone cannot promote economic growth except when there is sufficient absorptive capacity. Only human capital and domestic investment have sufficient absorptive capacity to support foreign direct investment in promoting economic growth but openness financial development and infrastructure do not have sufficient absorptive capacity to support foreign direct investment in promoting growth in ECOWAS sub-region.  The study, therefore, recommended that policies should be directed towards developing the absorptive capacity, instead of wasting scarce resources on attracting foreign direct investment. Also, governments of these countries should provide active and efficient labour market policies and provide workers with training that would make them attractive to all sorts of sophisticated industries and emerging skill need.