The influence of investment and trade on economic performance: evidence from twelve economic community of West African Member States

Abstract This study investigates the impact of investment and trade on economic performance in ECOWAS countries, focusing on GDP per capita, foreign direct investment (FDI), and trade openness from 1993 to 2022. Employing pooled mean group (PMG) and nonlinear autoregressive distributed lag (NARDL) methods, the analysis incorporates gross capital formation, unemployment, population growth, labor force participation, external debt, and merchandise trade. The PMG results indicate that, in the long run, population growth, labor force participation, unemployment, merchandise trade, and FDI negatively affect economic growth, while gross capital formation and trade openness exert positive effects. External debt has no significant long-run impact. In the short run, gross capital formation, unemployment, and labor force participation reduce growth, whereas merchandise trade contributes positively. The NARDL results reveal asymmetries: Both increases and decreases in FDI reduce growth, and changes in gross capital formation also inhibit growth. Reductions in merchandise trade and unemployment lower economic performance, while both increases and reductions in trade openness unexpectedly enhance it. Expansion in merchandise trade supports growth. In the short run, increases in FDI improve economic performance. The panel causality analysis identifies unidirectional relationships between GDP per capita, trade openness, external debt, labor force participation, FDI, and unemployment. A bidirectional causal relationship was found between GDP per capita, merchandise trade, gross capital formation, and population growth. The study recommends prioritizing trade liberalization, improving the quality of FDI, and implementing sustainable debt management strategies.