Effect of Foreign Direct Investment on Structural Change in West African Economic and Monetary Union Countries

ABSTRACT Structural change is a dynamic process in which production growth is accompanied by qualitative transformations in the production and employment structures. From this perspective, can foreign direct investment (FDI) influence this process? This paper analyzes the effects of FDI on structural change in West African Economic and Monetary Union (WAEMU) countries. To do this, we used an autoregressive distributed lag (ARDL) model, estimated via the pooled mean group (PMG) method on a sample of eight WAEMU countries with data covering the period 2000–2022. The results reveal that the effects of FDI on structural change are profound but slow. In the long term, FDI acts as a catalyst for structural change in WAEMU countries by significantly increasing productive value added in the industrial and manufacturing sectors without generating significant job creation. However, in the short term, FDI has no significant effect on structural change. Furthermore, human capital, institutions, inflation and trade openness contribute positively and significantly to long‐term structural change, whereas economic growth and domestic investment appear to hinder this change. These results suggest the need for massive FDI attraction strategies, especially those targeted toward high value‐added sectors capable of generating technology transfer and job creation. It would also be advisable to strengthen policies aimed at improving workforce skills and endogenous capacities, such as domestic investment, human capital and institutions, to create an environment conducive to endogenous structural change and maximize the positive spin‐offs of FDI.