Does Institutional Quality Condition the Contribution of Foreign Direct Investment to Economic Growth in the ECCAS?

This study analyzes the effect of foreign direct investment (FDI) on the economic growth of the eleven ECCAS (Economic Community of Central African States) countries between 2000 and 2023, examining the moderating role of four institutional dimensions: the rule of law, government effectiveness, political stability, and the control of corruption. Using panel data, estimates are generated through ordinary least squares (OLS), fixed effects (FE), random effects (RE), and generalized least squares (GLS) models. The results show that FDI has a positive and statistically significant effect on economic growth when the analysis accounts for the rule of law (interaction coefficient: −0.0423; p = 0.007, based on GLS), government effectiveness (−0.0327; p = 0.002), and political stability (−0.0197; p = 0.001). These negative interaction coefficients indicate that the marginal effect of FDI decreases as these institutional dimensions improve. Conversely, the interaction between FDI and the control of corruption is not statistically significant (0.00279; p = 0.859), and the direct effect of FDI also becomes non-significant in this specification. Furthermore, gross fixed capital formation and natural resources contribute positively to growth, while trade openness and financial development generally show negative effects. These findings underscore the need to strengthen institutions, infrastructure, human capital, and local productive capacities to enhance the economic benefits derived from FDI.