Institutional Capacity and Capital Inflows in Selected Economic Community of West African States (ECOWAS)

This paper examined how governance quality affects capital inflows to the selected ECOWAS countries (Côte d'Ivoire, The Gambia, Ghana, Liberia, Mali, Nigeria, Senegal, and Togo) between 2002 and 2024. The specific objectives are to determine the effects of government effectiveness, regulatory quality, rule of law, control of corruption, and political stability on foreign loan inflows. Given the nature of this study, panel datasets were obtained from the World and IMF Financial Statistics. Descriptive statistics, cross-sectional dependence test, panel unit root and cointegration tests, as well as heterogenous panel model estimation, comprising mean group (MG) and pooled mean group (PMG) were used for the data analysis. The cross-sectional dependence test indicates that there is no cross-sectional dependence across the panels. The panel unit root test results showed evidence of mixed integration in the series. The panel regression estimates indicate that government effectiveness has a significant positive effect on foreign loan inflows in the long run. The results also showed that regulatory quality has a significant negative effect on loan inflows in the long run. Evidence of a significant effect of the rule of law on foreign loan inflows was established in the long run. The results further showed that the control of corruption had a positive and significant effect on foreign loan in the long run. Given the findings, this study recommends that governments in the ECOWAS region should continue to strengthen public sector effectiveness through improved policy implementation, enhanced service delivery, stronger institutional capacity, and greater administrative efficiency to create more opportunities to attract foreign official loans.