Investment attraction and trade promotion in economic development : a study of Ghana within the Economic Community of West African States (ECOWAS)
At the first ever talks between leaders from developing countries and the G7 group of leading industrial nations in the year 2000, James Wolfensohn, President of the World Bank, said "it is important that when the G7 address the issue of debt they address a range of inter-related questions including investment in developing countries and technology transfers." To this end a call for partnership between the developed and the developing nations was made. This thesis evaluates the importance of foreign investment and trade promotion in the economic development of Ghana as a country within the Economic Community of West African States (ECOWAS). The thesis specifically investigates the usefulness of development preconditions in attracting foreign investments into developing countries to boost the production and manufacture of semi-processed and manufactured goods to enhance exports, trade, economic growth and development with a view to reducing poverty margins. Little research has been carried out on how development preconditions and trade promotion activities can be effectively used in developing Africa to forge the investment partnership between the developed and developing countries such as Ghana and the ECOWAS countries. In the light of recent alarming rates of poverty in Africa - mainly due to poor economic development - there is the need for a systematic evaluation of how Ghana and other African countries could employ development preconditions such as infrastructure, low inflation rates, good literacy levels (education), stable political and social environment to engender an enabling investment climate that would attract foreign investors to invest in their countries. The use of consistent trade promotion activities would also positively impact on export and trade for economic growth and development. Lessons that Ghana as a country within ECOWAS could learn from the investment and trade success of the East Asian countries have been discussed in the study. A Ghana Investment and Trade Framework is developed. This incorporates the possibility that development preconditions and vigorous trade and investment promotion activities influence increased Foreign Direct Investment (FDI) and the production of manufactured goods for export. These have the potential of expanding trade for increased economic growth in a country like Ghana. The methodological framework for testing the two hypotheses of this study is based on two types of statistical techniques. In evaluating the proposition that development preconditions influence foreign direct investment attraction in Ghana, we rely on the use of econometric regression analysis using the MICROFIT statistical software. (i.e. the influence of the development preconditions of Infrastructure, Inflation, Education and Political Stability in the period 1966-1998 (30 years)) - in attracting foreign investment into Ghana. The second hypothesis, which links overseas trade promotion to FDI attraction was, however, tested using the discriminant analysis based on Statistical Programme for the Social Sciences (SPSS) software. This technique was also used to test the robustness of the findings based on the regression analysis in the case of the first hypothesis. The thesis empirically assesses the impact of the selected development preconditions and trade promotion activities (Ghana's participation in overseas trade fairs) on the level of FDI attracted into Ghana during the specific time periods of between 1966 and 1997. The criteria used include the level of FDI levels attracted into Ghana for 30 years due to (a) the influence of existing development preconditions, and (b) the influence of trade promotion activities (Ghana's participation in overseas trade fairs). The latter was for 15 years (1985-1999) due to lack of data on the earlier years in Ghana. The impact of the development preconditions of Infrastructure, Inflation and existing FDI on levels of new FDI attracted into the country were shown to be positive in the Regression Model. These results show that the presence of development preconditions in developing countries positively influence the level of FDI attracted into these countries. There was, however, no conclusive evidence that Ghana's trade promotion activities (Ghana's participation in overseas trade fairs) for the period had any clear and significant influence on FDI attraction into the country. The findings of the thesis outline the importance and need for Ghana and other African countries to create significant development preconditions in their countries, in order to attract sufficient and significant foreign investments into their countries and help to boost the production of manufactured goods for trade and exports in order to enhance economic growth and development. The conclusion is, therefore, that Ghana as a country within ECOWAS can achieve economic development through efficient investment (FDI) attraction policies and strategies; and the existence of vital development preconditions, and vigorous and intensive trade and export promotion activities (consistent participation in overseas trade fairs) could prove highly catalytic in this achievement.