Does Financial Openness Matter for International Capital Mobility in ECOWAS?

Feldstein-Horioka Puzzle Revisited

Abstract

Low savings mobilization in Economic Community of West African States (ECOWAS) nations negatively affects their ability to fund domestic investments. Looking beyond the domestic savings to fund the high demand for domestic investments in ECOWAS countries, this study investigated the influence of financial openness on international capital mobility in ECOWAS countries from 1986 to 2023. The model framework was based on the Feldstein-Horioka saving-investment correlation technique for measuring international capital mobility. Using the augmented mean group (AMG), the study found that de jure financial openness has an increasing influence on international capital mobility in ECOWAS, while de facto financial openness has an insignificant effect. The country-specific results show that de jure financial openness has an increasing effect on international capital mobility in Senegal, Sierra Leone, and Togo but a discouraging influence in Nigeria. The de facto financial openness exhibited an increasing influence on international capital mobility in Côte d’Ivoire and Sierra Leone and a discouraging influence in Benin. The study recommends that ECOWAS countries strengthen their de jure financial openness to increase their access to foreign capital for domestic investment financing. The increase in de jure financial openness should be implemented cautiously to minimize unanticipated negative consequences.