Leveraging on Sustainable Economic Development: Do Financial Inflows Matter?

Abstract

ECOWAS (Economic Community of West African States) countries continue to face severe environmental sustainability issues, weak institutional frameworks, and ongoing economic instability despite large financial inflows. Even if foreign direct investment, remittances, and official development assistance can spur economic growth, it is still unclear how well they will support long-term sustainable development. Thus, this study examines how financial inflows support sustainable economic development in ECOWAS nations between 1990 and 2023. Using advanced econometric techniques—Cross-Sectional Augmented Autoregressive Distributed Lag (CS-ARDL), Augmented Mean Group (AMG), and Dumitrescu-Hurlin (D-H) causality estimators—the research addresses cross-sectional dependence, slope heterogeneity, and endogeneity. In both the short and long term, remittances consistently contribute positively to SED, while Foreign Direct Investment (FDI) exhibits mixed impacts, reflecting complex dynamics. Globalization and natural resource rents, however, predominantly hinder SED, pointing to governance and structural challenges. Causality tests reveal bidirectional links between FDI and SED, while remittances are influenced by SED rather than driving it. Future research could examine the interaction between governance structures and financial inflows in promoting sustainability. These findings underline the need for ECOWAS policymakers to optimize remittance flows, strengthen governance of FDI and natural resources, and adopt region-specific globalization policies as a means to balance economic growth with environmental and social objectives.