Interest Rate, Insecurity and Foreign Investment in West Africa: Impact Analysis
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Sep 18, 2025
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Abstract
Owing to the incessant occurrence of insecurity and the prevalent outrageous interest rates in the region, foreign direct investment has been decreasing over and over, since investors are at risk of losing their investments in regions like these. This research aimed to address the issue of low foreign investment in West Africa by examining the impact of interest rates and insecurity on foreign direct investment, while inflation and environmental sustainability, among others, are controlled for. Ten countries in West Africa were selected for this study. After analysing data from 2007 to 2022 using static panel data analysis. The findings revealed that interest rates had a significant negative effect on foreign direct investment, while the level of insecurity, inflation rate and environmental sustainability had no significant impact on foreign investment in the sub-region. Additionally, while population and total output had a significant positive impact, exchange rates (depreciation) had a significant inverse impact on foreign direct investment. The study suggests that interest rates be reduced, and West African governments should work together to develop and strengthen regional security measures to combat the importation of arms from war-torn nations in Central and North Africa.
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Keywords
Foreign direct investmentInsecurityInterest ratePanel analysisPopulation
References
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• Odhiambo, N. M. & Akinboade, O. A. (2009). Interest‐Rate Reforms and Financial Deepening in Botswana: An Empirical Investigation. Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1‐2), 97-116. DOI: 10.1111/j.1468-0300.2009.00211.x
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• Olaseyinde, T. (2022). FDI Inflow and Insecurity in Nigeria: An Empirical Analysis. ACTA UNIVERSITATIS DANUBIUS. 18(5), 240-251.
• Onwe, O. J., & Olanrewaju, R. R. (2014). Impact of Inflation on Corporate Investment in the Sub-Saharan African Countries: An Empirical Analysis of the West-African Monetary Zone. International Journal of Business and Social Science. 5(1), 189-199.
• Owusu, E. L., & Odhiambo, N. M. (2016). Interest Rate Liberalisation in West African Countries: Challenges and Implications. EKONOMSKI PREGLED, 6(6), 557-580. https://hrcak.srce.hr/176021
• Rolfe, R. J., & Woodward, D. P. (2004). Attracting foreign investment through Privatisation: the Zambian experience. Journal of African Business, 5(1), 5-27. https://doi.org/10.1300/J156v05n01_02
• Suliman, A., Elmawazini, K., & Shariff, M. Z. (2015). Exchange Rates and Foreign Direct Investment: Evidence for Sub-Saharan Africa. The Journal of Developing Areas, 49(2), 203-226. https://www.jstor.org/stable/24241298
• Thirlwall, A.P., & Bergevin, J. (1985). Trends, Cycles and Asymmetries in the Terms of Trade of Primary Commodities from Developed and Less Developed Countries. Journal of World Development, 13(7), 805-817. https://doi.org/10.1016/0305-750X(85)90109-3.
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• Heilig, G., Buettner, T., Li, N., Gerland, P., Alkema, L., Chunn, J., & Raftery, A. E. (2010). A stochastic version of the United Nations World Population Prospects: Methodological improvements by using Bayesian fertility and mortality projections. Joint Eurostat/UNECE Work Session on Demographic Projections, Lisbon.
• World Development Indicators (WDI, 2022). Retreived: https://databank.worldbank.org
• Adesegun, O., & Olumide, A. O. (2015). Insecurity and Foreign Direct Investment in Nigeria. International Journal of Sustainable Development & World Policy, 4(4), 56–68. https://doi.org/10.18488/journal.26/2015.4.4/26.
• Adeshola, F. G., Ajang, J. D., Bwonlu, B. M., & Zumba, Y. I. (2020). Interest Rate and Exchange Rate in an Oil-Dependent Economy: The Case of Nigeria. International Journal of Advanced Research and Publications, 4(5), 128-135
• Agarwal, P. J. (1980). Determinants of foreign investment: a survey. Weltwirtschaftliches Archive, 116, 739-77. https://doi.org/10.1007/BF02696547
• Alkhudair, M. A., & Hakim, S. (2016). The Impact of Inflation and Real Interest Rates in Saudi Arabia on the Sar/Sdr Exchange Rates. Palarch’s Journal of Archaeology of Egypt/Egyptology 18(12), 117-126.
• Anyanwu, J. C., Oyefusi, A., & Oaikhenan, M. (1997). The Structure of the Nigerian Economy (1960 – 1997). Joanee Educational Publishers Limited, Onitsha, Anambra.
• Asiamah, M., Ofori, D. & Afful, J. (2019). Analysis of the Determinants of Foreign Direct Investment in Ghana. Journal of Asian Business and Economic Studies. 26(1) 56-75. https://doi.org/10.1108/JABES-08-2018-0057
• Aziz, A. & Makkawi, B. (2012). Relationship between Foreign Direct Investment and Country Population. International Journal of Business and Management. 7(8) 63-70. DOI: 10.5539/ijbm.v7n8p63
• Babalola, A. (2021). Impact of Interest Rates on Exchange Rate in Nigeria: An Analytical Investigation. Timisoara Journal of Economics and Business. 14(2), 107-124. DOI: 10.2478/tjeb-2021-0007
• Chibalamu, H. C., Evans, Y., Kachelo, M. & Bamwesigye, D. (2023). The Effect of Foreign Direct Investment and Trade Openness on Economic Growth: Evidence from Five African Countries. AGRIS online Papers in Economics and Informatics. 15(1), 35-46. DOI: 10.7160/aol.2023.150103.
• Bandyopadhyay, S., Sandler, T., & Younas, J. (2013). Foreign Direct Investment, Aid and Terrorism. Oxford Economic Papers Available at: http://oep.oxfordjournals.org/ Accessed on 21/07/2015.
• Daniel, B., Paul, H. & Edmond, A. (2022). The Effect of Interest Rate Spread on Economic Growth: Ghana’s Perspective, International Journal of Business and Management Review, 10(2), 1-24. https://doi.org/10.37745/ijbmr.2013
• Eregha, P. B. (2010). Interest Rate Variation and Investment Determination in Nigeria, International Business Management, 4(2), 41-46. DOI:10.3923/ibm.2010.41.46
• Faroh, A. & Shen, H. (2015). Impact of Interest Rates on Foreign Direct Investment: Case Study Sierra Leone Economy. International Journal of Business Management and Economic Research (IJBMER), 6(1)124-132. Ijbmer.com/docs/volumes/vol6issue1/ijbmer2015060103.
• Hansen, B., & Seshadri, A. (2013). Uncovering the relationship between real interest rates and economic growth. Michigan Retirement Research Center Research Paper, (2013-303).
• Harswari, N. B. & Hamza, M. S. (2017). The Impact of Interest Rate on Economic Development: A Study on Asian Countries. International Journal of Accounting & Business Management 5(1):2289-4519. https://api.semanticscholar.org/corpusID:207995083
• Irving, F. (1907). The theory of interest is determined by impatience to spend income and the opportunity to invest it. Reprints of Economic classes. A.M Kelly, New York, 1965 (Originally printed 1907) HB539F54 1965
• Jelilov, G., Ozden, K. & Briggs, S. O. (2018). Impact of Insecurity on Investment in Nigeria, Journal of Management, Economics, and Industrial Organisation, 2(3), 41-61. DOI: 10.31039/ijomeino.2018.2.3.3
• Jhingan, M. L. (2013). Macro-Economic Theory, New Delhi, Vrinda Publications (P) Ltd.
• Jhingan, M. L. (2011). Monetary Economics. Vrinda Publications Ltd. 11th ed. New Delhi.
• Kang, S. & Lee, H. S. (2007). Terrorism and FDI Flows: Cross-Country Dynamic Panel Estimation. Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society. 18(1), 57-77.
• Kearney, A. T. (2006). Globalisation Index. Foreign policy, 157, 74-81.
• Lee, C. (2017). Terrorism, Counterterrorism, Aid and Foreign Direct Investment. Foreign Policy Analysis. 13(1), 168-187. https://doi.org/10.1111/fpa.12087
• Lama, R. & Medina, J. (2012). Is Exchange Rate Stabilisation an Appropriate Cure for the Dutch Disease? International Journal of Central Banking. 8(1), 5-46. https://www.ijcb.org/journal/ijcb12q1a1.pdf
• Markowitz, H. M. (2002). Markowitz's "Portfolio Selection": A Fifty-Year Retrospective.
• The Journal of Finance. 57(3), 1041-1045. https://www.jstor.org/stable/2697771.
• Matarr, N., & Momodou, B. (2021). The Effects of Interest Rate on Economic Activity
• Growth: Further Insights from the Gambia. Journal of Economics and International Finance. 13(2), 100-105. doi.org/10.5897/JEIF2021.1127
• Majeed, M. T., & Ahmad, E. (2008). Human capital development and FDI in developing countries. Journal of Economic Cooperation. 29(3), 79-104. https://mpra.ub.uni-muenchen.de/id/eprint/57514
• Moosa, I. A. (2002). Foreign Direct Investment. Theory, Evidence and Practice. Hampshire - UK: Palgrave Publisher, Ltd. (formerly Macmillan Press, Ltd).
• National Bureau of Statistics (2019). Latest reports, https://www.nigerianstat.gov.ng/
• Nwagboso, C. I. (2012). Security Challenges and Economy of the Nigerian State (2007-2011). American International Journal of Contemporary Research, 2(6), 244-258.
• Odhiambo, N. M. & Akinboade, O. A. (2009). Interest‐Rate Reforms and Financial Deepening in Botswana: An Empirical Investigation. Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1‐2), 97-116. DOI: 10.1111/j.1468-0300.2009.00211.x
• Ohlin, B., Robertson, D.H., & Hawtrey, R.G. (1937). Alternative Theories of the Rate of Interest: Three Rejoinders. The Economic Journal. 47 (187), 424. https://doi.org/10.2307/2225356
• Oladimeji, M. O. & A. M. Oresanwo (2014). Effects of Terrorism on the International Business in Nigeria International Journal of Humanities and Social Science, 4(7), 247-255.
• Olaseyinde, T. (2022). FDI Inflow and Insecurity in Nigeria: An Empirical Analysis. ACTA UNIVERSITATIS DANUBIUS. 18(5), 240-251.
• Onwe, O. J., & Olanrewaju, R. R. (2014). Impact of Inflation on Corporate Investment in the Sub-Saharan African Countries: An Empirical Analysis of the West-African Monetary Zone. International Journal of Business and Social Science. 5(1), 189-199.
• Owusu, E. L., & Odhiambo, N. M. (2016). Interest Rate Liberalisation in West African Countries: Challenges and Implications. EKONOMSKI PREGLED, 6(6), 557-580. https://hrcak.srce.hr/176021
• Rolfe, R. J., & Woodward, D. P. (2004). Attracting foreign investment through Privatisation: the Zambian experience. Journal of African Business, 5(1), 5-27. https://doi.org/10.1300/J156v05n01_02
• Suliman, A., Elmawazini, K., & Shariff, M. Z. (2015). Exchange Rates and Foreign Direct Investment: Evidence for Sub-Saharan Africa. The Journal of Developing Areas, 49(2), 203-226. https://www.jstor.org/stable/24241298
• Thirlwall, A.P., & Bergevin, J. (1985). Trends, Cycles and Asymmetries in the Terms of Trade of Primary Commodities from Developed and Less Developed Countries. Journal of World Development, 13(7), 805-817. https://doi.org/10.1016/0305-750X(85)90109-3.
• TheGlobalEconomy.com: https://www.theglobaleconomy.com
• Azémar, C., & Giroud, A. (2023). World Investment Report 2022: International tax reforms and sustainable investment: United Nations Conference on Trade and Development, Geneva and New York, 2022, 219 pp. ISBN: 978 9211130492.
• Heilig, G., Buettner, T., Li, N., Gerland, P., Alkema, L., Chunn, J., & Raftery, A. E. (2010). A stochastic version of the United Nations World Population Prospects: Methodological improvements by using Bayesian fertility and mortality projections. Joint Eurostat/UNECE Work Session on Demographic Projections, Lisbon.
• World Development Indicators (WDI, 2022). Retreived: https://databank.worldbank.org
How to Cite
Babalola, Abdurrauf, and Tunde Salau. 2025. “Interest Rate, Insecurity and Foreign Investment in West Africa: Impact Analysis”. Studies in Business and Economics 28 (1). https://doi.org/10.29117/sbe.2025.0162.
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