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This study investigates the channels through which shocks from
foreign capital inflows and financial development are transmitted to economic
growth in the ECOWAS region using quarterly data for the period between 2000
and 2017. The work adopted the panel vector autoregressive (pVAR) model
in a generalized method of moments (GMM) framework to actualize its ob-
jective. The empirical results show that foreign direct investment (FDI), net
domestic credit (CRE), and economic growth (ECG) all have significant rela-
tionships with each other, while gross capital formation (GCF), labour force
(LF), and foreign aid (AID) have significant relationships with FDI, CRE and
ECG. Furthermore, FDI and CRE have negative relationship with economic
growth in the short run but have positive impulse response functions with
economic growth in the long run. FDI and CRE exhibit positive relation-
ship between themselves in the short run and negative relationship in the long
run. Thus, the study recommends concerned policy makers to pursue finan-
cial deepening and enact credible policies that strengthen the financial system. In addition, a conducive socio-economic environment should be actively main-
tained so as to attract the required foreign capital inflows. Finally, more ef-
forts should be made towards the establishment of a single monetary union,
as it is likely to further strengthen the region and improve the trade among
the member-countries. This should lead to further growth within the region.
