The determinants of private capital flow volatility in Sub-Saharan African countries

The study investigates the underlying factors of patterns of volatility for FDI, portfolio equity and cross-border bank lending inflows for sub-Saharan African countries using a panel framework with data from 1990 to 2011. No other study has focussed exclusively on sub-Saharan Africa when investigating the determinants of private capital flow volatility. This study is further unique in that it employs clearly-delineated cross-border bank lending data from the Bank of International Settlements’ (BIS) Locational Banking Statistics that has not been used by similar prior studies. The findings of the study are as follows: (1) global liquidity lowers FDI volatility while private sector credit increases volatility; (2) global liquidity increases portfolio equity volatility with growth and the quality of macroeconomic policies found to be important pull factors in lowering volatility; and (3) the quality of macroeconomic policies and trade openness are important pull factors in lowering cross-border bank lending volatility while financial openness increases volatility.