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Capital Inflows and Domestic Investment in Sub-Saharan Africa

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  • Samuel Adams
  • Daniel Sakyi
  • Eric Evans Osei Opoku

Abstract

The issue of whether capital inflows promote domestic investment has been of major concern especially in developing countries considering their massive dependence on these inflows. To this end, we make a case for 25 sub-Saharan African countries, using foreign direct investment and external debt as proxies for capital inflows, and the pooled mean group estimator over the period 1981–2010. The results reveal that foreign direct investment positively impacts domestic investment, but external debt has a negative impact on domestic investment in the long run. This implies that increase in foreign direct investment and/or reduction in external debt will promote domestic investment in sub-Saharan Africa. Therefore measures have to be put in place to attract more foreign direct investment and reduce the inflow of external debt in the region.

Suggested Citation

  • Samuel Adams & Daniel Sakyi & Eric Evans Osei Opoku, 2016. "Capital Inflows and Domestic Investment in Sub-Saharan Africa," Foreign Trade Review, , vol. 51(4), pages 328-343, November.
    • Handle: RePEc:sae:fortra:v:51:y:2016:i:4:p:328-343
    DOI: 10.1177/0015732516650820
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    2. Ofori, Isaac K. & Asongu, Simplice A., 2022. "Repackaging FDI for Inclusive Growth: Nullifying Effects and Policy Relevant Thresholds of Governance," MPRA Paper 111359, University Library of Munich, Germany.
    3. Yersh, Valeryia, 2020. "Current account sustainability and capital mobility in Latin American and Caribbean countries," MPRA Paper 105440, University Library of Munich, Germany.
    4. Nnanna P. Azu & Philip A. Nwauko, 2021. "Evaluating the Effect of Digital Transformation on Improvement of Service Trade in West Africa," Foreign Trade Review, , vol. 56(4), pages 430-453, November.
    5. Jumanne, Bilali Basesa & Keong, Choong Chee, 2017. "Foreign Direct Investment and Public Sector Management and Institutions: The Acquaintances in Sub-Saharan Africa (SSA) Low-Income Economies," African Journal of Economic Review, African Journal of Economic Review, vol. 5(2), July.
    6. Soyoung Kim & Sunghyun Kim & Yoonseok Choi, 2018. "International capital mobility: regional versus global perspective," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 157-176, February.
    7. Phiri, Andrew, 2019. "The Feldstein-Horioka Puzzle and the Global Financial Crisis: Evidence from South Africa using Asymmetric Cointegration Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(2), pages 139-170.
    8. Hasdi Aimon & Rika Utami Restihani & Anggi Putri Kurniadi*, 2019. "The Interaction of Macroeconomic Variables on Capital Inflow in Emerging Market Countries in ASEAN: Panel Error Correction Model Approach," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(9), pages 1357-1364, 09-2019.
    9. Kimiagari, Salman & Mahbobi, Mohammad & Toolsee, Tushika, 2023. "Attracting and retaining FDI: Africa gas and oil sector," Resources Policy, Elsevier, vol. 80(C).
    10. Phiri, Andrew, 2017. "The Feldstein-Horioka puzzle and the global recession period: Evidence from South Africa using asymmetric cointegration analysis," MPRA Paper 79096, University Library of Munich, Germany.
    11. Mohsen Bahmani-Oskooee and Abera Gelan, 2019. "On The Link between Real Exchange Rate and Domestic Investment: Asymmetric Evidence from Africa," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 44(3), pages 1-17, September.
    12. Basesa Jumanne, Bilali & Chee Keong, Choong, 2018. "Foreign Direct Investment and Natural Resources in Sub-Saharan Africa: The Role of Institutions towards the Africa We Want “2063 Vision”," African Journal of Economic Review, African Journal of Economic Review, vol. 6(1), January.

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    More about this item

    Keywords

    Foreign direct investment; external debt; domestic investment; pooled mean group; cointegration; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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