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Capital Inflows and Macroeconomic Policy in Sub-Saharan Africa

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  • Louis Kasekende

    (The Jerome Levy Economics Institute)

  • Damoni Kitabire

    (The Jerome Levy Economics Institute)

  • Matthew Martin

    (The Jerome Levy Economics Institute)

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    Abstract

    Little has been written about capital flows to sub-Saharan Africa (SSA), largely because of the flows' small size and data limitations. In this working paper, Louis Kasekende, executive director for policy and research at the Bank of Uganda; Damoni Kitabire, commissioner for the Macroeconomic Policy Department for the Ministry of Finance and Economic Planning in Kampala; and Matthew Martin, director of external finance for Africa, explore these inflows, noting that although they are small compared to those into other countries, they are in proportion to the size of the recipient economies. The authors examine the scale and composition of capital inflows, their causes and sustainability, their effect on macroeconomic stability, and their responsiveness to policy measures for six SSA nations: Kenya, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe. Exhibit 5 shows the change in the composition of private capital flows to SSA nations. Most of the changes are in the same direction as in other developing regions, but the magnitude of the changes in other regions is generally greater than in SSA countries. The absolute size of these changes are, however, still small. For example, portfolio investment was no more than U.S.$120 million per year and foreign direct investment was around U.S.$1.6 billion during the period 1990 to 1993, with foreign direct investment lower in real terms than in the early 1980s. Overall, SSA inflow trends were similar to those in other small countries, with short-term bank loans and foreign direct investment playing a greater role than medium- to long-term loans and portfolio inflows. Kasekende, Kitabire, and Martin identify a number of determinants of recent capital inflows, which they classify as push (external) or pull (internal) factors.

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    File URL: http://128.118.178.162/eps/mac/papers/9809/9809005.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Macroeconomics with number 9809005.

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    Length: 43 pages
    Date of creation: 10 Sep 1998
    Date of revision:
    Handle: RePEc:wpa:wuwpma:9809005

    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 43; figures: included
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    Web page: http://128.118.178.162

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    1. Carlos A. Végh Gramont & Ratna Sahay & Guillermo Calvo, 1995. "Capital Flows in Central and Eastern Europe," IMF Working Papers 95/57, International Monetary Fund.
    2. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
    3. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
    4. Dadush, Uri & Dhareshwar, Ashok & Johannes, Ron, 1994. "Are private capital flows to developing countries sustainable?," Policy Research Working Paper Series 1397, The World Bank.
    5. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
    6. Jeffrey A. Frankel, 1994. "Sterilization of Money Inflows," IMF Working Papers 94/159, International Monetary Fund.
    7. Carmen Reinhart & Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 122, International Monetary Fund.
    8. Gooptu, Sudarshan, 1994. "Are portfolio flows to emerging markets complementary or competitive?," Policy Research Working Paper Series 1360, The World Bank.
    9. Claessens, Stijn & Dooley, Michael P & Warner, Andrew, 1995. "Portfolio Capital Flows: Hot or Cold?," World Bank Economic Review, World Bank Group, vol. 9(1), pages 153-74, January.
    10. Bernhard Fischer & Helmut Reisen, 1992. "Towards Capital Account Convertibility," OECD Development Centre Policy Briefs 4, OECD Publishing.
    11. Reinhart, Carmen & Asea, Patrick, 1995. "Real interest rate differentials and the real exchange rate: Evidence from four African countries," MPRA Paper 13357, University Library of Munich, Germany.
    12. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    13. Elbadawi, Ibrahim A. & Soto, Raimundo, 1994. "Capital flows and long-term equilibrium real exchange rates in Chile," Policy Research Working Paper Series 1306, The World Bank.
    14. Michael P. Dooley & Eduardo Fernandez-Arias & Kenneth M. Kletzer, 1994. "Recent Private Capital Inflows to Developing Countries: Is the Debt Crisis History?," NBER Working Papers 4792, National Bureau of Economic Research, Inc.
    15. Fernandez-Arias, Eduardo & Montiel, Peter J., 1995. "The surge in capital inflows to developing countries : prospects and policy response," Policy Research Working Paper Series 1473, The World Bank.
    16. Hanson, James A., 1992. "Opening the capital account : a survey of issues and results," Policy Research Working Paper Series 901, The World Bank.
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    Cited by:
    1. Louis A. Kasekende & Michael Atingi-Ego, 1999. "Impact of liberalization on key markets in sub-Saharan Africa: the case of Uganda," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 411-436.

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