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Private capital flows and economic growth in Africa: The role of domestic financial markets

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  • Agbloyor, Elikplimi Komla
  • Abor, Joshua Yindenaba
  • Adjasi, Charles Komla Delali
  • Yawson, Alfred

Abstract

This study examines the relation between private capital flows and economic growth in Africa during the period 1990–2007. We estimate the empirical relation with a panel Instrumental Variable Generalized Method of Moments (IV-GMM) estimator which allows for arbitrary heteroskedasticity and endogeneity. Decomposing private capital flows into its component parts, we find that foreign direct investment, foreign equity portfolio investment and private debt flows all have a negative impact on economic growth. Countries with strong domestic financial markets, however, benefit more by being able to transform the negative impact of private capital flows into a positive one. Private capital flows, thus, promote economic growth in the presence of strong domestic financial markets. These results suggest that strong financial markets are needed for private capital flows to impact economic growth positively. Our results are robust to the control of population size, savings, financial openness and institutional quality.

Suggested Citation

  • Agbloyor, Elikplimi Komla & Abor, Joshua Yindenaba & Adjasi, Charles Komla Delali & Yawson, Alfred, 2014. "Private capital flows and economic growth in Africa: The role of domestic financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 137-152.
  • Handle: RePEc:eee:intfin:v:30:y:2014:i:c:p:137-152
    DOI: 10.1016/j.intfin.2014.02.003
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    Cited by:

    1. Sunde, Tafirenyika, 2016. "Foreign direct investment and economic growth: ADRL and causality analysis for South Africa," MPRA Paper 72382, University Library of Munich, Germany, revised Jun 2016.
    2. Deniz O Igan & Ali M. Kutan & Ali Mirzae, 2016. "Real Effects of Capital Inflows in Emerging Markets," IMF Working Papers 16/235, International Monetary Fund.
    3. Brahim Gaies, 2017. "Globalisation Financière, Croissance et effets de seuil : Le Cas des pays en développement Les moins avancés," EconomiX Working Papers 2017-25, University of Paris Nanterre, EconomiX.
    4. repec:eee:riibaf:v:41:y:2017:i:c:p:434-444 is not listed on IDEAS
    5. repec:ebl:ecbull:eb-17-00647 is not listed on IDEAS
    6. repec:arp:ijefrr:2017:p:182-196 is not listed on IDEAS
    7. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.
    8. Adams, Samuel & Opoku, Eric Evans Osei, 2015. "Foreign direct investment, regulations and growth in sub-Saharan Africa," Economic Analysis and Policy, Elsevier, vol. 47(C), pages 48-56.

    More about this item

    Keywords

    Africa; Capital flows; Economic activity; Financial markets;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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